Canadian Institute for Health Information

1
Canadian Institute for Health Information

Health Care Cost Drivers

April 28, 2011

2
Hospital Cost Drivers

3
Overview
How does growth in hospital spending compare
to overall health spending trends?
What are the effects of possible cost drivers?
Inflation
Population growth
Aging
Others
Technology/innovation
Utilization

What are the key issues to watch in the future?

4
General Context

5
Hospital-to-GDP Ratio Similar to 30 Years Ago

Total Hospital Expenditure as a Percentage of GDP

5%

4%

3%

2% Stable Growth
Between 2003
and 2008
1%

0%
1975 1980 1985 1990 1995 2000 2005 2010f

Hospital Spending to GDP Forecast

6
 Steady Decline in Hospital Share Until Late 1990s

20% 60%

Stable in 50%
15%
Last 10 Years
Fiscal 40%
Growth Rate

10% Restraint

Share
30%
5%
20%

0%
10%
1976
1978

1982
1984

1988
1990

1994
1996

2000
2002

2006
2008
1980

1986

1992

1998

2004

2010f
-5% 0%

Public-Sector Hospital Expenditure Growth Rate

Total Public-Sector Health Expenditure Growth Rate
Public-Sector Hospital Share of Total Public-Sector Health Expenditure
Share Forecast
7
Public-Sector Share of Hospital Spending
Unchanged Since 2000

Public-Sector Share of Total Health Expenditure

99 99
100%
91 91

80% 75
72

60%

39
40% 35

20%
10
7
0%
Hospitals Other Physicians Other Drugs
Institutions Professionals
2000 2010f

8
Growth in Public-Sector Hospital Expenditure
Stable in Last Five Years
Average Annual Growth in Selected Categories,
2010 Versus AAG for Previous 10 Years
14%
12.7
12%

10%
8.1 7.9
8% 7.6
6.8 6.9 6.9 6.9
6.1 6.2 6.1
6% 5.5 5.2 5.1
3.8
4%

2%

0%
Hospitals Other Physicians Drugs Total Health
Institutions Spending
Average (19992004) Average (20042009) 2010f

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Key Findings: General Context

Hospital expenditures relative to GDP similar to levels

30 years ago
Following a period of steady decline, hospital share of
public-sector health expenditure remained stable in
the last 10 years
Average annual growth of 6% between 2004 and 2010

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Hospital Cost Drivers

11
Population Growth and Aging Account for 2% of
Annual Increase in Public-Sector Hospital Expenditure

Average Annual Growth, 1998 to 2008

8%
6.7
7%

6%
1.9
5%
1.0
4%

3%
1.0

2%
2.8
1%

0%

General Inflation Population Growth Population Aging Other

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Inflation and Compensation

13
Compensation Accounts for More Than 60%
of Total Hospital Expenditure

14
Moderate Growth in FTE Hospital Employees
Index of Growth (1999 = 100)

125 121
120

115

110
Index

105

100

95

90
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

15
Growth in Wage Rate in Hospitals Between 1999
and 2008 Was Higher Than General Inflation
Indexes of Growth (1999 = 100)
140

133
130 129
127
Index

120

110

100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Hourly Paid Hospital Employees Wage Index

General Inflation
Industrial Aggregate Average Weekly Earnings Index

16
Growth in Compensation Rates Varied Across
Functional Centres
Average Annual Rates of Growth, 1999 to 2008

5.0
5%
4.5
4.2 4.3
4% 3.7 3.8

3%
2.7
Industrial
2% Aggregate
Average
Weekly
1% Earnings

0%
Nursing Diagnostic and Clinical Diagnostic Radiation All Hospital
Inpatient Therapeutic Laboratory Imaging Oncology Functional
Services Services Centres

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Key Findings: Inflation and Compensation

FTE hospital employees increased by 21% between

1999 and 2008
The hourly paid hospital employees wage index
increased by 33% between 1999 and 2008, more
than general inflation (29%)
Increase in total employee compensation driven more
by higher compensation rates than by higher number
of employees

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Population Growth and Aging

19
The Structure of the Canadian Population
Has Shifted Toward Older Age Groups

10%

8%

6%

4%

2%

0%

1998 Age Distribution 2008 Age Distribution

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Population Growth and Aging Accounted for
$8.1 Billion Increase in Hospital Expenditure
Simulated Hospital Expenditure: 2008 Expenditure per Capita
and 1998 Population Versus 2008 Actual Expenditure ($000)

$44,265,265

$36,184,224

1998 Population With 2008 Population With

2008 Expenditures 2008 Expenditures

21
Effects of Population Growth and Aging
Varied Across Jurisdictions

Average Annual Growth, 1998 to 2008

3%

2%

1%

0%

-1%
N.L. P.E.I. N.S. N.B. Que. Ont. Man. Sask. Alta. B.C. Y.T. N.W.T. Can.
and
Nun.
Population Growth Aging

22
Highest Spending per Capita for Infants
and Older Seniors
Hospital Expenditure per Capita, 2008
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0

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Highest Rates of Increase for Infants
and Those Age 90+
Average Annual Growth, 1998 to 2008

6%

5%

4%

3%

2%

1%

0%

Spending per Capita by Age Group

Spending per CapitaAverage for All Age Groups

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Key Findings: Population Growth and Aging
Population growth and aging together accounted for
less than a third of the increase in hospital expenditure
between 1998 and 2008
Effects of population aging on hospital spending
varied across jurisdictions

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Technology/Innovation

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Technology: Likely Important Supply-Side Factor
Responsible for Hospital Spending Growth

Diagnostic imaging equipment and other medical

devices, such as
CT and MRI scanners
Robotic devices that facilitate delicate surgical procedures
Computers that help clinicians in decision-making
Electronic health records and electronic medical records

New pharmaceuticals
Innovative procedures, applications and techniques
and changes in clinical practices

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Substantial Increase in Number of CT and MRI
Scanners Since 2003
CT and MRI Scanners in Hospitals, per Million Population
15
13.1 13.5
12.1
11.1 11.5
10.0 10.3
10

6.3 6.3
5.1 5.5
4.7
5 3.9 4.1

0
2003 2004 2005 2006 2007 2008 2009 2010

CT Scanners MRI Scanners

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Number of CT and MRI Exams Increased at a
Faster Pace Than Number of Scanners Since 2003

CT and MRI Exams in Hospitals, per 1,000 Population

140
124
118
120 110
102
100 87 90

80

60
40 43
40 31 33
24 27
20

0
20032004 20042005 20052006 20062007 20072008 20082009 20092010

CT Exams MRI Exams

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Expenditures for CT and MRI Scans Have
Increased at Double-Digit Rates
Expenditure per Capita for Diagnostic Imaging in Hospitals
Type of Diagnostic Annual Rate
Imaging Technology 2003 2008 of Increase
Computed Tomography (CT) $9.09 $16.29 12.4%

Magnetic Resonance Imaging (MRI) $4.70 $10.84 18.2%

Nuclear Medicine (in Vivo) $6.71 $8.77 5.5%

Other Diagnostic Imaging $51.48 $63.16 4.2%

Total Diagnostic Imaging $71.98 $99.06 6.6%

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Drug Expenses in Hospitals Have Shifted
From Inpatient to Outpatient Care

70%

60% Inpatient Share

50%

40% Outpatient Share

30%

20%
Drugs as a Share of Total Hospital
Expenditure Remained Stable
10%

0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

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Key Findings: Technology/Innovation
Impact of technology on costs is difficult to quantify
Increased number and use of CT and MRI scanners
Increased expenditure per capita for CT and MRI scans

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Utilization Effects

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Little Increase in Average Length of Stay
Average Length of Stay

8
7.0 7.2 7.2 7.1 7.0 7.1 7.2 7.3
7

5
Days

0
2001 2002 2003 2004 2005 2006 2007 2008

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Variation Among Top Five CMGs
Acute LOS Trend (2005 to 2008) of the Five CMGs
With the Largest Expenditure in 2008
16
Average Acute Length of Stay (Days)

14

12

10

0
2005 2006 2007 2008
810Palliative Care 196Heart Failure Without Cardiac Catheter
139Chronic Obstructive Pulmonary Disease 321Unilateral Knee Replacement
545Vaginal Delivery, No Other Intervention

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Modest Increase in Resource Intensity
of Inpatients
CMG+ 2010 Average RIW

1.60

1.40 1.33 1.36

1.27 1.30
1.20

1.00

0.80

0.60

0.40

0.20

0.00
2005 2006 2007 2008

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Slight Variation in Resource Intensity Trends
Across Groups
Average RIW(2005
RIW Trend Cost to
Trend (2005
2008) toFive
of the 2008) of the
GMGs
Five CMGs With
With the the Largest
Largest Expenditure
Expenditure in 2008in 2008
3.0

2.5

2.0
RIWRIW

1.5
Mean

1.0

0.5

0.0
2005 2006 2007 2008

810Palliative Care 321Unilateral Knee Replacement

196Heart Failure Without Cardiac Catheter 139Chronic Obstructive Pulmonary Disease
545Vaginal Delivery, No Other Intervention

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Slight Decrease in Beds per 1,000 Population
Since 1999

Beds Staffed and in Operation in Hospitals, per 1,000 Population

4.0
3.6 3.5 3.4 3.3 3.3 3.2 3.2
3.2 3.2 3.1
3.0

2.0

1.0

0.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

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Inpatient Discharges Fell Sharply During
the 1990s, Less So Since 2002
Total Discharges, per 1,000 Population

140

120

100

80

60

40

20

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Share of Hospital Expenditure for Inpatient Care
Has Declined, Outpatient Care Has Grown

Hospital Expenditure by Broad Functional Categories

100%
5.6 7.0 7.5

80% 33.2 35.3 37.4

60%

40%
61.2 57.7 55.2
20%

0%
1999 2005 2007
Inpatient Care Outpatient Care Other Activities

40
Hospitals Provided 200,000 More Day Surgery
Procedures in 20072008 Than in 20042005

570,630 563,335
578,417
567,329

1,992,676 2,026,423 2,082,883

1,872,661

20042005 20052006 20062007 20072008

Day Surgery Inpatient Surgery

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Rates of Emergency Room Visits Unchanged;
Higher Cost per Visit Responsible for
Increasing ER Share

2003 2008

ER Visits per 1,000 Population 486 490

Cost per Visit $113 $166
ER Share of Hospital Expenditure 4.5% 5.0%

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Increases in Cost of Providing Services Most
Important Factor in Expenditure for Ambulatory
Care and Therapeutic Services
Average Annual Growth per 1,000 Population,
2003 to 2008

Emergency 0.1
8.1

Other Ambulatory Care 1.8

9.0

Physiotherapy 0.7
4.4

Occupational Therapy 0.8

4.8

Other Therapeutics 2.7

5.0

Visits or Attendance Days Expenditure

43
Operating Room, Emergency and Ambulatory Care
Have Increased Their Shares of Hospital Expenditure
Expenditures by Patient Care Functional Categories

Nursing Inpatient Services 31.2

27.9

Operating Room 5.7

6.4

Emergency 4.0
5.0

Other Ambulatory Care 6.8

8.7

Diagnostic and Therapeutic 20.8

21.5

Community and Social Services 3.9

2.6

19992000 20082009

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Shares of Expenditure for Administrative
Services Unchanged
Expenditures by Other Functional Categories

5.5
Administrative Services
5.5

1.8
Information Systems
2.4

16.3
Support Services
14.9

3.2
Research and Education
4.7

19992000 20082009

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Key Findings: Utilization
Decrease in beds and discharges per 1,000
population, but increase in resource intensity
of inpatients
Evidence of a shift from inpatient care to
outpatient care
Ambulatory care visits have increased, but not
as much as cost per visit
The share of administrative services has
remained constant

46
Key Issues to Watch in the Future
Hospital inflation outpacing general inflation
Growing impact of technological changes on
hospital expenditure
Hospital resources required by the average
inpatient increasing
More limited opportunities for cost savings in
shifting care from an inpatient to an outpatient
mode of production

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Questions?

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Overview of Other
Health Expenditures

49
Overview
What are the growth trends in health spending
categories other than hospitals, physicians and drugs?
What are some of the key trends in public-sector
spending on long-term care?
How have capital investments in buildings and
equipment affected overall spending?
What are the key issues to watch in the future?

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Rising Share of Other Health Expenditures
During the 1990s
Share of Total Health Expenditure by Use of Funds,
50% Selected Categories
41.6 41.1
39.1
40%
34.4
29.6 28.9
30%

20% 16.3
15.4 15.2
11.4 13.4 13.7
10%

0%
Hospitals Drugs Physicians Other

1990 2000 2010f

51
Long-Term Care, Public Health and Capital Are
Significant Categories of Other Health Spending
Distribution of Other Health Expenditures by Category, 2010f

Public Sector: $46.5 Billion

Other
$3.7 Capital
8% $6.9
15% Public Health
$12.2
26%
Administration
$2.7
6%

Health Research
$2.3
5% Home Care
Other Institutions $3.9
$13.3 8%
Other Professionals 29%
$1.5
3%

Dental Care: 44%

Vision Care: 20%

52
Public Health, Capital and Long-Term Care
Are Mainly Financed by the Public Sector
Public-Sector Share of Categories
100 100
100%
81 83
80% 76
71
63 67 62 61
60% 55
44
40%

20%
10 7
0%

1998 2008
53
Capital, Health Research and Public Health:
The Fastest-Growing Categories
Public-Sector Average Annual Growth, 1998 to 2008
16%
13.7
Average Annual Growth

12% 11.3
9.6
7.7
8%
6.6
5.4

4%

0%

54
Increased Spending on Public Health
Public Health Expenditure as a Percentage
of Total Public-Sector Spending
10%

8%

6%

4%

2%

0%
1975 1980 1985 1990 1995 2000 2005 2010f

55
Share of Public-Sector Administration Spending
Relatively Unchanged in the Past Five Years

Public-Sector Administration Expenditures as a Percentage of Total

4% 3.8 3.8 3.7

3.7
3.5 3.5 3.5
3.4 3.4 3.3
3.2
3%

2%

1%

0%

56
Growth in Spending on Other Health Professionals
Higher in the Private Sector
$600 5.6% 6%
$515
$500 5%

Average Annual Growth

Per Capita Spending

$400 4%

$300 3%

$200 1.7% 2%

$100 1%
$41

$0 0%
Public Private
Per Capita (2008) AAG (19982008)
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More Health Professionals
2004 Percentage Population
2004 2008 Change Increase
Number of 60,612 65,440 8.0%
Physicians
Number of 315,135 341,431 8.3%
Regulated Nurses
Number of 35,866 41,798 16.5% 4.2%
Dentists and
Dental Hygienists
Number of 3,941 4,507 14.4%
Optometrists

58
Public-Sector Spending
Trends in Long-Term Care

59
The Structure of the 65+ Population Has
Shifted Toward Older Seniors
Share of Each Senior Age Group in the 65+ Population
35%
31
29
30%
26
25% 23
20 20
20%
15
15% 13 13
10
10%

5%

0%
6569 7074 7579 8084 85+

1998 Age Distribution 2008 Age Distribution

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Long-Term Care Does Not Account for Increasing
Share of Public-Sector Health Expenditure
Public-Sector Expenditures on Long-Term Care as a Percentage of Total

16%

2.9 2.9 2.9 2.8 2.8 2.7 2.7

12% 2.7 2.7 2.8 2.8

8%
12.1 12.0 11.8 11.7 11.4 11.4 11.0
11.6 10.8 10.3 10.0
4%

0%

Institutional Care Home Care

61
 Growth Rates in Long-Term Care Institution
Spending per Capita for the Oldest Senior Age
Groups Among the Lowest
4% $12,000

$10,000
AAG: 19982008

3%
$8,000

2% $6,000

$4,000
1%
$2,000

0% $0
6569 7074 7579 8084 8589 90+

Growth in Expenditure per Capita Expenditure per Capita (2008)

62
Population Aging: Greater Effect in
Long-Term Care Institutions
Average Annual Growth in Spending Attributable
to Population Aging, 1998 to 2008
3%
Average Annual Growth

2.3

2%

1.0 1.0
1% 0.8
0.6

0%

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Beds Staffed and in Operation per
1,000 Seniors Relatively Unchanged
Beds per 1,000 Population (65+)
30

25

20

15

10

0
2004 2005 2006 2007 2008
Public Private

64
 Average Annual Growth Rate in Number of
Beds in Long-Term Care Institutions per 1,000
Seniors Varied in Selected G7 Countries
2004 to 2008

3.0
3.0
Average Annual Growth

2.0

1.0
0.3 0.2
0.0
0.0
-0.1
-0.5
-1.0
United United Japan Italy Germany Canada
States Kingdom (20032007)

65
Compensation Unchanged, Number of
Full-Time Equivalents Increasing
Inflation-Adjusted Salary and Wage Expenditures
per Full-Time Equivalent, and Number of Full-Time
Equivalents per 100,000 Population
$40,000 800

$30,000 600

$20,000 400

$10,000 200

$0 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Salary and Wage Expenditures per FTE FTE/100,000

66
An Increase of More Than $1 Billion in
Home Care Spending
5.0 Provincial/Territorial Government Spending
on Home Care, Current Dollars
$3.9
4.0

3.0
$ Billions

$2.6

2.0

1.0

0.0
19992000 20062007

67
Government-Sponsored Home Care
Users Rising
Government-Sponsored Home Care Users
per 1,000 Population
30 28.1

25 23.9

20

15

10

0
1994 2005
68
Higher Proportion of Residents 85+ in
Homes for the Aged
Percentage Distribution of Residents 65+ in Homes
for the Aged
60%
54.5
50.4
50%

40%

30%
22.6 22.0
20%
14.8
12.7
10% 8.1 6.7
4.1 4.1
0%
6569 7074 7579 8084 85+

1998 2008

69
Rising Proportion of Residents in Homes
for the Aged Receiving Type III and
Higher Care
35% 33%

30%
25%
25%

20%

15%

10%

5%

0%
1998 2008

70
Alternate Level of Care Is an
Important Issue
In 20082009, there were more than 92,000
hospitalizations and more than 2.4 million hospital
days involving alternate level of care stays in Canada.
This represented 5% of all hospitalizations and 13% of
all hospital days.
There is a perception that a growing proportion of
elderly patients tie up hospital beds while waiting
for a place in long-term care.

71
Overview of Capital
Expenditures

72
 Share of Public-Sector Spending on Capital
Trended Upwards in the Last Decade
Capital Spending as a Percentage of Total Public-Sector
Health Spending
6%

5%

4%

3%

2%

1%

0%
1975 1980 1985 1990 1995 2000 2005 2010f
Capital to Total

73
Distribution of Total Capital Expenditures
100%
53 49 47 47 40 40 44 44 38 42 36

80%

60%

40%

20%

47 51 53 53 60 60 56 56 62 58 64
0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Equipment Construction

74
Capital Expenditure in Health Care
Capital investment by type of asset:

1) Construction: facilities and building construction

2) Equipment

Annual Capital Investment by Type of Asset, 1998 to 2008

Value ($ Billions) AAG
Type of Asset 19982008
1998 (% of Total) 2008 (% of Total)
Equipment 1.2 53.5% 3.0 36.3% 9.3%
Construction 1.1 46.5% 5.2 63.7% 17.2%
Total 2.3 100.0% 8.2 100.0% 13.6%

75
 Increasing Share of Capital Spending for
Residential Care Facilities
1998 2008
Total Capital Spending: $2.3 Billion Total Capital Spending: $8.2 Billion

Nursing and Nursing and

Residential Residential
Care Care
Facilities Facilities
11.4% 16.5%

Social Hospitals
75.2% Hospitals Social
Assistance
73.2% Assistance
2.5%
0.8%

Ambulatory
Ambulatory Health Care
Health Care Services
Services 9.5%
10.9%

76
Overall Key Findings
Long-term care does not account for an increasing
share of health spending in the public sector
The number of full-time equivalent (FTE) personnel
(not wages per FTE) is mainly responsible for the
increase in institutional care spending
From 2004 to 2008, trends in beds staffed and in
operation kept pace with demographics
Capital investment in the health care sector
significantly increased from 1998 to 2008; the trend
was led mostly by long-term care institutions

77
Key Issues to Watch in the Future
What is the best way to provide care for seniors?
What will be the balance between hospital care,
institutional care and home care during the next decade?
How will the system optimize the integration of
seniors care?

How will provincial deficits and fiscal restraint in future

years affect investment in public health and capital?

78
Questions?
Thank You

80