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Managed Care: Canada: A Kinder, Gentler Health Care System?
K. Roy MacKenzie, M.D.
Psychiatric Services 1999; doi:

Much interest has been shown in the Canadian health care system as a possible model for consideration in the current debate about the future of health care in the United States. This column considers some of the positive and negative features of the Canadian system. As one who trained in psychiatry in the U.S. and who has been a residency training director in both countries, I have firsthand practical knowledge of both systems.

In response to the question of whether the Canadian system is "kinder" and "gentler" (to use George Bush's terms from another context) compared with the U.S. system, the most realistic answer is a resounding "yes and no." Both systems are undergoing major changes in dealing with similar issues, but they clearly differ in how these changes are being played out. In both countries it is as yet unclear how the next stable period will be configured—assuming the pace of change will eventually slow down. I will build my comments around ten topics widely cited in the current professional press.



The Canadian system is a totally universal insurance plan. Physicians are paid on a fee-for-service basis, although salaried positions and some health maintenance organizations have gradually emerged over the past decade. The current Canadian system is a nationalized insurance system similar to Medicare in the U.S., not a nationalized delivery system like the National Health Service in the United Kingdom.

The Canadian population considers health care a top priority. Few physicians would want to see the universal coverage changed. Canadians regard tying health care to employment as an American anomaly. All citizens are considered to have a right to equal access to all services. Insured services, however, are restricted to those provided by a physician. Services provided by other mental health clinicians are not covered unless the clinician delivers the services as an employee of a hospital. Approximately 14 percent of the health care budget is consumed by mental health services.



Psychiatric services have absolute parity with the rest of medicine. When the Canada Health Act was introduced in the 1960s, psychiatric leaders emphatically supported this principle and have worked hard to maintain close collegial alliances with all parts of the medical profession. The act sets out general national standards that must be met by each province. They are comprehensiveness (care available for every citizen at all ages), universality (coverage of all mental, surgical, and medical conditions), portability between provinces, accessibility, and public administration (a single-payer model). The actual delivery of health care is a provincial responsibility.

In 1984 the Canada Health Act further defined and reaffirmed the five principles as follows:

• Comprehensiveness. All medically necessary health care services provided by physicians or in hospitals must be covered by provincial health care plans.

• Universality. All residents of a province must be entitled to insured services through uniform terms and conditions.

• Portability. Host-province rates must apply to health care services provided elsewhere in Canada, and national standards for out-of-Canada benefits must be used.

• Accessibility. Provincial health care plans must provide for insured health services through uniform terms and conditions and must not impede or prevent reasonable access to these services by any means.

• Public administration. The program must be run by a public authority appointed by and responsible to the provincial government, with regular audit by the province. No insurance plan can be a for-profit entity.


Private practice.

In a sense almost all Canadian physicians practice privately because of the universal fee-for-service billing system. However, patients cannot be billed for services directly unless the physician opts out of the national system altogether, and in some provinces even physicians who opt out must charge the official fee. As a result, there are virtually no "true" private practitioners in the country, in that almost all practice is conducted under the auspices of the Canada Health Act.

Fee schedules are developed by each provincial government in conjunction with the provincial medical association. These negotiations tend to be complex and difficult but do form a recognized avenue for collaboration. The negotiations create a physician funding pool for physician services.

If the collective pool goes over budget, most provinces apply an appropriately named "claw-back" clause by which payments are ratcheted down to eliminate the overage. The presence of this clause had led provincial medical associations to plead with their members to reduce billings, for example by closing their offices for so many days per year. Although conflict about how to divide the physician funding pool has pitted individual and specialty self-interest against collective necessity, some policy analysts argue that the cap approach has merits over the micromanagement techniques that are so common in the U.S. (1).


Cost containment.

The Canadian system is estimated to cost less than 10 percent of the gross domestic product, substantially less than the proportional cost for the U.S. system. The major differences are in the use of high-priced technical diagnostic procedures and a much higher percentage of specialists—70 percent in the U.S. versus 50 percent in Canada. In Canada there are virtually no "marketing" costs and no profit margins.

Compared with the U.S., Canada has quite rudimentary methods for managing care. Because health care funding comes from one pot—actually one pot for each province—costs can be totaled relatively accurately. The principal mechanism for restraint has been the use of caps on the two main funding pools: hospitals—there are virtually no private hospitals in Canada—and physician payments (2). The consequences are evident in the next few items.



Each province in essence forms a capitated system for all of its inhabitants. Almost all provinces are moving toward regionalization plans with the intent of locating responsibility for cost management at the local level (3,4). In British Columbia, for example, the phrase used in promoting regionalization is that health care will be "closer to home." Cynics, however, see regionalization as a fine way to diminish political risk for difficult problems of access to care.

How these regional entities will be structured remains unclear. The initial thrust in many provinces has been to appoint boards, but there has been a great reluctance to include physicians. Physicians are concerned that vested interests in the community may gain control of these boards and make decisions without adequate medical participation. The profession is fighting a continuing battle to mandate the formation of medical advisory committees that would formally represent medical concerns on the regional boards, as has long been done in hospitals. To add to the confusion, the physician fee-for-service payment system is independent of the regional board funding, presenting the potential for further jurisdictional tensions between the province and its regions.


Rationing of care.

Hospital beds have been significantly cut, resulting in increasing waiting lists for procedures. Of interest, there has been little public outcry about the wait of many months for procedures such as a hip replacement. In psychiatry, bed availability is an increasing problem, and patients often remain for extended periods in emergency departments. The press is beginning to express concern about the number of mentally ill persons on the streets. Although this phenomenon is not as marked as in many U.S. cities, the trend is evident.

Most provincial governments have excluded some items such as cosmetic surgery. In psychiatry, some provinces have placed a limit on the number of psychotherapy sessions. However, the limits are not stringent, except for those affecting psychoanalysis, which has traditionally been scheduled three to five times a week. Thus British Columbia covers no more than two hours of psychotherapy a week except for acute crisis care. However, there are no annual or lifetime limits.


Use of specialists.

The Canadian system expects all patients to be referred to a specialist by their family physician. Canada has a long tradition of specialized training programs for family physicians. Recently, accreditation bodies have ruled that all physicians must be graduates of either a specialty program or a formal two-year family medicine program.

In practice, a request by a patient for a specialist consultation is seldom denied, and monitoring of referral practices is limited. The general principle of working with a family physician is widely accepted as a reasonable approach, with the family doctor often being expected to provide ongoing care based on a specialist's recommendations.


Health-professional workforce.

Workforce issues have become a contentious area. Every new physician who enters a province dilutes the capped funding on a per physician basis. This phenomenon has placed unprecedented stress on provincial medical associations. Some provinces have divided the total physician funding pool into specialty pools that are separately subject to claw-back procedures. As these pressures mount, fault lines are beginning to appear between specialists and family physicians and between specialties for access to the available funding.

This situation is further complicated by increasing public and government pressure to ensure adequate coverage for regions outside the major cities. The pressure is particularly acute for psychiatry. One method has been to restrict government insurance billing numbers to certain areas or to reduce payment schedules for those choosing to practice in areas designated as "overserviced." These methods have recently been ruled to be contrary to the Canadian Charter of Rights and Freedoms. A major rift is possible between practicing physicians and medical students and residents, who fear they will bear the brunt of relocation demands.



Each province has a database of all physician billings that goes back more than 30 years. Little attention has been given to issues of confidentiality apart from a very few high-profile cases in which information about physicians' income was leaked to the press.

Overall, the area of patient privacy has not generated much concern among professionals or the public. Because of universal coverage, there is no danger that medical information will be used to deny access to care, and the absence of third-party utilization review means that no clinical information goes to insurance reviewers. In fact, the huge databases are surprisingly underused in regard to service delivery issues.


Brutal tactics.

The Canadian system has not had difficulties with many of the serious issues that are the subject of current legislation and litigation in the U.S. A short list of these issues includes gag rules about treatment recommendations, financial incentives for limiting care, arbitrary termination of contracts, point-of-service restrictions on the use of any willing provider, and access to specialists (although the Canadian system has had the problem of waiting lists for specialist services).

Although the Canadian and American health care systems appear rather similar in the types of services provided, major differences clearly exist (5). The Canadian system is relatively free of the daily bureaucratic impediments to the practitioner that have caused so much disruption and distress to American psychiatrists. Income in Canada has dropped somewhat but is more or less assured. However, Canada does have unresolved concerns about manpower distribution that may threaten some aspects of physician autonomy.

On the other hand, structural changes at work in Canada are becoming more evident as funding levels continue to fail to keep up with inflation, increased population growth, an aging population, and new illnesses. It seems unlikely that the Canadian system can continue on its present course for the long term. Some method of utilization management with processes for accountability seems necessary. As an approach for managing care, the current methods of funding caps, claw-backs, and lengthening waiting lists are too crude and inefficient to continue. General consensus holds that Canadians are overtaxed—certainly in relationship to U.S. taxation codes—so higher funding levels for health care do not seem likely.

Canada may soon find itself in the position of seeking to learn from the multitude of experiments being tested in the U.S. Many of the techniques being implemented by managed care systems could be helpful in the design of provincial programs. Given the absence of corporate financial incentives, coupled with direct government responsibility, extremely restrictive utilization procedures would be unlikely. Whatever service modifications are developed will be applied through government structures that may or may not be up to the task. Most political decisions are made on the basis either of philosophical orientation or short-term objectives. In particular, the development of regional health boards has created a potentially volatile situation where the desire for community empowerment, the need for service integration, and the need to make spending cuts are likely to be aired in a public forum that may not be up to the task of handling these conflicting objectives.

A central issue for Canada is whether it will allow a two-tier system in which the private practice of medicine will exist alongside a universal system. Canada is currently the only developed country where a two-tier system is not possible. Medical organizations are actively promoting this idea as a way of addressing the problem of ceilings on payments and increasing service demands resulting in excessive waiting lists.

To date, provincial governments have rejected this possibility, in part because of fear of public reaction. However, a negative public reaction could be counterbalanced by increasing public concern about access to services. The Canadian system is sometimes characterized as a functional two-tier system—with the second tier consisting of access to private payment for services in the U.S., as the majority of the Canadian population live within an hour's drive of the border.

In summary, Canada faces some of the same problems faced in the U.S., but the Canadian health care system has developed different solutions. Nevertheless, some method of managing care seems to be here to stay for this kinder, gentler health care system.

Dr. MacKenzie is clinical professor of psychiatry at the University of British Columbia in Vancouver. Address correspondence to him at 201-1600 Howe Street, Vancouver, British Columbia, Canada V6Z 2L9 (e-mail, rmack@interchange.ubc.ca). James E. Sabin, M.D., is editor of this column.

Grumbach K, Bodenheimer T: Reins or fences: a physician's view of cost containment. Health Affairs 9(4):120-126,  1990
Barer ML, Lomas J, Sanmartin C: Re-minding our Ps and Qs: medical cost controls in Canada. Health Affairs 15(2):216-234,  1996
Lomas J, Woods J, Veenstra G: Devolving authority for health care in Canada's provinces:1. an introduction to the issues. Canadian Medical Association Journal 156:371-377,  1997
Lomas J: Devolving authority for health care in Canada's provinces:4. emerging issues and prospects. Canadian Medical Association Journal 156:817-823,  1997
Barer ML: So near, and yet so far: a Canadian perspective on US health care reform. Journal of Health Policy, Politics, and Law 20:463-476,  1995


Grumbach K, Bodenheimer T: Reins or fences: a physician's view of cost containment. Health Affairs 9(4):120-126,  1990
Barer ML, Lomas J, Sanmartin C: Re-minding our Ps and Qs: medical cost controls in Canada. Health Affairs 15(2):216-234,  1996
Lomas J, Woods J, Veenstra G: Devolving authority for health care in Canada's provinces:1. an introduction to the issues. Canadian Medical Association Journal 156:371-377,  1997
Lomas J: Devolving authority for health care in Canada's provinces:4. emerging issues and prospects. Canadian Medical Association Journal 156:817-823,  1997
Barer ML: So near, and yet so far: a Canadian perspective on US health care reform. Journal of Health Policy, Politics, and Law 20:463-476,  1995

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