physicians in the area would each receive the full amount of whatever sum had been allocated for this particular system objective. * If the system objective were to immunize 85 to 100% of the population susceptible to a given communicable disease, incentive payments would be increased until the objective is reached. Disincentives could be applied if immunization levels placed the population at excessive risk. One could postulate any number of system incentives with similar characteristics. Physicians in every specialty could contribute useful ideas for designing such objectives and rewards. Defining desirable system outcomes
could be an exciting process in which the profession would struggle with expanding the present state of knowledge, would challenge its own ingenuity and would concern itself with developing and using data in a creative manner. System overview The system we have described is a mixed method of compensation. It has a high degree of flexibility in layers two and three. It makes use of the desirable features of salary and capitation and may include small components of fee for service where no better alternative exists. There is a measure of income security and predictability in layers one and two and there are distinctions in
compensation level among physicians in accordance with their relative qualifications, experience and responsibilities in layer two. Layer three rewards the doctor not for specific services which he performs but for the achievement of desirable health outcomes in a defined population. Layer three actually goes farther than most capitation plans in that payments, by being contingent on the occurrence of particular outcomes, are not granted automatically but must be earned by the profession. There should be no difficulty in persuading government to assign additional dollars to achieve the kinds of outcomes which we describe.
Stick it on the mantlepiece By Peter Banks, MD Winston Churchill, a lifetime parlia- which regulate the fee schedules. We mentarian, who was well aware of that can be thankful he did not use the system's defects, stated that there was word entrepreneur. What he failed to only one thing to be said in its favour mention was the flexibility of the sys- all other systems were worse. Simi- tem and the high incentive it provides larly those of us who work with and to do the work that is necessary. Later by the fee-for-service system and have he goes on to describe seven points spent time and effort to remedy its which he considers to be the attributes defects are only galvanized from our of an ideal system. All these are already pessimism by a contemplation of the fulfilled in the Canadian system which alternatives. Over the last few years has evolved over the past 10 years. in Canada, we have had a rich and The three-layered cake is then unvaried procession of prophets, some veiled. The first layer is called basic more informed than others, offering compensation. In this layer, full-time their prescription for the millennium. medical personnel within a given locaThe latest of these is Dr. Sidney Lee, tion are to be paid a basic income whose contribution to Utopia bears the of between $20 000 and $30 000, ununlikely name "the three-layered cake". related to work or competence, merely Overlooking the echoes of 18th cen- because they are doctors. The phrase tury Bourbon arrogance that surrounds "within a given location" obviously the noun, let us consider its construc- means that this happy band is to be a tion. Dr. Lee starts by describing the selected group. This is the same type advantages and the disadvantages of of reasoning very common in academic the three main systems of rewarding circles which holds with considerable doctors - salary, capitation and fee emotional intensity that all PhDs should for service. His heavy altruism in the be paid a basic salary and likewise section on fee for service is about as masters and bachelors in decreasing convincing as the preelection outpour- amounts. ings of a redneck Southern sheriff on I have always failed to understand the evils of racialism. He manages to why a university degree of any sort pin on the profession the label of free should qualify one for an income. It enterprise, thus establishing an atmos- is merely a talisman which shows who phere of robber barons and exploita- has obtained a certain level of knowltion, in spite of the fact that province edge and is afterwards qualified to after province now has set up methods work at a certain level of skilled acof negotiation with the profession tivity. It does not mean one is naturally 656 CMA JOURNAL/MARCH 8, 1975/VOL. 112
industrious, competent or consistent in the standards achieved. These things have to be proved by performance. Nevertheless the first tier states that the fortunate doctors will be paid a sizable amount of money quite unrelated to their competence or their productivity, and doubtless this will be accompanied by fringe benefits, the payment of overheads, and presumably some mechanism to assure that a certain number of hours are put in to avoid this layer's becoming a complete sinecure. Layer two is less well defined. An amount of money is to be made available to the profession from a pool of capitation payments somewhat akin to a discarded pool system in the National Health Service in Britain. This will recognize such things as postgraduate training, seniority, need (decided by somebody), something called "recognition by colleagues of special competence" (which sounds to me dangerously like the questionable merit award system of Britain) and finally something called "recognition of productivity". These factors are of course already well recognized in our present system of payment. Exactly how this tier is to be spelled out and negotiated is not stated. Dr. Lee is obviously only interested in policy, not executive detail. In layer three Dr. Lee outdoes himself. Groups of physicians are to be re-
warded according to the obtainment of "specific objectives of the health system". Targets mentioned are the reduction of hospital days, encouragement of immunization programs and the at.tendance of pregnant women in the first trimester. I am quite certain that the number of traffic accidents, the amount of alcohol consumed, the percentage of nonsmokers, the number of obese people and many other factors would be considered suitable for inclusion. In other words the physicians are to become the policemen of their patients and are to be paid for doing it. These "meaningful system incentives" are to be budgeted. I am sure that Dr. Lee knows as much about provincial bud-
geting as I do and he must realize that this would be full of pitfalls, of lost funds which couldn't be deferred, of interdepartmental raids on allocated funds, and all the other workaday hazards of a bureaucracy. I must presume that he is practising self-deception and not trying to deceive us. Even so, tier three is nothing but sanctimonious froth, disguising Orwellian coercion. Dr. Lee is to be congratulated in that he has devised a system which will combine the worst features of a salaried service and a capitation system without solving any of the contemporary problems. Problems of cost must be attacked by constantly reassessing our method
of diagnosis and treatment, by developing priorities for expansion, by readjusting on a continuing basis the distribution of rewards and by experimentation with the methods of health care delivery. In the meantime, what should we do with Uncle Sidney's cake? I can only echo with all the raucous vulgarity of Victorian vaudeville, the celebrated classic: 'Twas Christmas day in the workhouse, The snow fell thick and fast, The vicar and his lady were serving the repast, When up spoke Tommy Tucker, In a single dreadful blast, "We don't want your Christmas cake, Go, stick it on the mantlepiece".
The cake is bottom-heavy By M.A. Baltzan, MD "The three-layered cake" is a fascinating and intriguing confection, prepared to solve a problem. The task of the reader is to evaluate the solution. Two criteria may be used: * Does it solve the original problem? * Does it create new problems? Lee and Butler do not explicitly state, but imply, the problems are, first, rapidly rising personal health care costs and, second, failure of the health care delivery system to achieve certain goals. Before attempting the evaluation, it is prudent to be certain that they are problems. It is not surprising costs should rise after the introduction of prepaid health care. This was said to be necessary because insufficient care was being rendered. Since increased service usually requires increased cost, it follows that, if this escalation had not occurred, the premise would have been false. It is rational for an affluent country to spend a greater portion of its national earnings (gross national product) on health care than does a nonaffluent nation. The earnings in the nonaffluent nation are almost entirely consumed by primary needs - shelter, food, clothing, transportation and energy. After these have been met, there is little left for health care. The affluent nation has a larger share of its income
available for discretionary spending. Among such discretionary items as vacations, entertainment, alcohol and leisure, it is not unnatural that the average citizen would give health care a relatively high priority. In Canada, the amount the average citizen spends directly, or indirectly through taxation, on personal health care is small compared to the amount spent on basic items. The physician is largely responsible for directing the expenditure of this money, the smaller fraction going to him, his employees and his overhead and the larger fraction going to hospitals for patients whose admission he directs. Study nature The nature of hospital costs warrants study. They are usually calculated by patient days, but that is not how they are incurred; every day does not cost the same. The first part of a hospital admission is usually the more expensive portion. Therefore, hospital costs are most realistically considered in terms of admissions. Hospital expenditures are directed toward two chief objectives: diagnostic and therapeutic services (operating rooms, pharmacies, laboratories, nurses) and support services (building operational costs, housekeeping, clean-
ing, food, etc.). Which of these components has increased the most? There are very few hard data to answer this question, but the answer is important if these costs are to be controlled and service reduction kept to the minimum. Costs decline? Finally, if physicians admit fewer patients to hospital, will hospital costs decline? Quixotically, probably not. About 80% of the hospital cost is incurred whether or not the bed is occupied. Thus, if patients are not admitted there is only a 20% saving. For the remainder of the cost to disappear, hospital beds must be closed. This sounds simple, but hospitals are a "labour intensive" industry and so the costs are wage costs. Therefore, closing hospital beds requires firing or laying off employees, thus decreasing employment and decreasing the economic impact of an industry which may be vital to a community. Possibly there will be entrenched interests - chambers of commerce, labour unions, aroused citizen groups - which will oppose such an action. These interests may have a political effect which will prevent the closing and obliterate any cost saving. There is no doubt that the health care delivery system has failed to achieve certain goals. Some of this
CMA JOURNAL/MARCH 8, 1975/VOL. 112 657
could be an exciting process in which the profession would struggle with expanding the present state of knowledge, would challenge its own ingenuity and would concern itself with developing and using data in a creative manner. System overview The system we have described is a mixed method of compensation. It has a high degree of flexibility in layers two and three. It makes use of the desirable features of salary and capitation and may include small components of fee for service where no better alternative exists. There is a measure of income security and predictability in layers one and two and there are distinctions in
compensation level among physicians in accordance with their relative qualifications, experience and responsibilities in layer two. Layer three rewards the doctor not for specific services which he performs but for the achievement of desirable health outcomes in a defined population. Layer three actually goes farther than most capitation plans in that payments, by being contingent on the occurrence of particular outcomes, are not granted automatically but must be earned by the profession. There should be no difficulty in persuading government to assign additional dollars to achieve the kinds of outcomes which we describe.
Stick it on the mantlepiece By Peter Banks, MD Winston Churchill, a lifetime parlia- which regulate the fee schedules. We mentarian, who was well aware of that can be thankful he did not use the system's defects, stated that there was word entrepreneur. What he failed to only one thing to be said in its favour mention was the flexibility of the sys- all other systems were worse. Simi- tem and the high incentive it provides larly those of us who work with and to do the work that is necessary. Later by the fee-for-service system and have he goes on to describe seven points spent time and effort to remedy its which he considers to be the attributes defects are only galvanized from our of an ideal system. All these are already pessimism by a contemplation of the fulfilled in the Canadian system which alternatives. Over the last few years has evolved over the past 10 years. in Canada, we have had a rich and The three-layered cake is then unvaried procession of prophets, some veiled. The first layer is called basic more informed than others, offering compensation. In this layer, full-time their prescription for the millennium. medical personnel within a given locaThe latest of these is Dr. Sidney Lee, tion are to be paid a basic income whose contribution to Utopia bears the of between $20 000 and $30 000, ununlikely name "the three-layered cake". related to work or competence, merely Overlooking the echoes of 18th cen- because they are doctors. The phrase tury Bourbon arrogance that surrounds "within a given location" obviously the noun, let us consider its construc- means that this happy band is to be a tion. Dr. Lee starts by describing the selected group. This is the same type advantages and the disadvantages of of reasoning very common in academic the three main systems of rewarding circles which holds with considerable doctors - salary, capitation and fee emotional intensity that all PhDs should for service. His heavy altruism in the be paid a basic salary and likewise section on fee for service is about as masters and bachelors in decreasing convincing as the preelection outpour- amounts. ings of a redneck Southern sheriff on I have always failed to understand the evils of racialism. He manages to why a university degree of any sort pin on the profession the label of free should qualify one for an income. It enterprise, thus establishing an atmos- is merely a talisman which shows who phere of robber barons and exploita- has obtained a certain level of knowltion, in spite of the fact that province edge and is afterwards qualified to after province now has set up methods work at a certain level of skilled acof negotiation with the profession tivity. It does not mean one is naturally 656 CMA JOURNAL/MARCH 8, 1975/VOL. 112
industrious, competent or consistent in the standards achieved. These things have to be proved by performance. Nevertheless the first tier states that the fortunate doctors will be paid a sizable amount of money quite unrelated to their competence or their productivity, and doubtless this will be accompanied by fringe benefits, the payment of overheads, and presumably some mechanism to assure that a certain number of hours are put in to avoid this layer's becoming a complete sinecure. Layer two is less well defined. An amount of money is to be made available to the profession from a pool of capitation payments somewhat akin to a discarded pool system in the National Health Service in Britain. This will recognize such things as postgraduate training, seniority, need (decided by somebody), something called "recognition by colleagues of special competence" (which sounds to me dangerously like the questionable merit award system of Britain) and finally something called "recognition of productivity". These factors are of course already well recognized in our present system of payment. Exactly how this tier is to be spelled out and negotiated is not stated. Dr. Lee is obviously only interested in policy, not executive detail. In layer three Dr. Lee outdoes himself. Groups of physicians are to be re-
warded according to the obtainment of "specific objectives of the health system". Targets mentioned are the reduction of hospital days, encouragement of immunization programs and the at.tendance of pregnant women in the first trimester. I am quite certain that the number of traffic accidents, the amount of alcohol consumed, the percentage of nonsmokers, the number of obese people and many other factors would be considered suitable for inclusion. In other words the physicians are to become the policemen of their patients and are to be paid for doing it. These "meaningful system incentives" are to be budgeted. I am sure that Dr. Lee knows as much about provincial bud-
geting as I do and he must realize that this would be full of pitfalls, of lost funds which couldn't be deferred, of interdepartmental raids on allocated funds, and all the other workaday hazards of a bureaucracy. I must presume that he is practising self-deception and not trying to deceive us. Even so, tier three is nothing but sanctimonious froth, disguising Orwellian coercion. Dr. Lee is to be congratulated in that he has devised a system which will combine the worst features of a salaried service and a capitation system without solving any of the contemporary problems. Problems of cost must be attacked by constantly reassessing our method
of diagnosis and treatment, by developing priorities for expansion, by readjusting on a continuing basis the distribution of rewards and by experimentation with the methods of health care delivery. In the meantime, what should we do with Uncle Sidney's cake? I can only echo with all the raucous vulgarity of Victorian vaudeville, the celebrated classic: 'Twas Christmas day in the workhouse, The snow fell thick and fast, The vicar and his lady were serving the repast, When up spoke Tommy Tucker, In a single dreadful blast, "We don't want your Christmas cake, Go, stick it on the mantlepiece".
The cake is bottom-heavy By M.A. Baltzan, MD "The three-layered cake" is a fascinating and intriguing confection, prepared to solve a problem. The task of the reader is to evaluate the solution. Two criteria may be used: * Does it solve the original problem? * Does it create new problems? Lee and Butler do not explicitly state, but imply, the problems are, first, rapidly rising personal health care costs and, second, failure of the health care delivery system to achieve certain goals. Before attempting the evaluation, it is prudent to be certain that they are problems. It is not surprising costs should rise after the introduction of prepaid health care. This was said to be necessary because insufficient care was being rendered. Since increased service usually requires increased cost, it follows that, if this escalation had not occurred, the premise would have been false. It is rational for an affluent country to spend a greater portion of its national earnings (gross national product) on health care than does a nonaffluent nation. The earnings in the nonaffluent nation are almost entirely consumed by primary needs - shelter, food, clothing, transportation and energy. After these have been met, there is little left for health care. The affluent nation has a larger share of its income
available for discretionary spending. Among such discretionary items as vacations, entertainment, alcohol and leisure, it is not unnatural that the average citizen would give health care a relatively high priority. In Canada, the amount the average citizen spends directly, or indirectly through taxation, on personal health care is small compared to the amount spent on basic items. The physician is largely responsible for directing the expenditure of this money, the smaller fraction going to him, his employees and his overhead and the larger fraction going to hospitals for patients whose admission he directs. Study nature The nature of hospital costs warrants study. They are usually calculated by patient days, but that is not how they are incurred; every day does not cost the same. The first part of a hospital admission is usually the more expensive portion. Therefore, hospital costs are most realistically considered in terms of admissions. Hospital expenditures are directed toward two chief objectives: diagnostic and therapeutic services (operating rooms, pharmacies, laboratories, nurses) and support services (building operational costs, housekeeping, clean-
ing, food, etc.). Which of these components has increased the most? There are very few hard data to answer this question, but the answer is important if these costs are to be controlled and service reduction kept to the minimum. Costs decline? Finally, if physicians admit fewer patients to hospital, will hospital costs decline? Quixotically, probably not. About 80% of the hospital cost is incurred whether or not the bed is occupied. Thus, if patients are not admitted there is only a 20% saving. For the remainder of the cost to disappear, hospital beds must be closed. This sounds simple, but hospitals are a "labour intensive" industry and so the costs are wage costs. Therefore, closing hospital beds requires firing or laying off employees, thus decreasing employment and decreasing the economic impact of an industry which may be vital to a community. Possibly there will be entrenched interests - chambers of commerce, labour unions, aroused citizen groups - which will oppose such an action. These interests may have a political effect which will prevent the closing and obliterate any cost saving. There is no doubt that the health care delivery system has failed to achieve certain goals. Some of this
CMA JOURNAL/MARCH 8, 1975/VOL. 112 657
