The current collective agreements with physicians encourage them to practise more medicine, at greater cost. The only way to contain health care spending is to change the deals we make with doctors.

The only period of sustained spending restraint in the medicare era lasted for four years, ending in 1997. In that time, real per capita public sector spending on health care declined by about 1 percent per year, compared with the historical growth rate of about 3 percent. The effect? Morale was down, wait times were up, and Canadians lost confidence in the system.

Even the most enthusiastic proponents of new spending would never have dreamed of what followed: in the next 14 years, health care spending doubled, in real terms. Behold the results. Serious access, safety, quality and efficiency problems remain. The spend-to-greatness experiment failed.

The 1990s restraint and the subsequent prolonged spending bonanza made clear that both indiscriminate cutting and indiscriminate spending create more problems than they solve. Now, as governments once again look to ”bend the cost curve” down, the new mantras are value for money, appropriateness and waste reduction. But the question is whether we can achieve better value for money and improved access, quality and health outcomes without alienating health care providers or their patients.

Governments do not intend to fail at system change and they remain optimistic that if they harvest sufficient low-hanging fruit and foster incremental improvements, eventually they will significantly and permanently alter spending growth patterns. Experience and logic cast doubt on that prospect. The system is designed to generate costs and consume whatever resources are made available to it. Without redesigning it, there will be no permanent fiscal victories.

Four main factors drive health care spending: the culture, both within health care and more generally throughout society; the system’s architecture; health human resource policies and practices; and prices. Each of these warrants major explorations on its own, but here we focus on the main source of upward pressure on health care costs in Canada: the economics of physician care and, more specifically, the assumptions, traditions, hierarchies and incentives built into the collective agreements between organized medicine and provincial governments.

The Canada Health Act specifies that physicians are entitled to ”reasonable compensation,” and the current agreements are the accumulation of four decades of incremental negotiations, compromises and accommodations. All are based on the assumption that a doctor’s ”activity” and ”productivity” are identical. They are not. Increased medical activity increases costs in the system —  but only some increased activity is productive. Some is useless, and some is harmful.

The only way to permanently de-escalate health care spending is to do less with less. That cannot be achieved in a system designed to do more with more.

Collective agreements between governments and provincial medical associations are complex and varied, but they share a few key elements. The dominant payment mode remains fee for service. Most physicians are independent contractors to the government and operate as cottage industry entrepreneurs with often only fleeting attachments to their place of work and its corporate objectives. Those with office-based community practices are neither formally part of nor meaningfully accountable to health regions or their equivalents. Surgeons do have to compete for operating room time, but their practice patterns remain highly autonomous.

In the main, physicians have huge discretion over how they practise and the claims they make on system resources. Moreover, with a few notable exceptions, they can set up practice wherever they want, regardless of whether the community is under or oversupplied with doctors. The entirely predictable result is huge variation in how physicians work and the resources they consume.

The collective agreement neither requires nor prohibits excellent practice, but often poor practice is more lucrative. Conscientious and engaged family doctors who spend time dealing with the challenges of complex geriatric cases earn lower incomes for doing so. Others —  who refer every difficult case to specialists, see 60 patients a day and prescribe drugs indiscriminately —  make a lot more money. One physician may order three times as many tests for her patients as her colleague; neither is likely to know that this is the case and there are no consequences for doing so. Neurosurgeons in one community may perform three or even five times as many back procedures on their populations as their counterparts in another.

The paymaster —  government —  may or may not be aware of these variations, but rarely, if ever, will anything be done to address them. The one constant under the fee-for-service system is that each activity generates income for someone, and each activity avoided reduces income for someone. Moreover, there are no rewards for prudent system resource consumption or penalties for profligate use.

There is no perfect way to pay physicians, but there is growing consensus that the worst way to pay them is by fee for service. In March 2013, the US National Commission on Physician Payment Reform recommended that ”over time, payers should largely eliminate stand-alone fee-for-service payment to medical practices because of its inherent inefficiencies and problematic financial incentives.” Growing numbers of doctors in Canada are choosing some sort of alternative payment system, but thus far no government has even hinted at the prospect of an end to fee-for-service medicine.

Governments and organized medicine have persuaded themselves that activity equals productivity, but both seem oblivious to why this equation undermines a cost-control agenda. And when governments do institute policies and agreements that decouple payment from activity, they are at times upbraided for doing so. In 2011 the Ontario Auditor General chastised the government for paying doctors on a capitated basis (a fixed annual sum per patient, adjusted for age and perhaps other factors) for patients who, in some years, may not visit their physician at all. This is like chastising the waste removal department for successfully encouraging citizens to reduce the amount of garbage produced and decreasing the frequency of pick-ups. Sometimes the severest critics are governments themselves: in January 2013, New Brunswick Health Minister Ted Flemming declared, ”We’ve put in a system now where all salaried doctors are going to shadow-bill just as if they were fee for service and we’re going to see who works for a living and who doesn’t.”

These critiques assume that the goal of the health care system is to provide more health care. It is not. The goal is to promote, maintain, restore and manage health at the least possible cost. Is it not better for a patient to achieve a desirable health outcome with fewer physician visits, diagnostic tests, drugs and procedures? When a system promotes more service, the providers create dependent patients, fail at prevention, focus on repair work and drive up costs. Yet while most health policy observers agree that less is better, the existing funding and payment systems say otherwise. In every round of bargaining, governments seem content to ”wrestle doctors to the ceiling,” a metaphor widely uttered in the corridors of provincial governments.

If the incentives that drive physician behaviour are misaligned with the ostensible goals of public policy, so too are the structures that define doctors’ relationships with the system. Put simply, the collective agreements are long on clinical autonomy and short on accountability. Nowhere do they assign physicians any role in resource stewardship. The professionals whose decisions drive at least two-thirds of health care spending have been socialized to believe that they have no responsibility for worrying about how the commons is grazed. Their self-defined job is to advocate only for their patients; husbanding finite resources is the job of bean- counters and bureaucrats, with whom doctors perceive themselves to be in various states of perpetual conflict. Anything short of unlimited supply is coded ”rationing.”

The collective agreement neither requires nor prohibits excellent practice, but often poor practice is more lucrative.

Not all physicians think this way, and a growing number recognize the inefficiency of Canadian health care and the perverse incentives that underlie its biggest flaws. But so far, the weight of history has crushed aspirations to create a cost-conscious, value-based health care system. Medical politics tends to be dominated by older, male, disproportionately rural physicians disinclined to abandon the arrangements that have made them highly successful cottage industry entrepreneurs. Governments wear down in protracted negotiations and in the end just want another deal. Over time the fee schedule becomes more and more out of touch with changes in medical practice, and every attempt to make it fairer engenders a backlash from those whose bloated incomes would be even modestly scaled back. Entire cohorts of newly minted young specialists cannot establish their practices, not because they aren’t skilled but because they would thin the earnings pool of the existing cartels reluctant to share the wealth.

This explains why change is halting and the energy to create a new template flags. What is less comprehensible is the belief that costs can be contained while leaving the cost-escalating machinery intact. That is magical thinking. Health care is transactional, its total bill being the sum of millions of individual decisions over which there is precious little oversight, let alone control. The solution is not micromanagement, where every clinical act is second-guessed and buried in paperwork. It is rather a new compact that enlists physicians as real partners in the real world, who co-own all of the system’s problems and co-develop sensible solutions.

There is almost no active management of clinical practice in Canada. Clinical autonomy is more strongly rooted here than in most other developed countries, including the US. The best of the high-performing American integrated care systems —  Group Health Cooperative in Washington State and Idaho; Intermountain Health in Utah; Kaiser Permanente in California and elsewhere —  measure, monitor and manage clinical care to maximize both quality and efficiency. Like all quality-oriented organizations, they standardize work wherever possible. They identify outlier practices and support doctors and facilities to improve their performance. Despite some promising innovations across Canada, neither governments nor providers adequately scrutinize quality, health outcomes or resource consumption patterns.

Another feature that cripples the cost-control agenda is the right to choose where to practise. Teachers have to take jobs where the students are, but doctors can pretty much set up shop wherever they like regardless of need. Physicians cluster in attractive urban areas with healthy populations and overlook pressing needs both within and outside our cities.

Underserviced geographic areas are a perpetual source of public and policy-makers’ angst. But there is no corresponding discourse about overserviced areas or acknowledgement of the irony that the failure to deal with this poor distribution creates supply-induced demand in some areas and exacerbates the shortages elsewhere. Attempts to limit doctors’ freedom to locate wherever they want or to discount payments to practitioners in overserved areas have been struck down by the courts in British Columbia, though the New Brunswick Court of Appeal upheld the right of health regions to limit physician supply. This competing jurisprudence suggests that whether governments can mandate a reasonable geographic distribution of doctors remains an open legal question. Quebec’s regional medical-staffing plans have for years effectively limited practice-location choice based on need.

The details of payment arrangements also get in the way of progress. The fee-for-service system encourages short primary care visits and quick referrals of more time-consuming cases to specialists. Doing routine work efficiently is more lucrative than solving complex problems, which drives specialists to work at the lower end of their capabilities. It also creates subspecialty turnstile operations for some individual family practitioners who no longer provide comprehensive primary care.

Specialists may chafe at dealing with problems that should be addressed in primary care but this avoidable ”busy-work” is also a source of easy money. The most lucrative physician-owned private clinics focus on routine, low-risk day surgery procedures such as cataracts, uncomplicated orthopedics and diagnostic imaging. Paying doctors for discrete acts that they must personally perform discourages them from delegating practice terrain to competent colleagues, such as advanced practice nurses.

It is only going to get worse. Medical school enrolment is 84 percent higher than it was 15 years ago. Older doctors are not retiring at the expected rate. It is easier for international medical graduates to get licences. The growth in physician supply has far outstripped population growth in recent years. Newly licensed doctors are entitled to a billing number; with the exception of restricted licensing for certain foreign-trained academic physicians, there is no such thing in Canada as structural physician unemployment. Unless there is a rapid movement away from fees for service, the only way physicians can make a living and retire the substantial debt they incur during training is to generate activity. Health care is wondrously creative at inventing new conditions and proposing new interventions. Existing collective agreements reward being busy, and if you think we are already a nation of worried patients in waiting, well you ain’t seen nothin’ yet.

There are no rewards for prudent system resource consumption or penalties for profligate use.

There will be no holding back the tide if we don’t rebuild collective agreements from scratch. Physicians have to join the system as full partners with shared responsibilities for setting goals, making difficult public interest policies and husbanding resources. Provincial medical associations often find themselves caught between the competing demands of highly paid specialties anxious to maintain their incomes and the lower-paid groups that are often in short supply. It has proven impossible to effect major income redistribution even when it would clearly be in the public interest to do so. Left to their own devices, medical associations will simply broker agreements on how to divide the pie up among the competing specialties, using history as the guide. If major change is needed, one cannot leave the task exclusively in the hands of the union.

The perverse incentives that privilege piecemeal problem solving over holistic care, prescriptions over conversations and procedural specialists over generalists must be erased. So too must the mechanisms that get in the way of an efficient division of labour between doctors and other providers. A new agreement must prize integration above fragmentation and balanced entitlements with contractual obligations to deliver and be accountable for high-quality, appropriate care. Every collective agreement renewal that buys temporary peace by pretending that the price and volume of procedures operate independently is a dagger pointed squarely at the heart of cost containment. Governments and doctors unwilling to depart from the historical path doom the system to a sorry combination of poor performance and eternally rising costs.

Ah, but how do we get there, given the deeply entrenched nature of current structures and the conservative nature of both governments and medical leadership? We propose the equivalent of a two-state solution. Let the primarily older physicians finish out their careers under the general provisions of existing agreements. Invite the others to a separate table to create a new deal that redefines their roles, relationships, clinical accountabilities to the organizations and regions in which they practise, and payment modalities.

It is one thing to grant late-career doctors the right not to change; it is going too far to allow them to continue to hold their colleagues, governments and citizens hostage to the obsolete constructs of the ancien régime. It may even be time to integrate collective agreements across professions to overcome the occupational fragmentation and hierarchy buttressed by the doctrine of separate and unequal. Physician surveys reveal that most doctors, and especially younger and female doctors, are ready for change. It is time governments insisted on giving expression to their desires, and time for their change-averse colleagues to get out of their way.