Op-Ed: Fiscally Frail to Financially Sustainable

On February 4th the BC Care Providers Association will host its sixth Care to Chat speaker session titled, Fiscally Frail: How Will We Meet The Health Needs Of An Aging Society In An Era Of Limited Budgets?.

The sold out event will feature keynote speaker Stephen Brown, Deputy Minister of Health in B.C. and four Health Authority Chief Financial Officers. In anticipation of the upcoming panel discussion Michael Kary, Director of Policy and and Research offers a financial overview of BC’s continuing care sector. Read the full Op-Ed below.

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Fiscally Frail to Financially Sustainable

Michael Kary, Director of Policy & Research, BCCPA

January 13, 2015

Today’s health system faces increased demands to invest limited funds in different areas whether it is acute care, long-term or home care.  BC’s home and community care sector, for example, is already over stretched in terms of resources and funding as its budget exceeds $2.7 billion.  These competing demands are likely to escalate as the population over 65 is expected to increase from about 14 per cent to 25 percent by 2036.

As outlined in the BC Care Providers Association (BCCPA) 2015 budget submission, one group facing fiscal pressures are operators of residential care facilities whose allocated budgets or per diem rates are increasing only marginally if at all. This is despite, as noted in the budget submission, an aging population and increasing levels of acuity among patients as large a percentage (41%) of Canadian seniors are dealing with two or more select chronic conditions, such as diabetes, respiratory issues, heart disease, and depression, and many are experiencing a decline in physical and/or cognitive functioning[1]. Furthermore, according to the BC Ministry of Health the growth in demand for health care for frail elderly living in residential care, who already utilize about 25% of health services, is projected to increase by 120% by 2036.[2]

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Increasing levels of dementia are also placing strains on care providers. According to BC’s Dementia Action Plan the number of people with dementia in the province is about 70,000 and is increasing. The costs of caring for a person with advanced dementia are particularly high. According to the USC Leonard D. Schaeffer Center for Health Policy and Economics the annual per-person costs of the disease were $71,000 (US) in 2010 and is expected to double by 2050.[3]

Along with aging there are other various cost drivers in the health system including inflation which accounts for about 2% in annual growth followed by utilization of services as well as infrastructure maintenance and replacement. [4]  To meet the needs of residential care operators and improve the sustainability of the continuing care system the first priority must be the establishment of a long-term predictable funding model that is outlined in any contract arrangements with the health authorities. Ideally, this would include more long-term budgeting with increases to per diem client rates outlined over a 3 to 5 year period. These rates should accurately factor in increases to operating costs including wages, inflation, overhead as well as other areas such as increasing levels of acuity among residents.

In addition to stable and predictable funding, it will be important to ensure that existing operators are consulted well in advance of any potential changes to their facilities. An example of such an approach was the ‘Managing Changing Need’ policy outlined in an earlier version of BC’s Home and Community Care Policy Manual. This policy, for example, required health authorities to issue a request for proposal to an at risk facility service provider to allow them to upgrade an existing facility or convert to assisted living (AL) units where future need is for different types of residential care or AL units. This and similar policies help promote both the stability of operators and among the investment community.

In the long run investing in continuing care only makes financial sense.  In BC, the cost of treating a senior in hospital ranges from $825 to $1,968 per day, whereas the cost of residential case is approximately $200 per day.[5] While the BC government has been increasing the numbers of residential care beds, many more beds will be required in the future.

Along with health authorities working jointly with the Ministry of Health and stakeholders to develop projected needs based models for long-term care beds, there is also a possible role for the federal government. The Canadian Medical Association (CMA), for example, has advocated the federal government allocate $2.3 billion over a five-year period in the next long-term infrastructure plan for the construction, renovation and retrofitting of long-term care facilities including residential care homes, assisted living units and other models.[6]

Dealing with the fiscal challenges facing the continuing care will also require looking at new and innovative funding approaches. Alberta, for example, is changing the way it allocates money to long-term care operators in which funds are distributed based on a formula that calculates the needs of each patient and provides a standard funding amount to the care provider.[7] While there are concerns with this model it and other models merit further consideration.[8]

Another innovative funding approach that could be considered further to increase the existing stock of residential care beds as well as mobilize capital is that of Social Finance, which could encourage private and non-profit investors to meet pre-determined objectives or goals as outlined by government. In particular, it could create opportunities for investors to finance projects that benefit society and for community organizations to access new sources of funds.[9]

Finding new and individualized approaches to funding long-term care (LTC) is also one area that requires further consideration. One such area is that of long-term care insurance, which is currently very limited in Canada. The CLHIA notes that over the next 35 years the cost of providing long-term care will be $1.2-trillion with only half of that covered by current government programs.[10] A June 2012 study from the Institute of Research and Public Policy also highlights that the current financing of LTC across Canada is a patchwork and that access to LTC and its cost to individuals vary depending on the region where they live.[11]

In an era of budget pressures looking at new ways to generate revenues to the system will also be critical including potentially expanding the list of chargeable extras and co-payments as well as looking at asset testing for residential care.  In BC assets for assisted living and residential care are not assessed, although income earned on these assets is included in after tax income.   In most Canadian jurisdictions assets are not used to calculate resident contribution rates for care and housing.  Only in Newfoundland are liquid assets (i.e. cash, GICs and bonds) tested as residents applying for subsidized care are permitted to retain a maximum of $10,000.

Along with generating new funding, there are also ways to change how long-term services are funded by providing funds directly to patients.  In Canada – in contrast to countries such as France, Germany, Sweden, Finland, and Denmark – the provision of subsidized long-term care is almost entirely in kind rather than in cash or vouchers.  Patient co-payments for both home care and institution-based services are fixed, and the provincial government, not the patient, pays the residual costs of services supplied to subsidized patients. As outlined in a 2012 C.D. Howe report, financial and service flows for funding long-term care in France and Nordic countries are intended to give patients greater say over their path of care.[12]

Even if the approaches as outlined earlier, including development of long-term predictable funding models that reflect costs facing operators, new funding models (Patient focused funding and Social Finance), and individualized approaches (vouchers, long-term care insurance and asset testing) are not adopted they deserve at least to be considered openly.  In this regard, the BCCPA hopes to begin this discussion at its next Care to Chat event entitled Fiscally Frail: How Will We Meet The Health Needs Of An Aging Society In An Era Of Limited Budgets?

This Care to Chat event to be held on February 4, 2015 will be a panel discussion featuring Stephen Brown, Deputy Health Minister and four Chief Financial Officers (CFOs) from BC’s health authorities. Along with discussing the current challenges of BC’s Residential Care Funding Model, participants will discuss what funders and operators are doing to strike a balance between the competing priorities of economic sustainability, and ensuring the well-being and dignity of seniors.