How Alberta went from being one of the lowest-spending provinces on health care to one of the highest

The report puts itbluntly. "Alberta: We have a problem."

That problem, according to the report's authors a six-person panel, led by former Saskatchewan finance minister Janice MacKinnon is government spending. And at the top of the list of things they say the government is spending too much on is health care.

This report will guide the UCP government when it introduces its first budget next month, and the financial plan is widely expected to be one of spending restraint, after years of relative excess.

The MacKinnon report was far from the first to point out that Alberta spends far more money, per resident, than other provinces. And, at the same time, it collects far less tax revenue, relying on oil and gas royalties to cover the difference.

• FROM 2017:Alberta spends $2,700 more per person than B.C. yet collects $1,300 less tax

"What typically happens in Alberta is that, when natural resource revenues go up, so does spending," the report reads."But the reverse doesn't happen. When there are sharp declines in natural resource revenues, governments don't reduce spending to match the decline."

This is the essence of the problem, and it has been decades in the making. In 1996, Alberta's health spending was the second-lowest, per capita, of all the provinces. Today, we spend the second-most, behind only Newfoundland, which has a significantly older and less healthy population.

To understand how we ended up in this situation, economists say, it's helpful to look at the big picture the macroeconomicand political history of our province. To figure out how to fix it, meanwhile, requires a look at the fine details theparticular areas within our health-care system where spending has grown so rapidly. In both cases, data from the Canadian Institute for Health Information (CIHI) is revealing.

Let's start with the history.

The health-spending roller-coaster

Like revenues from oil and gas, health spending has been on a wild ride in Alberta.

Back in the 1970s and throughout most of the 1980s, we were at or near the top of the list when it comes to per-capita health spending.

Then came theKlein-era cuts.

After being elected premier in late 1992 amid a plunge in world oil prices, Ralph Klein's Progressive Conservative government slashed health-care costs. Alberta went from the highest-spending province in 1993 to the second-lowest in 1996. Health spending over that period was reduced by16 per cent, on an inflation-adjusted, per-capita basis.

But the restraint didn't last long.

In the late 1990s, buoyed by rising oil-and-gas revenues, provincialhealth spending started to creep back up. This continued under Klein's later years as premier and under his successor, Ed Stelmach, who took over the PC leadership in 2006.

Health spending kept risingfaster than inflation and population growth, combineduntil about 2010. Since then, spending as a whole has been relatively flat, when considered on an inflation-adjusted, per-capita basis. But it remains significantly higher than the national average.

Some areas of health spending, meanwhile, have grown faster than others. This is where we need to look at the finer details.

Hospitals and doctors

When it comes to reining in government spending, cutting back on front-line services is often the least popular approach. A common refrain from the public is that government should reduce administrative costs, instead.

But when it comes to health care in Alberta, administration is a tiny and shrinking fraction of the overall budget.

CIHI estimates that the provincial government spent about $5,100 per Albertan on health care in 2018. Of that, less than $36 went to administration. Administrative costs now make up 0.7 per cent of the overall health-care bill. That's down from two per cent in 1998.

The biggest, single expense is hospitals, which rang in at nearly $2,300 per person last year. In real terms (adjusted for inflation) that's 75 per cent more than what we were spending on hospitals 20 years ago.And most of that money, according to CIHI, is going to the salaries of staff who work in hospitals.

The next biggest chunk of health spending is physician compensation. A small part of this is captured within the hospitals component, but the bulk of it is recorded separately. (CIHI's full methodology for calculating all these costs is explained here.)

In 1998, Alberta was spending a bit less than $525 (in current dollars) per citizen to pay doctors. By 2018, that had more than doubled to $1,185. That's an increase of 126 per cent, which marks the fastest growth of any single expense identified in the CIHI data.

"We had some really big boom years in the late '90s early 2000s, andthe compensation plans reflected that," said Fiona Clement, a professor at the University of Calgary's Cumming School of Medicine who specializes in health policy and health economics.

"The nurses and the physicians in Alberta became the most highly compensated of those professionals across Canada, and very competitive globally."

Of course, across most professions, people in Alberta tend to make more money than people in other provinces. Albertans'average incomeshave fallen in recent years but remain 16 per cent above the national average. So it stands to reason, Clement says, that doctors and nurses would be paid more here, as well to a degree.

The issue for the Alberta government is the relative rate at which these health costs have grown, says Moshe Lander, an economics professor at Concordia University who also teaches in Calgary.

"On a per-capita basis, this is clearly on the upswing and that's probably at a faster rate than incomes are growing, in general," he said.

"That's one of those things that's very difficult to undo, to try and stare down any sort of Alberta Medical Association or nurses union and say, OK, it's a cyclical downturn, we're laying off 10 per cent of you just the way that we would at an auto factory or the way that we would on an oil rig," Lander added.

"It'sway more difficult to do, because the optics of it are so dangerous to any political career."

Cutting the salaries or the numbers of people who deliver front-line health-care services may be politically challenging, but it's something the MacKinnon report is recommending the government do.

Even if that means using the force of law.

Negotiation or legislation

The report specifically targets hospital costs with one if its recommendations, urging the government to "make greater use of alternative service delivery for day procedures and other services that do not have to be delivered in hospitals."

Another recommendation takes aim at "the increasing cost of physician services" and advises moving more doctors from the dominant fee-for-service model to alternative payment plans by renegotiating the government's agreement with the Alberta Medical Association (AMA).

"Every effort should be made to achieve a negotiated agreement, but the government should also consider its legislative options," the report reads.

For its part, the AMA has said it's "open to" changes in physician compensation but its president has also criticized the MacKinnon report for not acknowledging concessions doctors have already made in recent negotiations with previous governments.

In the wake of Alberta's economic downturn and budget deficits, the United Nurses of Alberta also agreed to a three-year contract with the previous NDP government that included a wage freeze in the first two years for its roughly 30,000 members.

But that contract is set to expire in April, and the new UCP government has already been involved in a legal battle over wage arbitrationin the final year of the existing contract.

It all sets the stage for what's likely to be a contentious budget in October, as well as ongoing political and policy conversations after that. These discussions may not be easy, but Clement believes they're necessary and overdue.

"We will be further challenged with our budget as our population ages," she said. "So it's certainly something that we should have gotten prepared for decades ago, but the need is even more pressing now."