Financing a First Nations and Inuit Integrated Health System
- A Discussion
Factors For Consideration in an Integrated Health Funding Approach
There are several factors which are essential in a discussion on an integrated financing model for
health resources among First Nations. Much of the content of this paper thus far has focused on
the reasons that reform is needed in the First Nations health system, what possibilities are
available in terms of health system planning and design, and what the American experience with a
similar funding initiative can contribute to a discussion on reform.
In non-Aboriginal contexts, provinces are now looking at capitation
in primary care as an alternative to the current system where physicians
are paid on a piece meal, fee for service (FFS) basis, and where
no integrated approach to meeting the primary health needs of a
population exists. Capitation would solidify the physicians' role
as gate-keepers in the primary care system, as a single per capita
amount would be provided to physicians who would then ensure that
all of a patient's
primary care needs are met. In the case of First Nations health
financing reform which is proposed in this paper, the fundamental
principle is the same, however the holder of funds would not be
physicians and, depending on the community system design, physicians
may not be sole gate-keepers to access services. This function
may be shared with a number of community health care professionals,
including nurse practitioners, National Native Alcohol and Drug
Abuse Program (NNADAP) workers or even community health representatives
(CHRs) for limited services.
Financing reform raises a number of issues. How can funds be allocated which reflect community
needs? What funds should be included? Should a financing formula be based on a per capita
system? How will equity be addressed? How can the difficulties posed by small communities
lacking economies of scale be overcome in a way which respects individual community needs and
values? How will the formula be sensitive to population changes over a period of time? What
restrictions, if any, do current provincial financing mechanisms have on a First Nations funding
model which integrates funds from different government jurisdictions? How can catastrophic
events and financial risk be addressed? What should be the governing body which will control the
integrated funds? What should be the length of financial agreements? How should a new financial
arrangement be introduced?
The following sections presents issues and options in each of these areas. They are offered as
starting points for an informed discussion between First Nations and their funders on a new
integrated financing model which can underpin a reform strategy geared to improved health
status, equity in the access to health services and health care cost containment.
Equity in Health Care
One of the central issues in an integrated health funding model will be how to initially allocate
resources to communities. Health Transfer agreements currently use existing expenditure levels
as the basis for the funding allocation. First Nations have pointed to the inadequacies of this
method, as no allowance is made for the real health need of communities, and no enrichment is
factored in to deal with population increases. Addressing health needs in a fair manner means
that resources must be allocated equitably, using a process which incorporates information on a
community's health status and other variables that effect resource consumption.
Equity in health care is a goal of all publicly funded systems.
Equity can have a number of meanings, relating to whether it relates
to health itself, the use of health care or access to it. Horizontal
equity assumes that all persons are equals, and therefore all persons
should be treated equitably. Vertical equity, on the other hand,
is about the unequal, but equitable, treatment of unequals - or
how individuals who may be unequal or different in a society are
treated differently. (Note 38: Jan, S and V. Wiseman. 1996. "Equity
in health care: some conceptual and practical issues." Aust
NZ J Public Health, 20(1):13-15.)
One type of horizontal equity is equal use for equal need, where need may relate to the extent of
illness which is present in a population. This definition is difficult to put into practice, as it does
not incorporate individual preferences for health or health care, which may directly impact health
service use. Most commonly accepted definitions of horizontal equity involve equal access for
equal need. Access is made equitable through acknowledging that factors such as socio-economic
status, geographical location and culture, are important in a person's interactions with
the health care system.
Vertical equity, which is a much more difficult concept to operationalize,
recognizes that there are differences in the way different individuals
are treated. It has been theorized that vertical equity may be
accommodated by weighting health gains to different groups differently,
for example, by attaching weights greater than one to health gains
to people, such as Aboriginal people, in particularly poor health.(Note
39: Ibid.) For the purposes of this paper which looks at existing
fixed level resources to First Nations people where direct comparisons
to other Canadians may not factor in any allocation process, vertical
equity will not be considered. Rather the contributions of horizontal
equity to a discussion on resource allocation to First Nations
from a fixed pool of resources will be investigated.
Fiscal equalization, in a First Nations and Inuit context, should ensure that in the process of allocating resources to separate communities or tribal councils, that there will be no difference in
their capacities to provide service to their respective populations. This entails adjustments to the
funding amounts, based on factors which make a service in one community more or less
expensive than another. There are two approaches which may be used.
- Allocation of resources based on differences in the costs of providing services - a
true reflection of fiscal equalization.
- Allocation of resources to address inequities arising from the levels of unmet
needs.
A combination of these approaches has been considered when allocating
health care resources in Australia. Fiscal equalization is now
the foundation of resource allocation to states by the Commonwealth
Grants Commission. The factors which are used to adjust the level
of resources to each state include cross-border flows, age, sex,
Aboriginality, socio-economic composition, and a population dispersion
factor. Aboriginality is measured by comparing the current utilization
of services by Aborigines (adjusted by age and sex) with the level
of utilization by non-Aborigines.(Note 40: Ibid.)This distribution
factor does not account for the possibility that current service
use by Aborigines does not adequately reflect their current need.
This factor has questionable applicability for resource distribution
among First Nations as it has been shown that in Ontario, First
Nations on reserve utilize 30% less hospital expenditures (on a
per capita basis) than other Ontario residents despite significantly
poorer health status(Note 41: The 30% difference in acute and chronic
hospital expenditures between Aboriginal people and Ontario residents
is based on an analysis of 1991/92 expenditures by the Aboriginal
Health Office, Ministry of Health, Toronto, Ontario.), and overall
among First Nations in Canada, 1991 per capita health expenditures
were 6.8% less than that expended by the total population.(Note
42: Manga, P. and L. Lemchuk-Favel, 1993. Health Care Financing
and Health Status of Registered Indians. Assembly of First Nations:
Ottawa.)
In the New South Wales state of Australia, the formula used to
allocate resources across geographic regions measures need by three
variables: standardized mortality rates, socio-economic status
and rurality. Aboriginality is indirectly accounted for by virtue
of the greater need of Aborigines captured through these three
variables. Another state, Queensland includes a separate weighting
for Aboriginality; it is included on top of the need variables.(Note
43: Jan, S. and V. Wiseman, 1996.)
In a situation where an existing pool of First Nations and Inuit health resources (federal
government funds) are allocated among communities which are similar in that they all are in great
need as evidenced by socio economic conditions and health status, many of the factors used to
ensure equity among diverse populations will likely have a limited effect in adjusting a per capita
allocation among different First Nations and Inuit communities. The variables of mortality rates,
demographic structure, socio-economic risk, geographic location, and community size in a First Nations and Inuit context are considered below.
The provincial funding scenario is somewhat different as hospital and physician resources are now
not expended in a manner which is reflective of equitable access. An allocation process is based
on historical expenditure levels will solidify existing inequities. An evaluation will be needed to
ascertain if lower hospital and specialist utilization by First Nations occurs because persons are
using other community-based services, or if it is one of the contributing factors to poor health
status among First Nations in Ontario. If the latter can be established, a strong case can be made
for establishing a provincial resources levels using the principles of equity where First Nations'
resource needs are benchmarked against an average provincial expenditure.
- Mortality rates
The commonly accepted indicator of population health status is the mortality rate, which is
incorporated into health expenditure formulas to ensure equal expenditures for equal need. First
Nations and Inuit community mortality rates can fluctuate markedly due to community size and
the prevalence of suicide, a phenomenon which tends to occur in clusters. For this reason a
mortality rate averaging a period of three or five years would even out the random variation due
to low population numbers and suicide clustering. Even so, some communities may be simply too
small for a mortality rate variable to have any significance. A sensitivity analysis will be required
to determine the minimum population needed to effectively and fairly utilize mortality rates as
reflective of First Nations and Inuit health need in a resource allocation formula.
- Demographic structure
Demographic structure variables relate directly to the fiscal
equalization principle described above. This approach attempts
to estimate a resource differential required to provide a service
to different populations based on known costings by different
population profiles. Age and gender are the usual variables
used to provide a measure of demographic structure. But as
two Manitoba researchers, Frohlich and Carriere point out,
simply adjusting expenditures based on age and sex may actually
disadvantage small populations, for example, small populations
which have a high health service utilization by children, would
actually receive less resources in a straight baseline allocation
which looked at the percentage of children in a region(Note
44: Frohlich, N. and K.C. Carriere, 1997. Issues in Developing
Indicators for Needs-Based Funding. Manitoba Centre for
Health Policy and Evaluation:Winnipeg.). Clearly another factor
must be included in order to incorporate utilization and need.
These researchers have developed a model which combines age
and gender with socio-economic risk (see next section) and
using the population of Manitoba as an example, have found
a high correlation between resource allocation using age/gender/socio-economic
risk and the presence of premature mortality (an independent
measure of health status).
- Socio-economic Risk
In another Manitoba-based analysis, Frohlich and Mustard have
illustrated, using non-Aboriginal 1986 Census data, a linear
relationship between an individual's
health status and six socio-economic variables.(Note 45: As cited
in the reference in note 44.) Three of these variables were
positively related to poor health:
- the percentage of the labour force unemployed: ages 15 to 24
- the percentage unemployed between 45 and 54, and
- the percentage of single parent households.
Three variables were negatively related to poor health:
- the
percentage of the population between the ages of 25 and 34 having
graduated high school,
- the percentage of females participating in the labour force,
and
- the average dwelling value.
These variables were combined into
a socio-economic risk index (SERI) which the investigators showed
were strongly related to a number of measures of health status
and resource utilization. Using the population of Manitoba as the
base, the SERI combined with age/gender variables positively correlated
with utilization of physician visits (the health service indicator
used in the analysis). Average allocations for visits calculated
on the basis of these variables were positively correlated with
another established measure of need, premature mortality.(Note
46: Frohlich, N and K.C. Carriere, 1997.)
Again, there may be difficulties in measuring socio-economic risk
of First Nations and Inuit communities. The usual source of socio-economic
data described above is the Census, however, some First Nations
communities do not participate in the Census data collection. As
many communities have very poor socio-economic conditions which
related to their location, including proximity to urban centres,
a relevant (and easier to obtain) index of socio-economic risk
may be one based on geography. A recent Department of Indian Affairs
and Northern Development (DIAND) study which has analyzed 380 First
Nations, has concluded that there are five types of First Nations
based on socio-economic well-being. Its results show that different
types of First Nations can be identified based on socio-economic
circumstances and that there are distinctive geographical patterns
of socio-economic well-being. (Note 47: Information was obtained
from the Research and Analysis Directorate, DIAND, and is based
on an synopsis of one of the directorate's research projects: A
First Nations Typology: Patterns of Socio-Economic Well-Being.)
Five types of community were identified based on socio-economic
indicators: primary industry, emerging economy, typical disparity,
high disparity and extreme disparity. This study showed that there
is considerable diversity in levels of socio-economic well-being
among First Nations, and that distinctive regional disparities
exist. Furthermore, even the Primary Industry First Nations and
Emerging Economy First Nations have relatively poor conditions
in the broader Canadian context. The study revealed that where
conditions are defined in terms of housing, environmental sanitation,
education, employment and income, good conditions are generally
associated with an older population, proximity to more populated
areas, low use of an Aboriginal language at home and a high proportion
of registered Indian members residing off reserve. Further work
would be necessary to elucidate any connection between these First
Nations socio-economic groupings and health status, and if there
is a role for a socio-economic geographic index in a health financing
formula.
- Geographic Location and Community Size
As detailed above, geographic location is implicated in First Nations communities' socio-economic
well-being. It is also related to health service access in two direct ways:
- a community's remoteness in terms of distance to health care services will affect a
population's health status (and therefore need) if health services are not be
sufficient, timely, or appropriate.
- a direct effect on a health budget, through the expenditures required to access
needed services, either by health professionals visiting communities or patients
transported to southern medical facilities.
The Medical Services Branch (MSB) has classified all First
Nations communities based on geographic location and implied
access to health services:
- Type 4: remote isolated: no road access, no scheduled flights, minimal telephone
and radio access
- Type 3: isolated: no road access, scheduled flights, good telephone services
- Type 2: semi-isolated: road access to physician services at a distance greater than
90 kilometers
- Type 1: non-isolated: road access to physician communities at a distance less than
90 kilometers.
An access factor and a community size factor are currently being used in the present formula
which MSB uses to allocate resources for special programming, for example, the Brighter Futures
initiative. This formula is sensitive to the higher resource needs of small communities which
cannot achieve significant economies of scale. It was developed in consultation with the
Assembly of First Nations, and is called the AFN approved Modified Berger Formula (AFN-MBF).
The AFN-MBF distributes 10% of resources equally to all communities classed as Type
2, 3 or 4 in terms of isolation. The remainder of a budget is divided on a per capita basis, with
larger communities receiving lesser weights (i.e. a smaller population in the per capita calculation)
according to the following system:
- 0-500 population weight of 1.0
- 500-1000 population weight of .9
- 1000 - 3000 population weight of .8
- over 3,000 population weight of .7
This formula is used to allocate resources to regions, and regions may pursue their own
mechanisms for allocation to communities, such as requests for proposals, weighted per capita
allocations etc.
- Capacity Requirements
First Nations and Inuit communities will require resources to develop appropriate capacity,
design a community plan, and develop transitional strategies for the devolution of funds in an
integrated health model. These resources are required in the developmental stage and therefore
will not form part of the regular financing formula allocation. It should be noted that not all
transitional management resources should be devolved to the community. It will be imperative
that sufficient expertise exists in the funding departments to manage the devolution process and
ensure successful outcomes.
Resources will be needed on an ongoing basis for clinical and administrative training of
Aboriginal health workers and managers, and for activities related to the functioning of a
governance system, such as community consultations, election and convening of health councils
etc. These resources may be incorporated as additional incremental per capita costs as they are
independent of community health status or age/gender considerations, however related to
geographic location (and the general increased costs of remote locations) and community size.
In summary, a funding formula in an integrated health funding model, to ensure equity in health
services to First Nations and Inuit, should have the following equity-based components:
- base equal per capita allocation, adjusted for
- health status using mortality rates, and potentially socio-economic risk
- demographic structure
- geographic location
- community size
- equal per capita allocation for capacity building, adjusted for
- geographic location
- community size
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