The Paradox of Productivity, Technology, and Innovation in Canadian Healthcare

Measures to raise the rate of productivity growth in the Canadian economy have been a prominent element in our economic policy debate. With healthcare now accounting for well over a tenth of GDP, the efficiency with which healthcare resources are used has a significant impact on overall productivity, and issues relating to new technology and innovation in healthcare have been attracting increasing attention. In this Commentary, we discuss how the problem of measuring the healthcare sector’s contribution to GDP has given the misleading impression that healthcare productivity growth has been slow in the past. New medical technology has helped raise both life expectancy and the average quality of life; if we had had methods to properly value these improvements, healthcare’s productivity growth would in all likelihood have looked quite impressive. But healthcare has claimed a larger share of resources over time; with our aging population this trend is likely to continue. And while the productivity of healthcare resources is higher today than in the past, our healthcare system does not compare favourably with those in many other countries. There is evidence to suggest that a substantial share of our healthcare resources essentially are wasted, being used for tests and interventions of no or little value. If ways could be found to gradually reduce this waste, productivity growth in healthcare could be boosted substantially. In looking for reasons why Canada has experienced slow aggregate productivity growth, observers have pointed to Canada’s relatively low spending on R&D, and have advocated government policies to more actively support it. We think such policies can be justified in their own right: Canada has plenty of talented researchers whose innovations could be exploited throughout the world. But we don’t think more Canadian R&D would necessarily be an effective way to increase productivity in our healthcare system. Canada is a small country, and most of the productivity-enhancing innovations and new technology that could be adopted here have been developed elsewhere. What is more important than increased R&D is that providers and managers in our system have strong incentives to adopt cost-efficient technology. To encourage this, provincial governments, with support from Ottawa, should experiment with new models of provider payment that strengthen their incentive to adopt cost-effective drugs, treatment methods, and diagnostic tests. As well, governments should work on creating a system of Health Technology Assessment (HTA) that both discourages new technology that is too costly, and is nimble enough to not impede the adoption of efficient innovations.