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1993 Report of the Auditor General of Canada

Assistant Auditor General: Elwyn Dickson
Responsible Auditor: Bill Rafuse

Main Points

19.1 In 1992-93, Canada's status Indians and Inuit received non-insured health benefits totalling $422 million. These benefits are administered by the Medical Services Branch of the Department of National Health and Welfare.

19.2 The non-insured health benefits program is not recognized in any legislation. The lack of clarity in the authority and mandate for the provision of these benefits detracts from the efficient and cost-effective delivery of the program.

19.3 The Department of National Health and Welfare is administering this program without agreement on its exact nature, without complete information on its costs, and without an effective management control framework. In the absence of specific direction from the government, the Department established national Program Directives setting out the terms and conditions for the provision of non-insured health benefits.

19.4 The cost of the program in 1992-93 would have been reduced by $85 million, or 20 percent of the total, if the benefits had been provided in accordance with the national Program Directives and principles.

19.5 The Estimates Part III is the only public record of information on the non-insured health benefits program. Information presented in the Estimates continues to fall far short of reasonable and adequate disclosure. This reporting practice, along with management inadequacies, resulted in insufficient accountability for program results.

Introduction

19.6 This chapter presents highlights from a report on the audit, undertaken jointly by the Office of the Auditor General and the Program Audit and Review Directorate of the Department of National Health and Welfare, of the non-insured health benefits program.

19.7 An audit of this program by the Auditor General in 1987 found planning and evaluation processes to be poor and performance measures to be lacking. The audit also found that the respective roles and responsibilities of the provinces and the federal government required clarification, and that improvement was needed in the information reported to Parliament. A follow-up audit in 1990 reported that little progress had been made in these areas.

19.8 Subsequent work carried out by both our Office and the Program Audit and Review Directorate led to a proposal to conduct a joint audit of the non-insured health benefits program that would satisfy the audit objectives of both organizations. Late in 1992, the Deputy Minister of National Health and Welfare and the Auditor General approved the proposal for a joint audit.

19.9 The auditors recognized that non-insured health benefits do not constitute a program or activity as defined in the Estimates Part III. However, for ease of reference throughout the chapter, the term "program" is used.

Background

19.10 Non-insured health benefits are health-related goods and services provided to Canada's status Indian and Inuit population (see Exhibit 19.1 ). The benefits fall into six categories: medical insurance premiums; other health care services; drugs, medical supplies and equipment; dental care; vision care; and medical transportation. Exhibit 19.2 shows the 1992-93 expenditures for each of the benefit categories. The program is administered by the Department's Medical Services Branch.

19.11 Exhibit 19.3 shows program expenditures in both current and constant dollars (adjusted for the effects of inflation). Program expenditures increased significantly over the period 1984-85 to 1992-93. This increase, after inflation had been taken into account, was due largely to the natural growth of the eligible population and the effects of Bill C-31 (April 1985), an amendment to the Indian Act that granted status to, or reinstated the status of, a large number of Indians. The growth of program expenditures in constant dollars on a per capita basis has averaged seven percent over the last eight years.

19.12 Greater awareness by eligible recipients and health professionals of the range of benefits available was another factor causing expenditure growth. The auditors were concerned that deficiencies in management practices, particularly those related to eligibility and entitlement controls, may also have contributed to increases in expenditures.

Audit Objective and Scope

19.13 The objective of the audit was to determine whether the non-insured health benefits program is managed in accordance with all related authorities and with due regard to economy and efficiency, and that the effectiveness of the program is measured and reported. Specific criteria were developed prior to the audit and were agreed to by the departmental managers responsible for the program.

19.14 The scope of the audit included an examination of the authorities, management practices and operational controls at headquarters, as well as in regional offices and selected zone offices. In addition, contacts were made with other federal and provincial departments.

Observations

Program Mandate

The provision of Indian health services has evolved gradually
19.15 The Department clarified its position on Indian health services in 1975, stating that it was "a matter of policy rather than statutory or treaty obligation that the federal government has provided certain health services to Indians. Parliament is asked each year through appropriation acts for the authority and resources to provide these services. The policy has been, and is, for the federal government to do what is necessary to ensure that Indians have access to adequate health services in order to achieve a standard of health comparable to that of other Canadians."

19.16 Three years later, the federal government introduced Guidelines for Uninsured Medical and Dental Benefits to the Indian and Inuit peoples to standardize practices across the country and set limits on benefits. The 1978 Guidelines proposed restricting eligibility to those who live on reserves and who meet the criteria of a financial means test. In 1979, in the face of intense opposition from the Indian community, the Minister of National Health and Welfare declared a six-month moratorium on the Guidelines. The government drew up a new Indian Health Policy that authorized the Minister of National Health and Welfare to:

  • withdraw the Guidelines for Uninsured Medical and Dental Benefits and establish the level of service during the moratorium as the norm for budgetary purposes;
  • establish professional medical or dental judgment or other fair and comparable Canadian standards as the criteria for health service delivery;
  • reaffirm the historical role of the federal government and the provinces in the provision of health services; and
  • promote consultation and participation in the administration and delivery of health programs.
19.17 The 1979 policy re-established non-insured health benefits as an open-ended program: requirements for a means test and on-reserve residency were dropped. The program still operates within the general framework established by this policy, with expenditures authorized through annual appropriation acts. Management improvement efforts since that time have focussed on defining and limiting the benefits available. For example, national Program Directives that set out the terms and conditions for provision of the various benefits available under the program were completed in 1989. Also, to improve control and efficiency, the Department contracted with a third party for automated claims processing services (see paragraphs 19.29 to 19.33).

The non-insured health benefits program authority and mandate are unclear
19.18 The Department of National Health and Welfare has historically been involved in delivering health services to Canada's status Indian and Inuit population. The 1979 Indian Health Policy states that the federal government's "legal and traditional responsibilities to Indians" flow from "constitutional and statutory provisions, treaties and customary practice." In spite of this historic relationship between the government and Canada's native population, there is no specific federal legislation recognizing non-insured health benefits.

19.19 The absence of specific enabling legislation has left a gap in the definitions of purpose, expected results and outcomes of the non-insured health benefits program. With no legislative starting point for policy and program development, there is still, after almost fifteen years, no consensus in the Department as to the exact nature of the program.

19.20 A clear understanding of the purpose of non-insured health benefits is essential for the efficient and effective delivery of the program. The Department's national Program Directive 1/1 defined non-insured health benefits in these terms: "MSB (Medical Services Branch) provides or arranges for the provision of non-insured health benefits for eligible beneficiaries who require medical services for the purposes of maintaining health, preventing disease, diagnosing or treating an illness, injury or disability. Non-insured health benefits are a limited number of health-related goods and services not provided to Inuit and registered Indians by other agencies."

19.21 The principles of the program, also contained in national Program Directive 1/1, are more consistent with a health insurance plan than a health program. Whereas a health program might have objectives defined in terms of improving health status, a health insurance plan would have as its objective to provide coverage, up to pre-determined limits, for specified medically required services and products. The auditors concluded that the description of non-insured health benefits in Directive 1/1 does not clearly define the program as either a health program or a health insurance plan. Interviews with managers confirmed this lack of clarity of the nature of the program.

19.22 The auditors found that, in practice, the program is managed more as an insurance plan. As such, it covers the cost of providing supplementary health benefits to qualified individuals. Program performance is judged on whether the specified benefits were provided within the set limits. Although the premiums, deductibles and co-payment provisions commonly found in health insurance plans are absent in this program, this is consistent with the general direction of the 1979 Indian Health Policy.

19.23 Practices for the administration and delivery of the program have developed over the years without the discipline imposed by a clear program authority, mandate and policy. Accountability for financial and other program results has also been hindered by the lack of clear direction. Deficiencies in this area are reported in paragraphs 19.34 to 19.40.

Program Management and Delivery

Deficiencies exist in expenditure control processes
19.24 Some program managers tend to view non-insured health benefits as quasi-statutory or uncontrollable expenditures because they are authorized by health professionals and accessed directly by the eligible population. As a result, the delivery of these benefits is often not subject to the same rigorous review as other expenditures. The auditors found that lines of responsibility and accountability for program management functions were unclear. One example relates to arrangements with third parties to deliver certain non-insured health benefits. Some of these arrangements did not include provisions to ensure that delivery was in accordance with program principles and the national Program Directives and was, in general, efficient and cost-effective. Further, the management of these agreements did not always include adequate monitoring and evaluation.

19.25 The auditors estimated that failure to effectively implement the principle of last resort as defined in the Directives resulted in annual expenditures of $45 million that would not otherwise have been incurred. This principle states that health services will not be provided or paid for when they are available to provincial or territorial residents under provincial or territorial health plans or other programs. The specific instances identified were where status Indians and Inuit did not fully use some or all of the supplementary health benefits available from provincial and territorial social assistance, health care insurance plans and employer group insurance plans.

19.26 The auditors also found that the 1992-93 expenditures of the non-insured health benefits program included $40 million for goods and services not specified as benefits in the national Program Directives and related policies. These related to such things as salaries for nurses, training of dental therapists, charges for residence and treatment at alcohol and substance abuse treatment centres, and payments to contractors for systems development and administration.

19.27 The program lacks the information systems and capabilities necessary to analyze expenditure patterns at the national and regional levels. Financial planning, forecasting and reporting practices have resulted in Estimates figures that are consistently below actual expenditures (paragraphs 19.37 to 19.40).

19.28 The administration costs of the program are not identified and segregated. Some administration costs - for example, those included in contracts for the delivery of benefits or payment of suppliers - are in fact charged as benefits, even though the Program Directives do not allow for this. The total cost of administering the program is unknown. As a result, the costs of managing and delivering the program cannot be compared from region to region, or in total, with possible alternatives. For example, the contract for claims processing and payment of supplier accounts was entered into without the information necessary to evaluate the cost-effectiveness of this alternative. This contract provides for administration fees of $42 million over its five-year term. The auditors identified several deficiencies in this contract, which are outlined below.

Development and implementation of the health information and claims processing system have incurred numerous problems
19.29 In July 1987, the federal government entered into a two-year contract, with an option to renew, with a private sector firm for the development and operation of a claims processing system for dental accounts. In December 1988, following the implementation of the system, the Department decided to tender for the development and operation of a similar automated claims processing system for all benefits.

19.30 In March 1990, a second five-year contract was awarded, on a competitive basis, to the same firm for $42 million, and work on the development of the pharmacy claims portion of the contract was initiated.

19.31 The auditors found that the Department had developed only general system specifications prior to awarding the second contract. As a consequence, implementation of the system was delayed for one year while the Department finalized the specifications. Further delays were encountered while the contractor responded to the Department's detailed systems requirements. Original plans called for the entire system to be implemented by December 1992. However, it was not until July 1993 that pharmacy accounts were processed in all regions. The system is not expected to be fully operational for all benefits before December 1994. As of September 1993, the Department had not prepared detailed systems requirements for vision care and medical transportation benefits.

19.32 Other deficiencies were also identified in the contract. For example, most large-scale systems contracts contain provisions for penalties for delays. This contract did include penalty provisions for inadequate systems availability, but did not address clearly either the contractor's or the Crown's liabilities with respect to delays in systems development or implementation. A 1992 amendment to the original contract specified that the charges associated with processing pharmacy transactions would be discounted in the event of system implementation delays or failure to meet the specifications. However, the specific criteria necessary to apply this discount are currently being negotiated with the contractor.

19.33 The auditors found that the Department's systems and procedures to monitor and control advance benefit claim payments to the contractor were inadequate. For example, there are no safeguards to protect the value of advance payments outstanding. In addition, the 1992 contract amendment was primarily intended to clarify the contractual terms and conditions. The amendment, however, did not include a description of the work to be performed, and negotiations are also under way to more clearly define this requirement.

Public Disclosure of Program Information

The Department has been aware since 1987 that non-insured health benefits information in the Estimates Part III is inadequate
19.34 The Estimates Part III is the Department's fundamental planning and accountability vehicle for reporting to Parliament. It is intended to provide program information primarily in terms of the results expected for the money that will be spent. It should also provide information for assessing financial performance over the past year. In the case of non-insured health benefits, the Estimates Part III is the only document that provides timely financial information that is publicly available.

19.35 We reported in 1987 and 1990 that information in the Estimates Part III did not disclose sufficient information on the program for members of Parliament and others to evaluate its financial and program performance.

The effectiveness of disclosure on non-insured health benefits in the Estimates Part III is greatly reduced because the program is not a distinct expenditure component
19.36 The auditors' review of the Estimates Part III for 1993-94 found that a number of deficiencies persisted in the disclosure of information on the program. Non-insured health benefits, with estimated expenditures of $470 million, will represent 56 percent of total spending for the Indian and Northern Health Services program activity. These benefits, however, are not identified in the Estimates as a distinct program activity or sub-activity, but are included in the Community Health Services sub-activity. The Part III information is also deficient in that it:

  • does not explain why these health benefits are provided to status Indians and Inuit, nor does it describe the basis for payment;
  • presents four pages of information on status Indian and Inuit mortality but does not link this directly to the effectiveness of non-insured health benefits; and
  • does not disclose the costs of administering the program.
Financial information on non-insured health benefits in the Estimates Part III remains unacceptable
19.37 Only a very careful and informed reader of the Estimates Part III could learn anything about the financial performance of the non-insured health benefits program. The Estimates document does present trend data for several benefit categories, but it does not provide other useful information, such as constant dollar costs, per capita costs or comparative financial data to provide a basis for assessing past and future performance of the program.

19.38 Estimates figures for the program have been consistently low, with actual expenditures exceeding the budget in eight of the last nine fiscal years (see Exhibit 19.4 ).

19.39 Although the actual expenditures have exceeded the Estimates by only nine percent on average over the past nine years, the information has existed for the Department to make much more accurate projections. In 1987, for example, we reported that, based on departmental information, the Estimates figure for that year was likely understated by $30 million.

19.40 Moreover, the explanations of changes, for both year-over-year and budget-to-actual expenditures, are generally insufficient and at times misleading. For example, in the 1993-94 Estimates Part III, the increase in non-insured health benefits costs over the previous year of $39.4 million is explained as "due to normal and Bill C-31 generated increases to the Indian population, and price increases." For years, this has been the standard explanation of program cost increases presented to Parliament in the Main Estimates. However, when Supplementary Estimates are requested from Parliament to cover budget shortfalls, the reason given is "extraordinary cost increases related to the non-insured health benefits program." The distinction between normal and extraordinary increases has not been clarified and is not supported by an analysis of costs. In fact, management has not undertaken the analysis required to determine and quantify the factors that are causing the increase in the costs of non-insured health benefits.

Conclusion and Recommendations

An unclear mandate and poor disclosure practices have resulted in a lack of accountability for this major program
19.41 The terms and conditions for the provision of non-insured health benefits and the nature and extent of these benefits have been established by the Department with very little direction from the government. The non-insured health benefits program is not recognized in any legislation, direction from Cabinet is general and outdated, and direction from the Treasury Board has focussed almost exclusively on cost containment. With scant political guidance over the past fifteen years, the program has grown significantly in terms of benefits provided, population served and funds expended. Policy and management practices have evolved largely in response to program growth, Treasury Board concerns about rapidly rising costs and criticisms from the Auditor General and others.

The joint audit report contains a number of important recommendations
19.42 The joint audit report contains recommendations for all of the major observations raised in the report. These recommendations are presented below in a condensed form. The issues that they address are reported in a summary fashion in this chapter.

19.43 Recognizing the need for appropriate consultation with the parties concerned, the Department should seek from the government a renewed mandate for the non-insured health benefits program to clarify the authority base, purpose and objective of the program.

Department's response: Health Canada agrees and intends to integrate the key points, in consultation with First Nations, to review the program and policy content to culminate in a Cabinet submission.

19.44 As intermediate measures, or as appropriate when formulating a renewed program mandate, the Department should:

  • establish clear lines of responsibility and accountability and improve financial planning and reporting practices and information systems at the regional and national levels;
  • pursue cost savings available from implementation of the principle of last resort and ensure that only the costs of benefits specified in the Program Directives are charged as non-insured health benefits;
  • strengthen the capability to manage the implementation of the health information and claims processing system.
Department's response: Health Canada has already enhanced the policy and management capacity of the program and introduced costing procedures and containment mechanisms. The Department will act further on findings in the joint audit report, where cost-effective measures can be implemented within its resource base, authorities and legislative limitations.

19.45 To improve the public disclosure of program information, the Department should establish the non-insured health benefits program as a distinct expenditure sub-component in the Main Estimates. Program information in the Estimates Part III should be complete and accurate.

Department's response: Health Canada agrees and will present the non-insured health benefits program as a distinct sub-activity in the 1994-95 Part III of the Estimates.