Earlier this year, the Ontario government sparked a fight with the province’s doctors when it announced plans in the government budget to freeze doctor’s wages. Now the fight is turning to a raging inferno as the Ontario Medical Association (OMA) plans to take the provincial government to court over the issue.

According to the province, the average doctor bill in Ontario was $385,000 last year; about 75 per cent more than in 2003 when the current government took power.

The OMA is infuriated with the province for failing to negotiate new fees while the government is irritated by the OMA’s unwillingness to compromise. Both miss the point:  the real problem lies in how the fee structure was set in the first place. The prices of medical services in Ontario are negotiated in a charged political atmosphere between a single-payer (government) and effectively one supplier (the physicians’ association). No wonder the result is a plethora of problems.

Problems include some physician fees having more to do with history than modern realities of medicine or compensation granted according to how doctors rank in the scale of a particular government’s priority list. Thus, for instance, the recent politicization of medicine creates spoils for some specialists while ignoring others, such as providing particular physicians with more operating room time and thus more earning potential/income than their colleagues. In other cases, physician fees once set high to compensate for long complex procedures now too generously compensate practitioners thanks to newer technologies.

In the past, provinces tried to control health care costs by limiting the supply of doctors. The result is a physician shortage that has an important impact on current negotiations. That shortage might get worse as some OMA members understandably advocate that arbitrary cuts to fees will encourage physicians to leave the province.

In contrast, if prices for medically necessary services were determined by competitive market forces and physician supply, not by central planners, we would see a more dynamic marketplace where the supply of physician services was better aligned with the needs of patients (While prices for some services might increase or stay the same, generally speaking there is no way to determine what prices should be without properly functioning market dynamics).

So here’s a remedy: First authorize doctors to vie for services in both the public and private sectors without restrictions. Doctors currently must opt-out of the public plan to work in the private sector and they are not permitted to bill more than they would receive from OHIP. Allowing physicians to work in both the public and private sectors, as is done in a number of other developed countries such as Australia and Sweden, would make better use of limited physician resources. Freeing them to set their own private prices would give physicians a further reason to stay in Ontario. Importantly, the total volume of health care services (public and private) available to Ontarians would likely rise as physicians are able to put currently idle resources to work in the private sector alongside their public practices.

Second, the province could address the issue of physician supply by allowing patient demand to determine how many doctors are needed, rather than government decree. In the early 1990s, provincial governments decided to limit physician training to avoid a surplus of doctors. Today, they are ramping up training to deal with the shortfall. Neither approach is correct. It makes more sense to let the market determine how many doctors should be trained.

Third, encourage competitive pricing by moving away from the current health insurance monopoly and allow Ontarians to purchase private insurance for medically necessary services.

Not only would a well-regulated competitive private health insurance sector provide Ontarians with a choice of medical plans that meets their personal needs, but it would also eliminate the monopoly currently held by the Ontario Health Insurance Plan [OHIP]. Permitting private insurers to compete with OHIP and negotiate service fees with individual or group providers should lead to prices that more closely reflect the true cost of care. Further, the quality of medical services will likely improve as providers compete with one another for patients and bring these quality-improving practices into the OHIP funded health care sector.

Allowing a competitive private insurance sector for medically necessary services and allowing physicians to practise medicine without artificial constraint would lead to better health care in Ontario. It would also be a smarter, pragmatic approach than either caving into doctors’ demands, or having government forcibly limit doctor’s compensation.