Capitation and Primary Care in Canada: Financial Incentives and the Evolution of Health Service Organizations

Alternative approaches to the funding, organization, and delivery of primary care have been the subject of ongoing discussion and debate in many industrialized nations for many years. One common recommendation has been to use capitation, as opposed to fee-for-service, as the payment method for physicians. In this study the authors use data from interviews with physicians and Ministry of Health officials to trace the evolution of Ontario's Health Service Organization (HSO) program, the only program of capitation-funded physician care in Canada. The program has developed in three phases: formation in the early 1970s, expansion in the late 1970s and throughout the 1980s, and restructuring in the 1990s. The analysis focuses on the perceptions and actions of policymakers and physicians who became involved with the program at different points in its evolution, and identifies how they perceived and responded to the financial incentives that were introduced to promote the program. This case study allows an examination of the shifting objectives, communications, perceptions, and responses of policymakers and stakeholders in changing contexts over a period of more than 20 years. The long history of the HSO program provides the opportunity to examine the factors that can cause financial incentives to go awry. The authors suggest how this case study offers lessons for financial incentive policymaking.