MOST POLICY debates in Canada revolve not around whether the policy in question is good or bad, but on whether it is truly Canadian. An example is our system of health-care funding. Medicare is the Canadian way, it is often said. End of debate.

Not that there is anything necessarily wrong with medicare. But we should not let nationalist complacency prevent us from taking a hard look at our health-care system, to see where it might be improved or adapted in response to rapidly changing health-care needs in the years ahead.

A measure of the searching examination required could be taken at last week's Financial Post Conference in Ottawa on ''The Health-Care System: Balancing Quality and Cost.''

On the surface, the conference was told, the state of health care in Canada is quite good. ''The Canadian health-care system has been and continues to be recognized as one of the best achievements of Canadian society,'' declared Orvill Adams, medical economics director of the Canadian Medical Association. ''Our health system is efficient, effective, and civilized,'' said federal Health & Welfare Minister Jake Epp.

Although costs have been rising - health-care spending has climbed from 6.2% of GNP in 1965 to 8.5%, or $38 billion, in 1985 - such increases have been about in line with international trends, adjusted for national income, and compare favorably with the U.S. and Sweden.

Moreover, we have been getting a good return on our increased expenditure, as Marcel Baltzan, partner, Baltzan Associate Medical Clinic, reminded conference delegates. Mortality rates have fallen sharply - 15% between 1971 and 1981. The average Canadian's life expectancy rose from 75 years to 78 1/2 years in the same period.

But cracks are starting to show in the foundation. Hospital bed shortages are becoming more common; waiting lists for certain kinds of operations are lengthening. The clustering of doctors in city centres is of increasing concern, and two provinces, British Columbia and Quebec, have at one time or another enacted legislation aimed at directing physicians to move to less populated areas. And while costs are tolerable now, they threaten to explode in years to come as our population ages, straining the public system to its limits.

Simply to rely on current institutions to take whatever new burdens may be placed upon them, as Epp made clear, ''will increasingly jeopardize our capacity to meet everyone's needs, and create an increasingly competitive and spartan system. In the process we would rob people of quality of life.''

What is needed is not, as doctors and health-care administrators maintain, massive infusions of funds. We spent a smaller percentage of GNP on health 20 years ago, yet shortages were then unheard of. The problem, as several conference speakers emphasized, is one of efficient use of available funds.

Nor should we immediately assume radical systemic change is required, even were it politically possible. Noted Robert Brook, senior health services researcher at the California-based Rand Corp., there is a danger in focusing on ''the exciting issues, rather than the important ones.''

More essential than the overall structure of the system (whether, for example, it is funded publicly or privately) is the framework of incentives to individuals within the system - doctors, patients, politicians, bureaucrats - to husband resources wisely. In this light, some basic reforms to open up the Canadian system, while retaining its broad features, are in order. Such reforms should keep in mind two basic distinctions: - Distribution should not be confused with allocation; or, in other words, equitable distribution should not involve and does not require inefficient allocation.

Distributionally, the decision long ago was made to ensure equal access to all, regardless of income. There are ways to guarantee that, however, without distorting allocative efficiency to quite the present extent.Indeed, the use of inefficient methods can impinge on the ability of the system to deliver equal access. Extendicare President Frederick Ladly told the conference of the widespread practice in Britain of refusing dialysis treatment to elderly patients, pointing out that ''socialized health care does not provide equal access to all if there is a relationship between age and eligibility for medical treatment.'' Or, as Professor Alan Maynard of the Centre for Health Economics at Britain's University of York observed, ''Inefficiency in health care is unethical. Inefficiency . . . is theft.'' - The second, allied distinction is between public finance and public provision. Public funding of health care, the means by which equity is assured, need not imply public delivery of health services. Yet the medical-care system in this country is still very much a centralized, command economy, with very little scope for market mechanisms to guide choices.

That does not necessarily mean it is more costly. The equal inability of Sweden (relatively centralized) and the U.S. (relatively market-oriented) to control their costs suggests that ideological equations of the private sector with lower costs are simplistic. But it does mean that the system is prone to arthritis; Fraser Mustard, president of the Canadian Institute for Advanced Research, emphasized this lack of flexibility in a public system as its central weakness.

It is a paradox that centralized, planned systems, whose information requirements are highest, are, in the absence of appropriate incentives, uniquely unable to obtain new information from without or generate needed information from within. ''Health systems are 'black boxes,' '' Maynard said. ''We don't know the cost of anything.''

Indeed, in this information age, health care, in this country as in others, is notably lacking in the most basic cost/benefit information necessary for efficient operation - a constant complaint at the conference. ''I'm appalled by the lack of data available from the system,'' said Robert Clark, executive director of the Alberta Medical Association. ''Could IBM possibly manage its affairs with so little information?''

Some progress is being made in producing opportunity cost comparisons of different medical techniques. Maynard outlined one such tabulation, which used British data to compare the costs associated with various means of adding a full- quality year to the life of a patient. The results are instructive in thinking about allocating medical resources.

A hip replacement, for example, costs 750 for each ''quality-adjusted life year,'' or QALY, it benefits the patient. Hospital haemodialysis, by contrast, costs more than 15,000 per QALY. If it were uppermost in administrators' minds that the same resources used to add one year to a patient's life by haemodialysis could gain 20 for the recipients of hip placements, would the former treatment claim as great a part of hospital funding as it does today?

But much of the information problem would disappear if health-care decisions could be made to involve an important network of ''information gatherers'': health-care consumers, i.e. patients. Decentralizing the process to these consumers would require less information for each decision, at the same time as the aggregate amount of information available increased.

There are nonmarket attempts made to gather patient input. University Hospital in London, Ont., distributes ''We care what you think'' questionnaires, Canadian Hospital Association President Jean Claude Martin told the conference of hospitals with patient representatives on the board.

Such ideas will be familiar to workers promised ''participation'' in corporate decision-making: the result is usually something less than the promise. Without direct control of the funding of the system, the patient is likely to have neither the opportunity nor the incentive to determine how medical resources are allocated. To gain that power, the consumer must have responsibility for paying some or all of the costs: he who pays the piper and all that.

The first objection to this, that it would threaten equal accessibility to health care, may be easily surmounted: a voucher system, Mustard noted, would retain equity while promoting consumer choice. It does, however, give the consumer less incentive to monitor costs.

A second, more significant objection, however, lies with the applicability of consumer sovereignty in health care. As health economist Robert Evans of the University of British Columbia argued on his panel, doctors have an overwhelming informational advantage over their patients, particularly when it comes to the use of expensive new technology. That lets them, in effect, create their own demand; indeed, the more doctors practising, the worse the overall cost burden becomes.

But is it enough simply to leave it at that? To dismiss consumer sovereignty with a wave of the hand because of ''asymmetric information'' (to use the appropriate economic jargon) assumes consumers would simply roll over and accept such treatment. Further, it assumes individuals or groups with superior information on health care would not see the opportunity to provide a service to perplexed consumers.

Diagnostic clinics, which specialize in telling you what's wrong with you and thus have no interest in recommending treatment you don't need, are one such service. So are hospital and doctor performance evaluations, which could be done by government or by profit-seeking rating agencies.

Consumers, at any rate, are already seeking to make themselves better informed on health matters, said Lorine Besel, vice-president of nursing at Montreal's Royal Victoria Hospital. ''The healthiest challenge is the consumer,'' she said. ''They're increasingly critical.'' New technology, Mustard pointed out, may allow consumers to diagnose themselves in the near future. ''That may be positive, or it may create a nation of hypochondriacs.''

But the most prominent means of increasing patient power are the proliferating Health Maintenance Organizations (HMOs) in the U.S., whose less numerous cousins in this country are more often referred to as Health Service Organizations (HSOs).

The idea is quite simple: the individual pays a flat fee each month to the HMO of his choice (often an employer-run outfit) which provides him with all necessary health care. Thus is combined the insurance and health provision functions in one organization.

The HMO has no interest in loading the consumer up with unnecessary treatment. Since its profit is the difference between the fee and its costs, its incentive is to keep costs down. Part of this involves contracting, on behalf of the patient, with physicians and hospitals offering value for money: in a sense, the HMO acts as a ''surrogate consumer.'' And HMOs put greater emphasis than traditional health-care organizations on cheap prevention, rather than costly cures.

If power in the medical-care delivery system is to be transferred to patients, however, it must of necessity mean the breakup of the ''medical empire'': the powerful doctors' monopoly. Physicians usually (a) deny there is a monopoly, (b) say it is for patients' own good, and (c) express their willingness to compete in a free market. All three mutually contradictory answers were heard at the conference.

Things have changed to some degree since the 1934 declaration by a Canadian Medical Association committee that ''What is best for the medical profession must be best for the public,'' but it was still possible to hear Joan Charboneau, president of the Association of Independent Physicians of Ontario, proclaim at the conference that government, doctors and patients ''should never have to become servants of the other.'' Of course they should: both government and doctors should be slaves of the patient/consumer/taxpayer.

Much of the benefit of HMOs has been associated, as Evans put it, with the ''proletarianization of the physicians.'' HMO doctors are more often than not on salary, rather than charging a fee for each service. This has the advantage of quenching the physician's thirst for more and costlier treatments. But while this change in payment terms is often seen as a panacea for rising medical costs, Brook of Rand Corp. warned it has costly side-effects: doctors on salary tend to spend too much time with too few patients.

Another trend in the U.S. offering possibilities for expanded consumer choice are commercial, for-profit hospitals. This will horrify those who, like one Alberta politician, recoil at the thought of ''making money off the sick.'' It will also disappoint those free-enterprisers who believe it would lead to lower costs. Indeed, as noted elsewhere on this page, the evidence to date has been that they have served to increase costs.

A better case for allowing profit-oriented hospitals alongside the public, not- for-profit system can be made, as both Extendicare's Ladly and Hospital Corp. of America Chairman Thomas Frist argued, on the classic grounds that competition is a discovery procedure. They provide a ''benchmark against which others can measure performance,'' said Frist, and a stimulus to innovation - information, in other words, useful to health-care consumers and providers.