April 17, 2013 – The dismal performance of Canada relative to other OECD countries on measures of wait times and access to hospitals underlines the need for rethinking the way hospitals are funded, according to a report released today by the C.D. Howe Institute. In “Paying for Hospital Services: A Hard Look at the Options,” authors Jason Sutherland, R. Trafford Crump, Nadya Repin and Erik Hellsten find more use of activity-based funding (ABF), in which hospital payments are based on the volume of care provided, is a viable complement to fixed annual lump sum budgets for rebalancing the financial incentives for Canadian hospitals.
“The partial introduction of activity-based funding would have a good chance of driving meaningful change, particularly with regards to the problems of long wait times and access to beds,” noted Jason Sutherland.
Hospitals costs make up the largest share of all healthcare spending, to the tune of over $58 billion per year across Canada, note the authors. Provincial governments routinely dedicate a greater share of their budgets to hospitals than to many of their entire ministries. But in all provinces, there are many examples to be found of the inefficient or ineffective use of hospitals, including the continued use of obsolete procedures and the prevalence of beds filled by patients ready for discharge to the community.
“With all this money going to hospitals, provincial governments have historically paid little attention to how this money has flowed to hospitals and how it affects hospital behavior,” said Trafford Crump. The report examines the strengths and weaknesses of alternate methods for funding hospital-based care in Canada, such as global budgeting – fixed annual lump-sum transfers – and the methods that some provinces are contemplating for future reform efforts. The report then discusses the policy experiments underway in British Columbia and Ontario that are changing the financial incentives for hospitals in those provinces.
While the authors conclude that thoughtfully deployed ABF policies can help provinces tackle some of their burning healthcare challenges, international experience shows that such policies need to be designed and implemented with care. Further, ABF for acute care should be complemented with funding reforms for other healthcare sectors, such as community care, to encourage better coordination of care across settings. Emerging healthcare payment reforms in the US and Europe can provide provinces with some lessons in designing ‘next generation’ ABF policies that target quality and integration as well as access.
Click here for the full report.
For more information contact: Jason M. Sutherland, Assistant Professor, Trafford Crump, Post Doctoral Research Fellow, Nadya Repin, Research Coordinator, Centre for Health Services and Policy Research, University of British Columbia; Erik Hellsten, Graduate Student, Institute of Health Policy, Management and Evaluation, University of Toronto; or Colin Busby, Senior Policy Analyst, C.D. Howe Institute, 416-865-1904; email: cdhowe@cdhowe.org