In recent months some people in Canada, including the leadership of the Canadian Medical Association, have advocated for a shift away from hospital block funding towards “activity-based” funding. It is argued that Activity-Based Funding (ABF) would provide an incentive for hospitals and surgical facilities to improve productivity, thereby decreasing waiting times and costs. It is postulated that if hospitals rely on high volumes of “activity” to get their funding, then they will perform more procedures and see more patients.
Under ABF the services that patients receive in hospitals for a particular illness are classified into clinical groups that use similar levels of hospital resources. Hospitals receive a fixed amount for treating patients in these groups. The money follows the patient to the facility that provides the service. Thus, hospitals do not receive an annual budget from the government based on what was spent last year, but instead receive money based on the numbers of patients seen with a given medical problem and diagnosis-related group classification.
Activity-Based Funding, either alone or as part of a mixed funding strategy, is used to greater or lesser degrees in the United States (where it was first developed and implemented) and in several European countries. In some instances it has helped to reduce wait times, but in others it has substantially increased costs. In England, the British Medical Association has expressed profound concerns that ABF has fragmented care and undermined the public health care system by facilitating privatization of services. In the United States, ABF has led to widespread gaming of the system by hospitals looking to increase their revenues.
Some advocates of ABF have an ulterior motive when they argue for ABF. They hope that the adoption of ABF would result in an increase in the number of private for-profit clinics and surgical centres that would “compete” with hospitals for government funding. Their arguments are not so much grounded in actual evidence, but more in the belief in the primacy of the market and the principle of competition. This argument assumes that there are sufficient doctors, nurses, and other health care providers to staff both private for-profit clinics and surgical centres and public not-for-profit hospitals. It further assumes that private for-profit facilities will be able or willing to provide services at the same cost as public hospitals, while still managing to make a profit. When analyzing a move towards ABF, one must ask whether it is only ABF that is being promoted, or ABF as a way of increasing the number of private for-profit clinics and surgical centres.
There is little, if any, evidence that ABF on its own is a cure for waiting times. If not implemented and monitored carefully, ABF can provide a disincentive for hospitals to provide low-volume but needed care and lead to hospital closures in rural communities. If linked to increased investor-owned for-profit delivery it can also threaten coordination of care, increase the unit cost of health care, and threaten care quality.
If Canadians are to explore activity-based hospital funding, we should do so with our eyes wide open to the risks and benefits. Canadian Doctors for Medicare supports experiments with ABF to learn whether this approach might be useful, but only if it does not undermine the public system. CDM recommends a set of principles for approaching ABF that draw from international experience. See our ABF position paper for a full exploration of these principles.
Click here to view the full report: Activity Based Funding in Canadian Hospitals and Other Surgical Facilities (2008).
