Incentivize hospitals to treat patients—not avoid them

The topic of health-care reform invariably sends shivers down the spines of even the boldest of Canadian policymakers. Topics such as private alternatives and patient co-pays are often misconstrued as anathema to universal health care, eliciting strong pushback from defenders of the status quo, despite being the norm in other more successful universal health-care systems.

There is, however, one common-sense reform that’s entirely acceptable under the Canada Health Act—yet almost no one talks about it. Perhaps it’s the unsexy name “activity-based funding.” Or the prevailing fear that any tampering with our cherished Medicare system will lead to its immediate collapse. Notwithstanding these challenges, if we changed how hospitals are paid we could dramatically improve hospital efficiency and potentially reduce wait times to boot.

Before we get ahead of ourselves, it’s important to first understand the way our hospitals are currently funded.

Hospitals in Canada are currently allocated a budget at the beginning of the year. This amount or “global budget” is determined largely by historical trends, is simple for governments to administer and provides a predictable pool of funds for the hospital to use over the year. The downside is that this method is completely disconnected from the actual demand for patient services over the course of the year. In fact, it makes hospitals view patients as a “cost” because every time a patient walks in they eat into the existing budget.

Predictably, there’s little incentive to improve efficiency, discharge low-cost patients to make space for new and complex cases, or improve services. And when the hospital finally exhausts its pre-allocated budget (or anticipates doing so), it’s forced to put patients on a waiting list for the next year when they receive a new pool of funds. Anyone familiar with Canada’s long wait times will know this is exactly what happens every year.

There’s a better way. Pay hospitals according to the number and complexity of services they deliver. If more patients walk in the door, provide the hospital with money they need to treat them. Conversely, if fewer patients require services, divert funds elsewhere to hospitals with larger caseloads. In other words, money should follow the patient to where it’s most needed.

Despite the fear-mongering, this reform would not threaten the universal nature of Canada’s system. In fact, it makes so much sense that just about every other universal health-care system in the developed world does just that. A new study reports that 23 of the 28 universal health-care systems around the world have moved in this direction. This includes high performers such as Switzerland, Germany, Australia and the Netherlands.

Meanwhile, Canada remains part of a small group of five countries that still rely on the outdated global budgeting approach.

The benefits of reform, and the risks and any potential drawbacks of going about it the wrong way, are well-documented through the experiences of universal health-care systems over the last 30 years. As a result, Canada can undertake this commonsense shift in how hospitals are funded by learning from the successes—and avoiding the mistakes—of its international peers.

It’s time to let go of what doesn’t work and modernize our approach to hospital funding. Let the money follow patients and incentivize our hospitals to provide as much care as is medically needed when patients knock on their doors.