Pay Hospitals on an Activity-Based Funding Model to Foster Competition

Most hospitals in Québec and in Canada receive funding through …

Resolution #20: Pay Hospitals on an Activity-Based Funding Model to Foster Competition (Official French version)

Most hospitals in Québec and in Canada receive funding through overall budgets which are primarily determined by historical reasons. In an ever-expanding system, this form of funding leads to rationing, and hospitals have no choice but to restrict admissions. There is no incentive for hospital managers to reform the system in order to reduce costs and to improve access and wait times.

Instead, hospitals should be paid per treatment, on an activity-based funding model as it's currently done in Scandinavian countries and in England. The amount paid to a hospital should be the equivalent of the average cost to perform the treatment in question in Québec. This amount should be adjusted by taking into account a range of factors that are proper to each institution and patient, such as the geographical location, the individual characteristics of each patient, etc. Regular audits of at least 5% of all transactions will be performed to ensure that hospitals do not overcharge the province. Since the money will follow the patient, hospitals will be encouraged to expand their services to increase revenue. This formula also encourages hospitals whose costs are higher than average to improve their performance by adopting better practices. The growth in activity resulting from such an approach also means that patients will be treated more quickly, access to healthcare services will be improved and waiting lists decreased.

Does activity-based funding lead to cutbacks on the quality of services by healthcare institutions in order to reduce costs? Quite the contrary, insofar as revenues depend on the number of patients they attract, it's imperative for them to offer quality services and maintain a good reputation. In addition, any hospital which readmits a patient for the same condition within 30 days of their last hospital visit must do so free of charge. In due course, we will look to extend activity-based funding to other activities, such as primary care and home care.