Changing the way we fund hospitals to put the patient first could help end healthcare delays, according to policy experts.

Over the next few weeks, The Hub: It will expand on the public policy top five of the 2023 Hunter Prize, which asked for proposals that would address Canada’s vexing problem of growing wait times for medically necessary care. In each of these dispatches, readers will get a closer look at the issues at hand, as well as analysis from industry experts.

In 2022, Canadians faced an average wait time for medically necessary treatment of about 28 weeks, nearly three times longer than in 1993. Could a new funding model help solve the problem?

Runner-up for the 2023 Hunter Prize in Public Policy, “The Domino Effect of Diagnosed Groups. from hospital pay to health reform,” Bacchus Barua, director of health policy studies at the Fraser Institute, examines how medical care. In Canada, times could be reduced by adopting performance-based funding for hospitals.

Under a performance-based financing system, Barua believes that problems inherent in the current global budgeting regime, such as lack of transparency and disincentives for efficiency, can be overcome. According to Barua and several health policy experts, activity-based financing can better match patient needs and health care costs, even if it means a more complex system overall.

Global budgeting versus activity-based financing

Under the global budgeting system, hospitals typically receive funding based on historical budgets adjusted for factors such as inflation and population growth. This system also takes into account the specific health needs and priorities of different regions, as well as performance and effectiveness indicators.

Sean Whatley, MD and senior health policy fellow at the Munk Macdonald-Laurier Institute, agrees that global budgeting no longer meets the health care needs of Canadians.

“Global budgets make it very difficult for hospitals to respond to demand. Performance-based funding means they can respond immediately,” says Whatley. “Patient demands increase, they immediately get additional funding, and they can hire more help or pay nurses overtime or do whatever they need to do.”

While serving on the finance committee of a hospital near Toronto, Whatley experienced first-hand the global budgeting regime. If they entered the budget, he reveals that the government would cut their funding. If they were equal, the government would not provide funds for the growth of the community. And if they were too far from the budget, the government would replace the council. Therefore, the goal has always been to slightly exceed their budget.

Unlike global budgeting, activity-based financing allocates funds according to actual services provided. This model, Baroua argues, can reduce wait times without the need for increased private sector involvement, creating a competitive and dynamic funding environment where funding follows patients.

Nadeem Esmail, a senior fellow at the Fraser Institute who served as director of Health System Performance Studies from 2006 to 2009, says that with performance-based financing, patients are the source of hospital revenue. If a particular hospital isn’t treating enough patients, or if its emergency room is understaffed, he notes, the hospital won’t have the same revenue as a hospital that does well in both of those areas.

“For providers, all of a sudden patients are no longer pulling money out of the budget that the hospital is trying to keep at the end of the year so they can hit some magic mark,” Esmail says.

Barua’s study calls for performance-based funding alongside national cost-effectiveness and diagnosis-related groups to ensure equitable and demand-driven federal health transfers to provinces. This approach aims to improve transparency and remove political bias from the funding process.

In context, the national effective price is a standardized cost measure used by health systems, including public health models, to determine the appropriate level of funding for services provided by a hospital. A diagnosis-related group is a system designed to classify hospital cases into specific groups to identify the goods and services provided by the hospital. Diagnosis-related groups help ensure that health care facilities are paid according to the conditions or diseases they treat and the services provided, rather than the resources used by a patient or the length of a patient’s stay.

Implementation of performance-based financing

Implementation of performance-based financing will be partly based on a case-mix system, Barois writes. Case mix is ​​defined as a group of patients treated at a particular hospital that require similar tests, diagnoses, procedures, etc., and helps determine what different hospitals specialize in.

In addition, Barua says the performance-based funding system will be based on the cost of each case group. He notes that Canada already uses this system through a version of the International Classification of Diseases (ICD) standard that codes inpatient activities and provides an option for case-mix grouping based on a system of diagnostically related groups.

Barois suggests that the federal government could assign the Canadian Institute for Health Information the task of establishing a nationally effective price for medical services required for each case mix using this standard.

Crystal Wittewrongel, a senior policy analyst at the Montreal Economic Institute, was intrigued by Barois’ proposal to use existing ICD codes to help implement performance-based funding.

“We often talk about performance-based funding and also using a basket of diagnostic-related groups, but when the author was talking about ICD codes and having the Canadian Institute for Health Information to own it in that context, I thought that was really interesting. was,” he says.

The federal government could also provide one-time funding to provinces to upgrade their electronic medical records (EMRs) to help centralize and enable interprovincial patient referrals, Barois writes. Wittewrongel says Barua’s advocacy for the use of EMRs is critical.

“It’s also something we’ve talked about a lot in the past, the need for interoperable digital health records, especially to connect provinces,” he says, noting that healthcare modernization and digitization are recurring themes across all Hunter Prizes. applications in 2023

Canada is out of step with its peers

Whatley and Esmail note that Canada stands out from its peers in that it has not moved to performance-based financing.

“The whole world abandoned global hospital budgets years ago,” Whatley says. “Central planners are trying to estimate population growth, the burden of disease and demographic changes, and trying to have evidence-based policy making and determine how much hospital is needed. None of that works.”

Esmail points out that even the UK’s National Health Service, often abused by long waits, has been modernized in the past 30 years to a degree that the Canadian health system has not.

“One of the major reforms in the developed world over the last 30 years is to shift hospitals from budget funding to activity-based funding, as Backus says, and that actually changes the incentives in any number of areas,” he said. says.

Possible pitfalls

A summary of performance-based financing by the University of British Columbia (UBC) shows that while the system has been adopted by much of the developed world over the past 30 years, there have been some shortcomings. The report found that hospital costs have increased in countries that have adopted the funding model, causing administrative difficulties. According to UBC, much of this additional cost is due to increased volumes, as well as the promotion of unnecessary care.

Whatley further cautions that while performance-based funding works well for financing hip or knee replacements and emergency room procedures, it is less effective when it comes to people seeking help for depression or dizziness or dehydration.

“The body can only recover so quickly from things like this,” he says.

The UBC report noted that other areas, including intensive care and mental health care, were also identified as difficult to manage performance-based funding due to high levels of care and higher costs. Many countries are still trying to fund these services through a performance-based funding system.

Why do governments still prefer global budgeting?

Barois says governments tend to stick with global budgeting because it’s simpler to administer and requires less accountability, and because patients pay for costs during longer waits.

He notes that when performance-based funding systems are managed properly, such as in Switzerland or Germany, the increased volume of care and potentially shorter waiting times can lead to lower costs per procedure. However, he warns that without other reforms, such as cost-sharing and private partnerships, there will be higher costs.

“This is a win-win for patients and providers, but not necessarily for the government, which will either have to raise taxes in response, cut red tape, or consider additional common-sense reforms,” ​​says Barua.

Esmail agrees that global budgets are administratively simple for governments and operationally simple for hospitals because everyone understands the amount of money being transferred. Negotiating performance-based funding will be complex, he says, and will require work on the part of the parties to define costs for procedures and the calculation of payments for services on a more individualized basis. In the end, though, he believes the effort is worth it.

Right now, he says, “it’s just a political game where the hospital is trying to encourage the provincial government or the health authority to allocate more budget for whatever reason,” Esmail says. “On the other side [with activity-based funding]we now have transparency from the government and a clear record of what healthcare is being bought from providers.”

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