Experts duke it out over how to fund
our hospitals

Newly elected CMA prez pushes for UK-style service-based funding

By Sam Solomon

Canada's biggest healthcare woes — long wait lists and the rising costs of care — can be significantly improved by reforming our hospital funding system to pay hospitals per procedure, according to Canadian Medical Association president-elect Dr Brian Day. But several health policy experts have openly criticized his suggestion, countering that such a change may not solve the problems we face and could even result in inferior quality healthcare.

THE BIG PAYBACK
The system currently most common across the country — a version of what is called global budget or block funding, whereby hospitals receive a fixed annual budget according to their past performances and the populations they serve— is outdated, wrote Dr Day in an essay published in the Vancouver Board of Trade's newsletter in January. His proposed solution is to adopt a service-based funding (SBF) model instead, following the example set by the United Kingdom. "In our enthusiasm to come up with cures for our ailing health system, this reform has not received the priority it deserves. It should be our number one focus," Dr Day asserted.

In a service-based funding system, hospitals are reimbursed by the government according to the actual cost for each procedure that is done, factoring in the complexity and the quality of the work.

MEDICAL MONEY TRAIL
As long as the hospitals get the money to continue to operate, does it matter how they get it? SBF proponents claim it does, pointing out that a service-based system creates incentives for hospitals to help people get better faster by offering money for each procedure completed, which could foster competition between hospitals to improve. But there is concern amongst some health policy experts that such an arrangement could result in what amounts to 'over-prescription,' an artificially inflated rate for certain types of procedures like x-rays or hip replacements. For those procedures, it is not in the best interests of patients or the healthcare system to create incentives to do more of them because of the costs and dangers of doing too many.

"You have to make sure the incentives you have in place don't get in the way of what you need done," said Raisa Deber, PhD, a University of Toronto health policy expert. "It would be disastrous to move entirely to a service-based funding schedule. That would incentivize overuse instead of appropriate use."

CALLS FOR CHANGE
The case for SBF is not new. Senator Michael Kirby's widely respected report on the state of healthcare in Canada recommended in 2002 that Canada adopt an SBF model, citing many of the reasons that have become the basis for Dr Day's and others' argument. "There is an important synergy between service-based funding and improving the health care that patients receive," said Senator Kirby in a 2003 speech outlining his committee's recommendations. "The more frequently a particular procedure is performed by the same institution, the better the patient outcomes."

In fact, a small number of Ontario hospitals have already begun experimenting with SBF funding.

In 2004, the OECD Economic Survey of Canada echoed the call for hospital funding reform, citing Senator Kirby's recommendations. The OECD report acknowledged the danger of over-servicing in an SBF model and suggested "a system of audits and penalties would need to be put in place to prevent this type of abuse."

FEE-FOR-SERVICE
Why the pressure to switch? Essentially, SBF supporters accuse the global budget model of creating disincentives to take on more patients when the annual budget begins to run dry. (For a recent example of such a situation, see "BC health in turmoil".)

A 2004 Ontario Hospital Association report by senior health economist Andrea Gabber listed the strikes against the existing global budget model: funding is determined based on historical patterns and priorities; there are no performance targets; and funding is not directly tied to data, making transparency and accountability problematic.

DOUBT AND DISSENT
As is the case with any suggestion of modifying the way the Canadian healthcare system spends its money (or does not spend it), the talk of funding reform has been met with significant opposition. Raisa Deber, PhD, a U of T health policy and medical economics expert, takes issue with what she sees as an oversimplification of the funding question: "There is no one way to do it. There are advantages and disadvantages with different models, and right now we already have a mix," she explained. "The question is whether we should tweak the mix, or drastically change the mix. There is a tendency for people to think there is one magical answer that will solve it, but I have yet to see a case where that happens."

Dr Day's mistake is in his assumption that a broad reform of such a complex system will solve related problems like wait times and hospital operation costs, said Dr Deber. "The trouble is, there's no magic bullet. That isn't as sexy as saying if you change the funding schedule, everything will be hunky-dory."

Friends of Medicare (a public-healthcare lobby group) spokesman Harvey Voogd told the Canadian Press that two separate analyses have failed to corroborate Dr Day's claim that the British adoption of SBF has resulted in diminished wait times and reduced costs. The same CP report quoted Dr Michael Rachlis, a specialist in healthcare administration at U of T: "[SBF] encourages volume but not necessarily quality."

BC BUDGET TALK
Dr Day has said he believes SBF may finally be adopted on a larger scale soon in his home province of British Columbia. And it looks like he's right: BC's 2007-08 provincial budget, to be announced February 20, is reported to include a $100 million allotment to a new Health Innovation Fund. Health Minister George Abbott told the Victoria Times-Colonist that a portion of the money could go towards pilot projects to test an SBF model in hospitals. The new funding was announced ahead of schedule to give health authorities and hospitals an opportunity to design proposals on how to implement such changes.