By Rebecca Walberg
Director of Health Policy
Frontier Centre for Public Policy
Since the embrace of New Public Management in the 1980s in the public sectors of Canada, the US, Australia and the UK, the mantra of leaders throughout government has been “more with less.” A generation of government has attempted to reduce public spending, or at least to slow its growth, while providing excellent and increasingly accessible public services. In Canada, healthcare administration is the glaring exception to this trend.
While other ministries have seen budgets shrink, health spending consistently expands. At the same time, long waits to access care have increased, and in areas in which prevention plays a major role, such as infant mortality, Canada’s healthcare performs poorly.
Contributing to this trend is the global budgeting model by which we fund our hospitals. Virtually alone in the developed world, Canada’s hospitals are allotted an annual budget that is not tied to the number of patients seen, procedures carried out, or quality of outcomes.
Global funding has some advantages; as well as being much simpler for ministries to administer, it allows a high degree of predictability in strategic planning, and has succeeded in containing costs. These benefits do not outweigh the harm done by this model, chiefly as a de facto mechanism for rationing healthcare, and by removing incentives for efficiencies.
An OECD study has demonstrated that countries using patient focused funding (PFF), in which payment is linked to patients treated and services provided, have significantly shorter waiting times. Commonly used in private sector medicine throughout Europe and the US, PFF can equally be applied to publicly funded systems. One of the stellar examples of this comes from Sweden, where the University Hospital of North Sweden switched to performance-based funding in the 1990s.
Under this reform, all services carried out by this hospital, including not only patient care, diagnostics, and all manner of procedures, but also teaching and research, were converted into revenue generating activities. The effects at UHNS were immediate and dramatic: 1000 positions were cut from the staff, productivity in all areas including teaching and research increased by 30%, patients were given same day access to family doctors, and waiting lists for consultations, diagnostics and treatment were eliminated.
Other models of tying funding to performance exist. A Canadian study contrasting hospital funding mechanisms found that the most common model, in which hospitals are globally funded while physicians are paid on a fee for service (FFS) basis, to be the least effective. The inverse, in which hospitals are paid for services delivered while doctors are on salary, operates with greater success in Europe and much of the US.
While it is clear that hospital revenues must be linked to the work hospitals do, mechanisms for paying doctors are more complex. The current Canadian model exacerbates the tension between hospitals and doctors over resources, which leads to situations in which operating rooms go unused and doctors do fewer procedures than they would like, while patients wait for months for surgery. Both salaries and capitation payments, in which doctors’ pay is linked to the number of patients they care for, with higher rates for patients with complex or chronic problems, are linked more efficient use of resources and also better preventative care.
The transition from global funding to PFF can not be accomplished without effort. Implementing PFF for Canadian hospitals will require changing the philosophy of public servants in health ministries, health authorities and hospitals, a process with which the Health Trusts in the UK are familiar. The NHS found that, as with all investments for long term gain, moving away from global funding presented short term expenses. Given the central role that this change must play in any effort to bring Canadian healthcare into line with that of most European states, it is appropriate for all levels of government both to assist with these costs, and to penalize hospitals and health authorities that fail to initiate this transition.
Canada’s healthcare strategies to date are confined to rationing care to reduce costs, and increasing healthcare funding at a rate that exceeds inflation. Neither of these approaches are sustainable. Effective public sector management, and payment linked to performance, are ideas whose time came twenty years ago. It is inexcusable that Canada remains mired in an obsolete funding model. Where are the managers and leaders who will take the initiative and start making these necessary changes?
