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Activity-based hospital funding helps reduce surgery wait times

Thursday, May 17, 2012 – Both the director general of the McGill University Health Centre and the Quebec Association of Health and Social Services Institutions have come out in favour of activity-based hospital funding. Indeed, the chronic problem of health care waiting lists is partly rooted in hospitals’ funding models. The MEI’s new Economic Note points out that activity-based funding could help improve access and reduce wait times in Canada, as it has already done in several countries.

In the 1990s, England and Norway were grappling with the problems of waiting lists and overcrowded emergency rooms, just as Canada is today. However, these two countries saw wait times for elective surgery decrease by 66% (from 2002 to 2010) and by 30% (from 2002 to 2006) respectively following the gradual implementation of activity-based funding. Moreover, in England, 97% of people who show up at an emergency room today receive a doctor’s diagnosis in less than four hours.

Currently, nearly all hospitals in Quebec and in the rest of Canada are funded with global budgets determined as a function of past expenditures. As a result, each patient treated is a drain on the hospital’s budget. In contrast, activity-based funding is determined by the number of medical interventions carried out. Hospitals receive a fixed payment for each procedure (for example, a hip replacement).

“When funding is activity-based, each patient becomes a source of income for the hospital. It then becomes attractive for the hospital to innovate in order to treat more people and improve access,” says Yanick Labrie, author of the Economic Note.

For those who worry about care quality within such a system, Mr. Labrie has reassuring news. He cites an Australian study that shows an improving quality of care. With activity-based funding, a hospital has an incentive to provide the best possible care in order to avoid costly complications and to maintain a good reputation.

“Activity-based funding would constitute an even more obvious improvement compared with the current system if we allowed greater freedom of choice for patients and real competition between service providers. The latter would then have more incentives to control their costs,” says Michel Kelly-Gagnon, president and CEO of the MEI.

The Economic Note entitled Activity-Based Hospital Funding: We’ve Waited Long Enough was prepared by Yanick Labrie, economist at the MEI. It can be consulted free of charge on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its publications and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Ariane Gauthier, communications coordinator, Montreal Economic Institute / Tel.: 514 273-0969 ext. 2231 / Cell: 514 603-8746 / E-mail: agauthier@iedm.org

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