Activity-based funding and staffing flexibility are key to the success of Quebec’s mini-hospitals

• The introduction of activity-based funding encourages efficiency and cost control among hospital administrators.
• The presence of treatment facilities managed by for-profit organizations is the norm among OECD countries’ health care systems.
• Greater flexibility in the management of human resources would allow for better staff retention.

Montreal, June 15, 2023 – The success of the proposed mini-hospitals run by independent entrepreneurs rests largely on activity-based funding and the flexible management of human resources, according to a Montreal Economic Institute study published this morning.

“For the Legault government’s wager to pay off, the mini-hospitals must be a source of competition for governmental health facilities,” says Emmanuelle B. Faubert, economist at the MEI and co-author of the study. “By increasing the share of activity-based funding in hospitals’ budgets, Quebec is laying the foundations for this necessary competition.”

By the end of 2023, a quarter of the budgets of the province’s health care facilities will come from activity-based funding, also known as “patient-centred funding.” The government plans to see all physical care episodes financed this way within five years.

The study indicates that this funding method encourages efficiency, innovation, and cost control, since it pays each health facility a set amount of money based on the medical act that is performed.

In France and England, over 60% of hospitals’ budgets comes from activity-based funding.

The authors also note that Quebec and the rest of Canada are the exception among OECD countries for their near-total absence of hospitals run by for-profit organizations.

“No organizational structure is incompatible with universal access to health care,” explains Ms. Faubert. “It changes the incentives, notably encouraging greater efficiency—which would be welcome given Quebec’s long waiting lists—but this in no way affects access to care. International experience has shown this to be true.”

In France and in New Zealand, around one-third of hospitals are for-profit. In Italy and Switzerland, the proportion is around 60%. The Netherlands takes top honours with nearly 80% of hospitals managed by for-profit organizations.

The authors point out that all of these countries provide universal coverage to their citizens.

The researchers also recommend that the government not subject those who will work in the mini-hospitals to the collective bargaining agreements that bind the public health care system.

“For Quebec to reap the full benefits of the mini-hospitals experience, they must not be required to reproduce the same structures that led to our current system’s problems,” explains Maria Lily Shaw, associate researcher at the MEI and co-author of the study. “This means, among other things, letting administrators come to agreements with their employees rather than imposing the collective agreements that led to the public sector’s infamous mandatory overtime.”

The study is based in part on another study from HEC Montréal and CIRANO which concludes that these agreements between the government and the unions and federations undermine efficiency and innovation due to their rigidity.

By allowing employer and employees to negotiate together rather than imposing the governmental system’s conditions, the mini-hospitals, their staff, and their patients could avoid some of the worst consequences of the government’s agreements, notably the supremacy of the principle of seniority.

According to the MEI, the conditions required for the success of the mini-hospitals project are the following:

• Allow competition between treatment facilities;
• Establish activity-based funding;
• Provide a sufficient budgetary envelope for the centres’ fixed and operating costs;
• Implement monitoring similar to that for specialized medical centres;
• Encourage the flexible management of staff and auxiliary services;
• Reduce paperwork;
• Allow residual capacity to be used as a means of financing;
• Lift the prohibition on mixed practice;
• Increase admissions quotas for health disciplines;
• Facilitate the recognition of credentials from outside Quebec for health professionals;
• Allow hospitalizations of over 24 hours;
• Adjust regional medical staffing plans to account for the new mini-hospitals.

You can consult the MEI Research Paper here.

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The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship. 

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