Finally, a money incentive for Alberta hospitals to pick up the pace on surgery
On the topic of healthcare in Canada, rarely is there much reason for optimism. Interminable wait times and limited access to care have become so entrenched that they barely register anymore. One more story of someone suffering on a waiting list? Just another Wednesday.
Our collective disappointment in Canadian healthcare writ large has become as much a part of our national identity as the very existence of universal healthcare itself.
But in Alberta, there is actually cause for celebration at the moment, as the Smith government just announced it will reform how hospitals are funded by adopting activity-based funding. While this may sound like an administrative detail, it could directly affect how quickly patients receive care across the province.
Currently, Alberta funds its hospitals using global budgets. This means that at the beginning of each year, a hospital’s budget is predetermined based on the volume of procedures the government estimates it will complete.
This fixed-pie allocation is largely based on the previous year’s volume, presuming that it’ll be similar every year. The result is a single lump sum to stretch across all needs, with little regard for changing demand.
This is a little like only stocking two lifejackets on a boat because two people fell in the water last time around.
Under this regime, patients become a financial burden, creating a less-than-ideal incentive for rationing care.
That’s why the MEI has been at the forefront of this debate across Canada since 2012. And about a year ago, we published an Economic Note calling on the Alberta government specifically to move away from global budgeting in favour of activity-based funding.
Under this model, hospitals are instead paid per treatment provided, so the money follows the patient. This reorients hospital incentives, prioritizing efficiency over simply trying to make it through the year. Hospitals can focus on treating patients in a timely fashion, knowing that the government will compensate them for the work done.
As long as appropriate guardrails are in place, patients are better off in hospitals where financial considerations serve as an incentive to treat more of them, rather than a limitation.
Other jurisdictions that have universal health care systems have used this model to great effect. In fact, Canada remains an outlier among OECD countries in this regard.
Australia adopted activity-based funding thirty years ago. Just a single year after implementation, the volume of care increased and waiting lists decreased by 16 per cent, suggesting that Alberta could see improved hospital performance as early as 2027.
Seeing how well it was working, Australia made activity-based funding the rule rather than the exception. In 2024, it accounted for 87 per cent of total hospital funding.
The proof is in the data: in 2022, the median wait time for hip replacement surgery, for example, was 232 days in Alberta; in Australia, it was 175 days.
Closer to home, Quebec’s experience gradually implementing this funding model is also encouraging. Following its adoption for MRIs, costs fell by four per cent while the number performed rose by 22 per cent. In radiology and oncology, costs dropped by seven per cent and productivity rose by 26 per cent after the switch.
Pleased with the gains in efficiency, the Quebec government set out its goal for full adoption of activity-based funding by 2027-28.
To be fair, this funding model is no magic wand. Like any system, it comes with potential pitfalls.
The advantage Alberta has is that countries like the United-Kingdom, Norway, Sweden, and Australia integrated activity-based funding into their universal healthcare systems several decades ago. Hence, we already know the potential hurdles—such as cheating on the coding that dictates payment level or undue pressure to favour quantity over quality—as well as how to surmount them.
As long as appropriate guardrails are in place, patients are better off in hospitals where financial considerations serve as an incentive to treat more of them, rather than a limitation. With the move to activity-based funding slated for 2026, Alberta patients have something worth cheering about.
Michel Kelly-Gagnon is Founding President of the MEI and Krystle Wittevrongel is Director of Research at the MEI. The views reflected in this opinion piece are their own.