The topsy-turvy world of hospital budgets

Imagine a business providing a service so popular that demand is 30 per cent higher than anticipated. That would be good news, right? Admittedly, there might be an adjustment period as more equipment is purchased and additional staff is hired. But still, you would expect more demand to be a positive thing.

Now imagine this business complaining about having too many clients. And not just complaining, but reducing the use of new equipment and firing staff.

Sounds crazy? Welcome to the topsy-turvy world of public health care in Canada, where patients are a source of additional expenses for a hospital instead of being a source of revenue.

The latest instance of this madness is the Quebec government telling the McGill University Health Centre (MUHC) that it is taking on too many cancer and emergency-room patients, according to a report in Monday’s Gazette. In particular, ER admissions at the new superhospital that opened in April 2015 are 30 per cent higher than expected. The government is refusing to fund these “volume overruns,” with the result being that the MUHC will have a $10-million shortfall for this fiscal year.

The MUHC is apparently responding by mothballing some cutting-edge medical equipment, closing new operating rooms, postponing elective surgeries, and possibly cutting 750 full-time and part-time jobs.

The main reason for these counter-intuitive reactions to increased demand is the way hospitals are funded. As in most of the rest of Canada, hospitals in Quebec currently receive their funding in the form of global budgets based essentially on the amounts they spent in the past.

This kind of lump-sum funding leaves hospitals with a tough choice: Limit admissions or go over budget. There is no incentive for hospital administrators to innovate and become more efficient, since an innovation that reduced expenditures would lead to an equivalent decrease in the hospital’s next budget. On the other hand, an innovation allowing wait times to be reduced and more patients to be treated entails increased pressure on the fixed budget.

Almost all other industrialized OECD countries fund their hospitals to a large extent based on services rendered. With such activity-based funding, hospitals receive a fixed payment for each medical procedure, adjusted to take into account a series of factors like geographic location and the severity of cases. The more patients a hospital treats, the more funding it receives. Generally speaking, in countries where activity-based funding is widely used, there is more competition between medical facilities and quicker access to care.

Health Minister Gaétan Barrette has said that the Quebec government wants to adopt activity-based funding for medical facilities in the health network. This would make a lot more sense than demanding that MUHC doctors refer oncology and ER patients to other hospitals, as the Health Ministry is currently doing.

But getting rid of Quebec’s anachronistic funding of its hospitals through global budgets, while a step in the right direction, should be accompanied by other, complementary measures such as mandatory quality reporting for hospitals. Giving patients and referring doctors access to the information they need in order to determine the best hospital for each case would allow for some healthy competition, leading to quality improvements throughout the system, as has happened in Germany in recent years.

If Brian Day’s constitutional challenge now being considered by the British Columbia Supreme Court is successful, two other European measures could also come to Canada: allowing a market for private insurance to develop, and allowing doctors to practise both in the public sector and in the private sector.

International experience confirms that the presence of a mixed health care system is not incompatible with health care services that are accessible to all. Indeed, such measures could improve access to health care by encouraging entrepreneurship without undermining the principles of equality and universality that Canadians hold dear.

Jasmin Guénette est vice-président de l'Institut économique de Montréal. Il signe ce texte à titre personnel.