Alberta’s health funding reform offers hope for the rest of Canada

Canada’s health-care system is broken, and most Canadians have given up hope it will improve. Delayed surgeries, overcrowded emergency rooms and long wait times have become the norm. But in Alberta, there is finally a reason to believe change is possible.

The Smith government has announced plans to overhaul hospital funding by introducing activity-based funding, a model where hospitals are paid based on the number and type of treatments they provide, rather than receiving a fixed annual lump sum.

Currently, Alberta uses global budgets: hospitals receive a set amount each year, usually based on the previous year’s volume, regardless of how many patients they end up treating. This rigid funding model limits hospitals’ ability to respond to growing demand and discourages efficiency. It’s a little like only stocking two lifejackets on a boat because two people fell in the water last time around. Under this system, patients become a financial burden, creating an incentive to ration care.

The Montreal Economic Institute has advocated for change since 2012. About a year ago, we urged Alberta to abandon global budgeting in favour of a model that lets money follow the patient. Activity-based funding does just that, rewarding hospitals for providing timely, efficient care rather than merely staying afloat within a fixed budget.

Other countries with universal health care have already embraced this approach. Canada remains a notable outlier among OECD nations. Australia adopted activity-based funding 30 years ago. Within a year, care volumes rose and wait times dropped by 16 per cent. Today, this model accounts for 87 per cent of hospital funding in Australia. In 2022, the median wait time for hip replacement surgery was 232 days in Alberta, compared to 175 days in Australia. Importantly, countries such as Australia and Sweden maintained universal access to care while adopting this system.

Alberta’s shift to activity-based hospital funding could be the blueprint other provinces need to fix Canada’s ailing health-care system.

Closer to home, Quebec’s gradual shift to activity-based funding has also yielded encouraging results. After the province applied the change to MRIs, costs fell by four per cent and procedures increased by 22 per cent. In radiology and oncology, costs dropped by seven per cent while productivity rose by 26 per cent. Quebec now aims for full adoption by 2027-28, showing that meaningful change is possible within our public system.

These examples show that a better way is possible. Yet most provinces remain stuck in outdated funding models that reward bureaucracy over patient care. If Alberta and Quebec can move forward, so can others. The case for action is national, not just provincial.

Of course, no funding model is without its flaws. That’s why Alberta is taking a phased approach, beginning with a pilot program and consultations to make sure the system fits the province’s needs before the full rollout in 2026.

The good news is Alberta doesn’t have to start from scratch. Countries like the United Kingdom, Norway, Sweden and Australia have already faced—and overcome—common challenges such as gaming the coding system (inflating or misclassifying treatments to receive higher payments) or favouring quantity over quality. With the right safeguards in place, hospitals can stay focused on delivering care, not just managing budgets.

Alberta’s move to activity-based funding gives patients something rare in Canadian health care: a real reason to hope for better. But this opportunity shouldn’t be limited to one province. With its thoughtful approach and clear commitment to reform, Alberta is offering the rest of Canada a blueprint for fixing what’s broken. Other provinces should take notice—and follow its lead.

Michel Kelly-Gagnon est président-fondateur de l’IEDM et Krystle Wittevrongel est directrice de la Recherche à l’IEDM. Ils signent ce texte à titre personnel.