Ontario is poised to introduce radical changes to the way hospitals are funded, adjusting their budgets to the number of patients and quality of service.Tim Fraser/The Globe and Mail
Ontario is unveiling a radical change to the way it funds the province's hospitals, tailoring their budgets to the number of patients they treat as well as the quality of service they provide.
The new funding formula will reward better-performing hospitals by giving them more money for treating patients more efficiently, according to health-care sources. It will also match funding to the population of a community as well as the age of people within that area, the sources said.
This will be good news for hospitals serving growing or elderly populations, which will receive more funding. But it is liable to be less positive for hospitals in smaller regions and rural Ontario, which could end up with less funding, the sources said.
Ontario is taking the lead with a patient-based funding model just as governments across Canada face aging populations that are driving up health-care costs. The pressure is particularly acute in Ontario, the country's most populous province, where health care consumes 42 cents of every dollar in program spending.
Health Minister Deb Matthews will announce the new formula at Sunnybrook Health Sciences Centre on Monday. The Ontario government is doing away with the global hospital budgets that for decades have allocated funding evenly across the board. The new regime is expected to reshape the way spending priorities are set at a time when Ontario is grappling with a $16-billion deficit. It could spread to other provinces if successful.
The Ontario government's so-called Health Based Allocation Model, or HBAM for short, will divert more money to hospitals in regions where the population is growing and aging and where health-care costs are often higher. Hospitals will also be in line for additional money, based on how effectively they treat patients.
Hospital executives said changing the way hospitals are funded is long overdue. Not only will the change likely slow down the pace of growth in spending, they said, it will improve overall quality by putting pressure on these institutions to operate more efficiently.
"Moving to a model where money follows the patient is the right thing to do," Robert Howard, chief executive officer of St. Michael's Hospital, said on Sunday.
Under the current regime, Ontario's 150 hospitals received a funding increase of 1.5 per cent for the fiscal year ending March 31, 2012, bringing their total base funding to $16.9-billion.
Beginning on April 1, 40 per cent of a hospital's budget will be based on HBAM in each of the next three years, the sources said. Just over half of a hospital's budget will come from the traditional global model and another tranche of funding will be targeted for specific procedures, including hip and knee replacements and cataract surgeries.
One executive said hospitals have been planning for zero increases in the provincial budget, which will be tabled on March 27.
To prevent dramatic swings in a hospital's budget as the sector makes the transition to the new system, the government will cap how much an institution's funding can increase or decrease, said a hospital executive.
The new funding formula is the latest initiative by the McGuinty government to introduce incentives for hospitals to improve patient care. The pay packets of hospital executives are now linked to their progress in meeting quality-of-care targets, ranging from improving hand hygiene to freeing up beds by discharging patients earlier in the day. A portion of their compensation can be clawed back if the executives fail to meet the targets.
A portion of the funding for some larger teaching hospitals is based on pay-for-performance. Just under one-third of the funding for University Health Network, one of Canada's largest operators, is based on performance because of the complexity of services offered by its four hospitals in Toronto.
The new HBAM funding formula for hospitals has been under discussion for several years. Hospital executives said they expect that mistakes will be made because designing a system that actually reflects what services a hospital is providing to patients is "incredibly complicated" because institutions will have to keep track of how much each clinical service costs.
"They've got to work out some kinks," said one executive who asked not to be named.
Karen Howlett