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A right ankle arthroscopy procedure at St. Paul's hospital in Vancouver November 2, 2010.John Lehmann/The Globe and Mail

"A guy walks into the ER.… " It's a line that could launch a round of gallows humour in hundreds of crowded, nightmarish emergency departments across Canada.

But it's no longer funny in Nanaimo. There, a guy who walks into the ER represents a potential for cold, hard cash.

A revolutionary change in the way government funds hospitals is taking place in British Columbia. Proponents say patient-focused funding, as it is known, represents one of the most significant innovations to the country's health-care system since the introduction of medicare.

For the first time on a large scale, a province is beginning to reimburse hospitals based on what they actually do, rather than simply providing them with huge dollops of dollars, no matter what.

Early results from B.C.'s bold new program are now in, and they are dramatic.

The number of procedures is up, waiting lists are down, and hospital emergency departments covered by the program are processing patients as never before.

At Nanaimo Regional General Hospital, for instance, waiting times in emergency have been cut by 50 per cent, fuelled by incentives as high as $600 for each extra patient admitted to an acute-care bed within 10 hours and lesser amounts for other treatment targets.

The new money rolling in has enabled the hospital's emergency department to hire its own lab technician and establish a specialized five-bed unit for patients needing further treatment but not enough to warrant admission.

"We've really been able to capitalize on the beauty of the program," said Drew Digney, head of ER in Nanaimo. "If you show you can actually make a change, you get more resources, rather than just shovelling health-care dollars into, arguably, almost a bottomless pit."

In Prince George, the number of MRIs, rewarded by $275 per procedure beyond a set baseline total, is targeted to go up by a third this year, representing 1,250 additional screenings.

The volume of shoulder surgeries, bringing in nearly $3,000 a pop for added procedures, is scheduled to virtually double, from 63 to 123.

This is a big change for the better, said David Butcher, vice-president of medicine and clinical programs for the Northern Health Authority.

Under the long-standing system of block funding, which still makes up the large majority of provincial money flowing to hospitals, administrators look at every procedure as a cost item, he said.

But getting extra funds for increasing specific services gives hospitals an ability to boost operating-room time without worrying about the bottom line, Dr. Butcher said. "Patient-focused funding allows us to turn cost centres into revenue or profit centres," he said.

A government report on the program's first year of operation estimates that the influx of only $53-million in new money resulted in 67,000 more emergency patients being treated on time at the 14 hospitals involved, and 36,000 additional procedures performed at B.C.'s 23 largest hospitals.

Many of these procedures were day surgeries with long waiting lists. In just seven months, these lists were cut by 25 per cent, according to the report.

Other aspects of the multipronged program include additional sums going to hospitals for taking on difficult cases and financing the introduction of a surgical quality-care system for B.C. hospitals.

"We are changing the way business is done," said Les Vertesi, executive director of the B.C. Health Services Purchasing Organization, which is overseeing the radical shift.

"You wouldn't go into The Bay and say, 'Here's a thousand dollars,' and hope you get something good out of it. So why do we do health this way? Now, we are deciding where the money goes, what the costs are, what we're buying, the same as any consumer…This is one of the most fundamental changes in health care since medicare," said Dr. Vertesi, who still works one shift a week at local emergency departments.

Interestingly, not all of the $250-million earmarked for the program's first two years is being claimed, because hospitals continue to struggle to improve capacity.

But that's the point, said Health Minister Mike de Jong. "The money only gets spent when there is performance," he said. "That's a unique and new concept, and it's beginning to pay dividends."

Overall, about 17 per cent of hospital funding in B.C. is covered in various ways by the new approach.

Patient-focused funding is not without its perils or critics.

Veteran health policy analyst Steven Lewis pointed out that long surgical waiting lists are often a result of poor planning, rather than lack of funds.

"Throwing money at the problem may work, but an unintended consequence is that you essentially say to people: You don't have to perform, until we give you money," Mr. Lewis said.

Dr. Butcher of the Northern Health Authority added there is a risk of hospitals becoming too attached to activity-based funding.

"It can artificially change your focus to procedures that generate revenue," he cautioned, rather than doing what the patient really needs.

Still, Mr. de Jong said the province is almost certain to extend the program beyond its first phase, which ends next year.

"The results are so encouraging, there is every intention to continue," he said. "It is gratifying to see a relatively modest amount of money make such a significant difference."

Carrot and stick

British Columbia's landmark project to revamp the way hospitals are funded is not all carrot. There are sticks, too. Not performing up to snuff can result in penalties.

Some hospitals have been docked for not meeting hip and knee replacement targets, and the new program is refusing to pay for patients known as DDFEs, which stands for discharged directly from emergency.

These are patients who need hospital treatment but are not admitted to a bed because wards are full. As a result, they have to be cared for entirely in emergency, until ready for discharge.

"If they don't get a bed, we simply don't pay for them," said Les Vertesi, head of the body that oversees patient-focused funding. "I call these patients the Harry Potters of emergency. They're the ones living under the stairs. Nobody wants them."

By not paying for such patients, the program puts pressure on hospitals to reduce congestion.

"They now have a pot of money tied up in these DDFEs," Dr. Vertesi said. "If they decongest emergency and get them into real beds, then they can capture that money. We didn't have the ability to tailor that money before. Now we do."

Overall, however, patient-focused funding mostly rewards rather than punishes.

"We're all human," observed Drew Digney, chief of ER in Nanaimo. "To get people to change what they're doing often takes a little bit of a carrot. I tell staff: 'If we do this, and we get extra money, we not only make our patients' lives better, we'll feel better about our own work, too.'"

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