The Canadian approach to funding hospitals may be on the verge of a monumental change.
Until recently, hospital funding has been based predominantly on global budgets, but
health care system decision-makers throughout the country are now seriously considering—
and some are already adopting—an alternative funding model referred to as activity-based
funding (ABF).
In contrast with global budgeting, ABF pays hospitals per episode of care for each
patient served. In simple terms, the money follows the patient. Under this system,
hospital services are classified prospectively into clinically meaningful "bundles"
of care that use similar levels of resources. These bundles take into account patient
characteristics such as diagnosis and complexity, along with anticipated volume and
intensity of care. Different jurisdictions use various terms to describe these bundles
of services; for example, they might be called "diagnosis-related groups" in the United
States and "health-resource groups" or "case-mix groups" in Canada.1 Various costing
methods are used to set a "price" for the bundle of services provided to each patient
during a hospital stay.
The historical roots of ABF lie in the US health care system. In the late 1970s, rising
health care costs in the United States coupled with economic stagnation forced policy-makers
to investigate financing reforms for Medicare (the publicly funded program for patients
aged 65 and older). Starting in 1983, the government implemented a prospective system
of hospital payment based on DRGs; rather than simply paying hospitals whatever they
charged to treat Medicare patients, the new model paid hospitals a predetermined,
set rate based on the patient's diagnosis.2 Since then, other countries have adopted,
and adapted, this approach as the basis for all or part of their hospital funding
systems.
In Canada, where reductions in government revenues are spurring a desire to "bend
the cost curve" in health care, ministries of health are "focusing more on efficiency,
value for money, and accountability"3 while they simultaneously look for ways to increase
access to hospital care and maintain quality of care.4 ABF has captured the imagination
of some policy-makers and advocates as one potential component of hospital reform.
Opinion is divided within the Canadian health care policy community as to whether
ABF would help us achieve any of the putative benefits originally achieved in the
United States and in other nations that subsequently adopted variations on the ABF
theme, or whether the risks would outweigh the benefits.
What are those alleged benefits? Enthusiasts point to evidence that ABF can reduce
costs per episode of care or improve efficiency,4,5 reduce length of stay,6 and reduce
wait times;7 they also claim that a culture change, by which patients are seen not
as cost centres but as as revenue generators,4 is needed in Canadian health care.
To elaborate, by fostering competition for patients between hospitals, ABF theoretically
provides hospitals with financial incentives to increase efficiency. Under ABF, hospitals
retain any surplus in funding above their expenditures per case, but must absorb any
losses if expenditures exceed reimbursement. The other potential benefits arising
from these financial incentives include stimulating productivity8 (i.e., increasing
patient throughput, leading to improved access and reduced wait times), increasing
transparency9 and accountability in hospital spending, and moderating cost growth.10
But what about the potential adverse consequences of introducing ABF? The detractors
of this funding method point to evidence that it leads to the rapid discharge of sick
patients into community settings that may be unprepared to care for them,11 provides
an incentive to "up-code" and thus "game" the system,12 creates a perverse focus on
"profitable" over "unprofitable" patients and procedures, with negative implications
for equitable access to care,13 and increases overall costs to the health care system14,15
in the absence of global caps on spending.4
Under ABF, the incentive to spend less, on average, per patient could encourage the
premature discharge of sick patients from hospital, which might increase rates of
preventable readmissions16 and of postdischarge mortality. Spending less per patient
might also compromise the quality of care patients receive in hospital or lead hospitals
to eliminate unprofitable services (such as trauma units17,18) or, conversely, in
order to "make a profit," to unnecessarily admit and potentially overtreat patients
who could otherwise be cared for as outpatients.4,19 There is also a concern that
a "cherrypicking" or "cream-skimming" effect could reduce equitable access to care
if hospitals cater preferentially to profitable patients.20 Similarly, since more
treatmentintensive case-mix groups warrant a higher reimbursement rate, there is an
incentive to selectively code patients as being sicker than they really are.21,22
Any efficiencies gained through ABF may be undermined by the increased administrative
spending required to cope with coding and monitoring demands, as well as by the transaction
costs of implementing ABF. Another worry is that by breaking care into "saleable units"23
ABF will facilitate the introduction of private, profit-driven delivery of care.
Both ABF enthusiasts and detractors can point to evidence to support their claims,
and each line of reasoning follows a logical narrative that can be persuasive to policy-makers.
However, in making their case, each group selects the international experiences that
are consistent with their narrative, rather than attempting to understand the evidence
as a whole.
British Columbia and Ontario are leading the Canadian movement toward ABF as an alternative
to, or in combination with, global budgets. Results from a British Columbia study
published early in 2013 indicated that one anticipated benefit, increasing patient
through-put, had not been achieved: the researchers found "no intervention effect
of the ABF reform on the changes in surgical volumes over time in all five health
authorities."24 Such findings raise questions about whether the supposed benefits
of ABF play out when this model is implemented in the real world.
The international literature on ABF consists of research studies and non-systematic
reviews8,9,25–28 without, so far, a single systematic review. Health care researchers
are convinced that "systematic reviews of research evidence constitute a more appropriate
source of research evidence for decision-making than the latest or most heavily publicized
research study."29 Policy- and decision-makers should rely on robust evidence to make
well-informed decisions about how best to finance and deliver health care. "Evidence-informed"
policy-making is characterized by the "systematic and transparent access to, and appraisal
of, evidence as an input into the policy-making process."30 Yet, in the absence of
a thorough and systematic approach to understanding the impact of ABF on cost, quality,
access, efficiency, and equity across multiple health care systems and at different
times, Canadian policy-makers continue to make decisions based upon only selected
evidence. The limited reviews available may well reflect biased selections of the
available evidence.
Having established the pressing need to review all the evidence available about ABF,
in March 2012 our research team launched a systematic review to inform Canadian policy-makers
about how this funding model affects health care systems around the world. Our systematic
search of Canadian and international evidence has demonstrated that there is no shortage
of published literature addressing ABF. Of the more than 16 000 potentially eligible
titles and abstracts we have screened, 261 studies, representing 64 countries (either
singly or in aggregate), provide data on at least one of the cost, quality, access,
efficiency, and equity outcomes of interest to our research team. We are now in the
process of analyzing data from the eligible studies most germane to the Canadian context.
This commentary is intended to alert decision-makers to the upcoming release of a
series of papers based on our systematic review of ABF, in the hope that there will
be an appetite for this knowledge at a time when they are being asked to make decisions
in its absence.
It would be a shame if Canadian governments moved to ABF only to find later that,
for instance, they obtain none of the putative benefits but instead observe premature
hospital discharges to an unprepared posthospital care system and subsequent adverse
health consequences to patients. It will be particularly regrettable if, armed with
a systematic review of the evidence, they could have foreseen such an unfortunate
outcome of their policy experiment. It would be similarly unfortunate for governments
to abandon ABF only to learn that the benefits do in fact outweigh the harms. We simply
don't know yet which way the evidence will lean.
Our systematic review will soon provide a more robust evidence base to better inform
decision-makers. Until then, it would be imprudent to rush to judgment about the effects
ABF may, or may not, have on Canada's health care system. We look forward to releasing
our results in the near future and encourage governments to consider the implications
of our review in their decisions about hospital funding reforms.