Insights October 2012

Moving toward Value-based Payment Models in Canadian Healthcare

Sanjay Cherian and Kelly Rakowski

Healthcare systems across Canada face a pressing sustainability problem. Past reforms have focused primarily on the delivery of healthcare services and not enough on the alignment of financial incentives to add value.  Canada’s challenges are echoed on the world stage, and as such a number of healthcare payment reform models have begun to emerge in response.

Not getting their money’s worth?

From a consumer perspective, under the current system, it appears that Canadians may not be getting their money’s worth. Most healthcare in Canada is provided—and paid for—by the transaction, with little to no visibility into cost, performance, quality or outcomes.

Canada spends more on healthcare than Australia, the Netherlands, New Zealand, Sweden and the United Kingdom. Yet it underperforms compared to these peers in terms of patient experience. Canadians poorly rate their patient experience when it comes to wait times for pressing medical issues and access to care during off-hours and holidays. With the exception of the United States, Canada spends more on health than its peer group, but does not have the consistently effective patient care to show for it.

Delivering care based on outcomes

The status quo encourages quantity over value. The funding system doesn’t tie remuneration to patient health outcomes, nor does it encourage providers to consider the cost of the care they provide to patients and how it affects the overall health system. It has become clear that the current system is unsustainable for the long term.>

There are a number of emerging alternative payment mechanisms that can serve as models for Canada. At Accenture, we’ve identified three payment models that could work most effectively for Canada. This presents a shift from the current fee-for-service model to models that will enable per-patient and outcome-linked payments. They include:

  1. Fee-for-service (FFS) shared savings—drives provider collaboration to yield efficiencies.
  2. Episodic bundling—pays a set rate for an entire episode of care.
  3. Wellness payment—similar to next-generation capitation, but with severity-adjusted payments and an added focus on wellness, prevention and population management.

Three phases

Payment reform efforts will undoubtedly encounter resistance, given the challenges of physician compensation negotiations between the provinces and the provincial medical associations.

Small pilot studies will likely be the most effective route to proving the models’ value and driving ultimate transformation. Accenture envisions a long-term rollout of the new models over three phases (Figure).


Phase 1: Lay the foundation

  • Set multi-year payment reform transformation agenda
  • Implement program management office (PMO)
  • Design and validate payment reform transformation targets 
  • Design next-generation P4P criteria, measurement and payment mechanisms
  • Establish quality data collection, management and reporting methodology
  • Determine end-state IT applications, systems integration and analytics needs 
  • Implement next-generation P4P approach in pilot form

Phase 2: Transform the model

  • Capture lessons from Canadian and global experiments of bundled payments
  • Design bundled payment methodology to include definition of episodes, patient attribution, funds flow process and other factors
  • Set claims adjudication, authorization and contracting systems and severity-adjustment tools for bundled payments
  • Begin to build the final IT components (such as advanced analytics, collaboration tools and systems to support clinical data exchange) to support bundled payments
  • Develop and distribute provider education materials to support adoption 
  • Contract with providers to support bundled payments pilot

Phase 3: Expand funding

  • Broader rollout of episodic bundling and provider funding, as well as a pilot of the wellness payments model
  • Base budgets on the type of care needed for the population that providers serve
  • Shift the payment scheme, which would in turn, shift incentives

These outcomes-based payment mechanisms aim to increase provider accountability and reward not only quality and efficiency but the ability to manage the total cost of care.

Payment reform in Canada

Some government and industry leaders are already testing new payment models. For example, Alberta is moving away from volume-driven, fee-for-service toward an alternative relationship plan, while Manitoba is using quality-based incentive funding for physician-integrated networks.

This positive shift must continue—toward episodic bundling to physicians and per-patient adjusted block payments to hospitals, in combination with pay-for-outcomes for both groups.

Any sweeping changes must also put the patient at the center of care. More experimentation with outcomes-based payment systems increases the chances of realigning the incentives of healthcare providers, positively affecting healthcare sustainability, which in turn better serves all patients.


[1] The Commonwealth Fund: Mirror, Mirror on the Wall: How the Performance of the U.S. Health Care System Compares Internationally, 2010 Update 


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