Best Laid Plans: When a Pandemic Complicates Hospital Funding Reform
COVID-19 has created historic financial pressures for Canadian hospitals (American Hospital Association 2020). When the pandemic escalated in March 2020, hospitals everywhere ramped up in heroic and unprecedented ways in anticipation of a sharp rise in demand for services. Governments – both provincial and federal – increased health sector funding to expand hospitals’ capacity in case the curve was not flattened (Government of Canada 2020). But how much flexibility do hospitals have in deciding how they spend this money?
Hospitals in Canada are funded mostly, though not exclusively, through annual global budgets – a “fixed lump-sum” hospitals traditionally receive to fund all patient care (Allin et al. 2020). Global budgets are thought to provide hospital managers and physicians with the flexibility to respond to local pressures (Sutherland et al. 2013). But global budgets have their drawbacks, including limited accountability and limited ability for the funder to control the number and nature of services provided (UBC Centre for Health Services and Policy Research 2014). Hence, in 2012, Ontario’s government embarked on an experiment in hospital funding reform, including “Quality-based Procedures”, or QBPs. The hope was that QBPs would result in more accountability and “better care for patients at less cost” (Palmer et al. 2018a).
With QBPs, Ontario’s government replaced some of each hospital’s global budget with payments targeted at specific procedures and diagnoses. Instead of one big annual pot of funding for each hospital to use as it sees fit, hospitals receive a pre-set fee for each patient treated for certain diagnoses (for e.g., pneumonia) or procedures (for e.g., knee replacement [Ontario Ministry of Health and Ministry of Long Term Care 2020b]). When patients are treated under QBP-funded care, the money follows the patients. QBPs are a form of patient-based funding, variants of which have been used since 1983 in many other countries wherein funders attempt to both control costs and standardize care (Palmer 2014; Palmer 2018b).
Alas, the best laid plans of mice and men often go awry, and hospital funding during a pandemic is no exception. When the pandemic began, hospitals cancelled QBP-funded elective procedures, such as knee arthroscopy, hip and knee replacement, cataract surgery and tonsillectomy (Trevithick 2020). What happened to the QBP funds when there were no patients on whom to spend this money? No patients, no money.
So, the Ontario government announced that hospitals would be allowed a one-time approval to liberate QBP funds to address immediate COVID-19 pressures (Ontario Ministry of Health 2020a). With COVID-19, Ontario effectively abandoned their hospital funding reform experiment with QBPs and put that money back into the hospitals’ global budget for more pressing needs arising from the pandemic.
Hospitals in other countries that rely on procedure- and volume-based funding are in a heap of trouble now because high-volume elective procedures were halted (Advisory Board 2020). In the US, for example, where hospitals rely heavily on diagnosis-based fees to generate revenue rather than stable annual operating budgets, the cancellation of elective procedures has resulted in steep reductions in revenue for all hospitals and health systems across the country (Respault and Spalding 2020; US Department of Health and Human Services 2020). The American Hospital Association estimates that, as a result of cancelled hospital services due to the COVID-19 pandemic, US non-federal hospitals lost approximately $161.4 billion in revenue over a period of four months from March to June 2020 (American Hospital Association 2020).
There is no perfect way to fund hospitals. Over the past few decades, changes to the way we fund hospitals around the world have been associated with varying degrees of success in decreasing wait times, improving access to care, reducing unit costs per admission, reducing variation in both costs and clinical practice, and improving quality (Ontario Hospital Association, ND). But funding reform hasn’t reliably achieved, or sustained, the hoped-for outcomes across hospitals or systems, and some approaches to funding are not harmless (Palmer et al. 2014). Attempts to limit annual volumes of certain procedures can frustrate patients and doctors, especially when limits on care are applied indiscriminately (Wasserstein et al. 2019). Unmet needs can lead to demands by some for the “right” to pay privately for those who can afford it, as happened in the recent legal challenge to BC’s Medicare Protection Act in the Supreme Court of British Columbia (Palmer 2020; Cambie Surgeries Corporation v. British Columbia 2020).
Canada has been criticized for being late to join the party on hospital funding reform. But our new research shows that before the pandemic began, this policy initiative to change the way we fund hospitals was not associated with substantial, system-level changes in access to care or quality of care – at least not for the QBPs and outcomes we rigorously evaluated (Lazar et al. 2013; Li et al. 2020). In summary, QBPs didn’t shorten length-of-stay in hospital or increase volume of care to help reduce wait times before the pandemic began. And they weren’t flexible enough to allow hospitals to meet communities’ needs during the pandemic. What, then, is their value?
COVID-19 forced Ontario’s government to recognize that the discretion and flexibility to spend may best reside with hospital CEOs and their delegates, within guidelines provided by the Ministry of Health (Ontario Hospital Association May 2020). Maybe the pandemic is teaching us that there are better ways than “one size fits all”, system-wide, funding initiatives to incentivize the things we want from our healthcare system (Ivers et al. 2012; Wasserstein et al. 2019).
Implementing change is nearly always expensive and fraught with complications (Palmer and Ivers 2018). What if funding reform isn’t the only way, or the best way, to improve care? Trying to motivate the behaviour of health professionals and healthcare leaders with financial incentives and disincentives, such as through QBPs, may not be as effective as aligning with their intrinsic motivators – innate, self-oriented drivers of human behaviour – to deliver care that is grounded in the best available science and the ethics of medicine (Kao 2015; Herzer 2015).
Instead of using funding as an extrinsic lever for change and tinkering with how we pay hospitals, what if we helped hospital leadership and physicians implement efficient and effective spending of global budgets to enable both individual and population health? Blank cheques without guidance or constraints is not desirable, but investing time and money on funding reforms may not be a good use of resources either. How do we balance our desire for accountability and for ensuring population-wide standards of care with the desire for flexibility and community-oriented care?
COVID-19 has forced us to think about ways to improve the systems we all rely on. It has also forced governments to trust the wisdom of capable local leaders to know what’s best for their communities, and to spend money accordingly, within appropriate constraints. Going forward, we should reflect deeply on these lessons about how best to fund our hospitals, so as to balance flexibility with accountability.
About the Author(s)
Karen S. Palmer, MPH, MSc, is an adjunct professor at the Faculty of Health Sciences in Simon Fraser University in Burnaby, BC.
Noah Ivers, MD, CCFP, PhD, is a family physician at Women's College Hospital and an associate professor with the Department of Family and Community Medicine at the University of Toronto in Toronto, ON.
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