Activity-based funding (ABF): A funding mechanism that allocates funds based on the type and volume of services provided, adjusted to account for the complexity of the patients being treated.
Alternate level of care (ALC): Patients who no longer require the intensity of care provided in their current care location (e.g., hospital, long term care, assisted living) but for whom there is no appropriate discharge location.
Bundled payment: A method of payment of hospitals or physicians where payment is made based on the expected cost for an episode of care. Bundled payments are compared to a fee-for-service mechanism (whereby payment is made based on services provided) and to capitation (whereby providers are paid a sum independent of how many services they provide). Also referred to as global payment and episode payment.
Case-mix adjustment: A method of characterizing hospital output according to the patients’ mix of clinical conditions and interventions. Hospital discharges are weighted according to their expected relative use of resources (and therefore cost). In Canada, case-mix adjustment is carried out by the Canadian Institute for Health Information on all acute inpatient discharge data, using Case Mix Group (CMG+). Each Case Mix Group’s expected relative cost is represented by a resource intensity weight (RIW). All patients assigned to the same CMG are assigned the same RIW.
Case mix group (CMG): A grouping methodology characterizing patients based on the type, scope, and extent of inpatient services needed to diagnose and treat their medical condition.
Cost efficiency: A service or program is cost efficient when it provides more benefit (output) for lower cost (input), compared to other options.
Cream skimming: A hospital may restrict services to patients or be more selective in terms of the types of patients to whom it provides services. Also referred to as risk selection, this phenomenon can occur both in a global budgeting scenario (to try to stay within budget) and in an activity-based funding scenario (by focusing on providing the services that have a high payment to resources ratio).
Creep: A phenomenon where hospitals modify their clinical coding practices to maximize the resource intensity weight (RIW) of their outputs. This phenomenon has been observed in both the presence and absence of direct financial incentives, such as activity-based funding. Synonym: drift.
Diagnosis-related groups (DRGs): The method of case-mix adjustment used to implement prospective payment, or activity-based funding, to reimburse hospitals for Medicare-insured patients in the USA. Each DRG is associated with a per-case payment amount.
Drift: A phenomenon where hospitals modify their clinical coding practices to maximize the resource intensity weight (RIW) of their outputs. This phenomenon has been observed in both the presence and absence of direct financial incentives, such as activity-based funding. Synonym: creep.
Fee-for-service: A payment method where providers are reimbursed a set amount for each service they provide. Most physicians in Canada are paid through a fee-for-service mechanism.
Global budget: A funding mechanism that provides a fixed funding allocation to cover the costs of services for a fixed period of time (usually a year). The amount is generally based on the amount that was allocated in the past period, with a small increase to account for rising costs over time. A hospital funded through a global budget is free to move funds around between sectors.
Line item budget: A funding mechanism that attaches funds to specific sectors and does not allow transfer of funds between sectors. Targeted line items allow funding to be linked to specific objectives.
Patient-focused funding: In BC, activity-based funding initiatives are referred to as patient-focused funding.
Pay-for-performance (P4P): A funding mechanism that provides incentives for service providers to attain pre-determined outcomes on quality or performance metrics.
Payment by results (PbR): The form of activity-based funding implemented in England’s National Health Service since 2003. PbR is an acute hospital payment model based on volume that is very similar to US Medicare’s Diagnosis-related Groups (DRG) system.
Resource-intensity weights (RIWs): A method of weighting hospital discharges to reflect their expected relative use of resources (and therefore cost). In Canada, the Canadian Institutes of Health Information use RIWs to assign services to Case-Mix Groups, based on their use of similar amounts of resources.
Risk selection: A hospital may restrict services to patients or be more selective in terms of the types of patients to whom it provides services. Also referred to as cream skimming, this phenomenon can occur both in a global budgeting scenario (to try to stay within budget) and in an activity-based funding scenario (by focusing on providing the services that have a high payment to resources ratio).
Upcode/upcoding: A fraudulent activity whereby hospitals modify their clinical coding practices, inappropriately adding marginal or non-existent comorbidities, to change a patient’s DRG to one associated with a higher ‘price’ (see also: creep).
