How are hospitals funded in Canada?
Traditionally, Canada funds hospitals through global budgets – a fixed amount of funding is distributed to a hospital and it is expected to provide all services for a fixed period of time (usually a year).
These budgets and the budgeting process are based on a combination of factors, including:
- Budget values from previous years
- Rates of inflation
- Capital investment decisions
- Negotiations
- Politics.
Several advantages and disadvantages of global budgets are examined under Current Funding.
Growing concerns for hospital funders
Given the disadvantages associated with global budgets, hospital funders (i.e., health ministries and health authorities) across Canada are looking for alternatives to global budgets. Costs, wait times, and alternate level of care (ALC), are all putting pressure on the global budgeting model for funding acute care.
Costs
In 2008, the cost associated with hospital care in Canada was $49.4 billion, representing 28.7% of all health care expenditures in the country (CIHI 2010a). This was the largest portion of health care expenditures, eclipsing expenditure on drugs ($28.0 billion) and physicians ($22.0 billion) (CIHI 2010a). Spending on hospital care is projected to grow to $52.1 billion in 2009 and $55.3 billion in 2010 (CIHI 2010a).
Wait times
In 2004, the federal government agreed to provide provinces additional funding for the purpose of reducing wait times in four acute priority areas: cancer, heart, joint replacement, and cataract surgery (diagnostic imaging was also a priority area, though not solely for acute purposes) (Health Canada 2004). Despite this additional funding, wait times for these procedures still persist across the country and significant variations across the provinces have been observed (CIHI 2011c).
Policy makers are under pressure to reduce wait times beyond the federal priority areas. The Wait Time Alliance, the Canadian Medical Association, and the Health Council of Canada have all encouraged the expansion of wait time reduction strategies to other acute procedures (Wait Time Alliance 2011; Health Council of Canada 2011; CIHI 2009a).
Alternate level of care
Alternate level of care (ALC) is a growing issue facing policy makers and hospital administrators nationwide. Commonly referred to as “bed blockers”, ALC patients no longer require the intensity of acute-level of care but occupy hospital beds because there is a lack of appropriate post-acute discharge locations (for more information, check out this web site’s section on post-acute care. It is estimated that 14% of all acute days across the country are occupied by ALC patients; this represents approximately 7,500 acute beds each day (Ontario Joint Policy & Planning Committee 2006). ALC patients can prevent hospitals admission from the emergency department, or cause delays for some elective surgeries, because they limit the hospital’s occupancy capacity.
How are hospitals funded internationally?
Few countries use global budgets as the sole basis for funding hospital activities. Instead, many countries use a blended approach, mixing global budgets with other funding mechanisms aimed at mitigating the disadvantages of global budgeting (Farrar et al 2009; Morena-Serra & Wagstaff 2009). Some of the mechanisms include:
- Activity-based funding (a.k.a. patient-focused funding)
- Bundled payments
- Pay-for-performance.
These mechanisms are discussed in detail in other areas of this web site; please see our activity-based funding discussion and our post-acute care content.
