Activity-based funding (ABF)

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Activity-based funding

Health care dollars are almost always in short supply, and in tough economic times they are increasingly scarce. Efficiency, value for money and accountability are more important than ever to decision-makers, which is why some provinces have been exploring whether an activity-based funding (ABF) model fits the bill.

Traditionally, hospitals are funded through global budgets, where they receive a set amount of money at the beginning of the year. While this approach is simple and easy to understand, it can create challenges in planning at all levels of the system.

In an ABF model, the province pays hospitals for each patient treated—so patients no longer represent an expense for a hospital but are a way to generate revenue. It’s a more complex model that requires more data and information to be implemented, but it does overcome many of the challenges associated with global budgets.

British Columbia began moving toward ABF several years ago for a number of reasons.

“With global funding, the easiest way for a hospital or health authority to protect its budget is through a denial of services. We wanted to stop that,” explains Les Vertesi, the former executive director of the B.C. Health Services Purchasing Organization. “Activity-based funding provides money for the services you provide—and is an incentive to lower costs.”

In an ABF model, reimbursement is based on the approximate costs associated with treating a patient. A number of different methods are used internationally to calculate these payments. In B.C., CIHI’s case-mix system was used as a starting point.

“It was there for free and there was historical data going back 15 years or more for every patient in every hospital in Canada,” explains Vertesi. “We could look at trends and do comparisons. And it’s a Canadian standard—not an American one.”

CIHI’s case-mix groups produce indicators for every patient, which estimate the cost of their care relative to that of other patients. In B.C., these indicators were converted into dollar-value estimates.

“CIHI takes it one step further than just the average and comes up with a Resource Intensity Weight (RIW) for each case, so what you end up with is a weighted score,” notes Vertesi.

RIW accounts for the fact that some cases are more complex than others and therefore have a higher-than-average cost. This was important.

“We were able to say that it’s not only based on the number of cases you do, but it’s also based on complexity,” says Vertesi.

So how are things going?

“For patients it worked well. A lot of extra procedures got done,” says Vertesi. “One regional health authority was able to lower its wait lists by about 25% in 10 months.”

Many decision-makers also like ABF because they believe it leads to more transparency.

“It’s in the nature of activity-based funding that you know what you’re getting. You can steer the money where it’s needed, which is important,” explains Vertesi. “You don’t go to The Bay or Future Shop and say, ‘Here’s a thousand dollars, give me something for it.’”

Of course, as with any new initiative, there are still many questions. What are the real keys to ensuring success in an ABF system? How can this model of funding be used to drive quality? Which performance measures are important to track?

In an effort to answer some of these questions, CIHI has a team in place to support provinces wanting to move toward ABF using their case-mix systems as a starting point to calculate payment. CIHI is also providing some leadership in this area by piloting opportunities such as a thought leaders’ forum and an ABF education event, to name a few. CIHI will continue to monitor and evaluate these new models and pilot initiatives, with the intent of sharing this knowledge across all provinces.