Hospitals to compete on cost as province introduces new funding mechanisms

In March Deb Matthews told the media that 36 hospitals will have their budgets cut by as much as three per cent when this year’s new hospital funding formula rolls out.

This week the Ministry held a technical briefing and remarkably told its labour stakeholders that in year one about 10 per cent of hospitals will see increases in funding no greater than 1.8 per cent and decreases no greater than 1.5 per cent.

They also state that 90 per cent of hospitals will see less than a one per cent difference in their budget allocation, plus or minus.

Back in March 91 hospitals were expected to “benefit” from the new formula. Now the Ministry says only 90 hospitals will participate – small rural and northern hospitals being excluded from the Health Based Activity Model (HBAM).

That’s a big difference.

When we asked what happened, we were told that the original modelling was based on mid-year numbers, whereas the latest numbers were based on end of the year data.

Are they kidding?

This is a substantial difference in outcome and suggests that the Ontario Hospital Association may have had a chat with the Ministry about their original plan. It looks very much in the intervening months the Ministry put some water in their wine with regards to HBAM.

Introducing a new formula while the hospitals are undergoing a freeze in their base budgets makes it particularly difficult for those which are on the losing side of the equation.

The Ministry admitted the funding formula was not perfect, but said that if they waited to get it “all worked out” that it would never take place.

Having a funding formula is better than the present ad hoc system, and some hospitals will benefit from growing populations or recognition of an aging demographic.

We still do not fully understand the algorithms of how the Ministry is calculating HBAM, but it is intended to reflect demographics and take into account existing clinical data reflecting complexity of care and the type of care.

The latter is the more controversial, as some communities would argue patients are heading down the road to access services they might ordinarily seek in their home communities had it been available at the local hospital. Is it really reflecting community need, or is it reflecting and reinforcing the existing inequities?

This year HBAM will reflect about 40 per cent of a hospital’s funding allocation. Global funding (based on what they received last year) will make up 54 per cent of funding from the province. The remaining 6 per cent is for specific procedures – the more you do, the more you get.

It is this small slice of the funding pie that could be the most problematic.

By 2014 global funding will shrink to 30 per cent and payment for procedures will jump to 30 per cent.

Further, the Ministry intends to set standardized prices for these procedures, initially looking to set the bar at the lowest costs currently reflected by 40 per cent of hospitals.

That means for the remaining 60 per cent, they will get less than what they have historically received for this work. Again, this is happening at a time when hospitals are already being squeezed by the province’s austerity plan.

We asked what happens if the hospital is providing the right care at the right time in the right place but cannot meet the price the Ministry is setting?

The answer is they will try to work with the hospital to find ways to bring the cost down, and if they are unable to do so, will look at other providers within a certain geographic radius who can meet the price.

What they are really saying is, the Ministry is interested in the right care at the right time in the right place but only at the right cost.

They bristled at that interpretation, noting this was a quality exercise.


What this effectively amounts to is a form of competitive bidding for hospital services – something the Ministry has continually denied is taking place.

When cost trumps planning, the checker board of how services get delivered could get very interesting.

There is also an assumption that a hospital that can perform a procedure for less is enhancing quality.

Again, really?

This is going to be a tough year for hospitals, and a sliding funding base for the following two years is not going to be pretty.

In their lexicon of Orwellian monikers, the government calls this transition “patient-based funding.”

Sounds nice, but the patients may not be entirely happy with the outcome.

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