Funding “reform” has CEOs chasing hospital mergers

In a perfect world hospitals would be publicly funded to meet the health needs of their communities. That would be it.

When the government started talking about funding reform, the thinking was that at last we would be moving closer to a rational system of allocation.

What we got instead was a hybrid of global funding, competition, and a funding formula that was supposed to take into consideration both existing usage and local demographics. Layered on top is a base funding freeze to at least 2018. Money has always been a driver in the health system, but suddenly it appears to be driving everything.

The evidence suggests that the complex and confusing system of funding allocation is creating new inequities that may be even worse than the ad hoc system of the past.

The South Bruce Grey Health Centre, for example, has argued to the South West LHIN that they are being penalized for efficiently combining the resources of four small rural hospitals. The Scarborough Hospital and the Rouge Valley Health System have made it clear that the complex demographic needs of their two communities are not being recognized in their base funding allocation.

What the new funding system appears to be doing is driving a new wave of costly and disruptive hospital mergers. You can’t blame the hospitals for seeking such mergers because they are simply acknowledging the new rules of the game set by the province. In this new world bigger gets more clout gets more funding.

The Scarborough-Rouge CEOs have repeatedly argued over recent months that by merging their two hospitals they will be better able to compete for market share.

This has become essential in an era of flat-lined budgets. If they can’t attract new revenue by arguing community need, they can try and lure away funding from other hospitals and communities. It’s a little dog eat dog.

That would be the competition part, even if the Ministry likes to talk instead about funding following patients. It’s a little like the notion Coke follows the thirsty. It doesn’t quite work that way.

Back when the hospital funding formula was being debated, McMaster University’s Stephen Birch argued against weighting it on existing usage. Birch pointed out that usage may not have so much to do with patient choice or community need, but reflect the lack of available services closer to home. The result was likely to cement inequities, not address them.

Listening to the Scarborough-Rouge CEOs, Birch appears to have a point. One of the reasons that so many West Durham residents end up at Toronto-based hospitals is that there is no room at Rouge Valley Ajax-Pickering hospital to expand services to meet community need. That’s got nothing to do with personal choice.

Similarly, aging facilities are a hindrance to the three Scarborough hospitals. The Birchmount hospital emergency room was built nearly 30 years ago to serve 20,000 patients. Today the same facility sees 60,000.

Both conditions negatively impact funding.

As one of their conditions for merger, the CEOs are asking for a feasibility study towards two new facilities, one in Durham, one in Scarborough. They say new facilities would save them $41 million a year in operating costs.

Asked today by a Central East LHIN board member what that feasibility study would cost, Rouge Valley CEO Rik Ganderton at first had difficulty answering, suggesting that “it was like asking how long is string.” A moment later, no doubt seeing baffled looks from the LHIN board, he suggested that it was likely to cost in the ballpark of $10-$15 million.

Today the LHIN approved $1.3 million in costs associated with the first phase of investigation into the merger, including extensive community consultation. They also approved a further $2.5 million for “due diligence” costs around the merger, including a deeper drill down on the financial and legal implications.

The $2.5 million is part of nearly $30 million in one-time basic merger costs. There is an additional cost of $5 million a year from wage harmonization. The Scarborough Hospital CEO Robert Biron told the LHIN that merged hospitals tend to migrate to the higher of the two existing wage scales.

Biron defends the merger costs, suggesting that spread out over three years these costs would represent a small fraction of the combined $680 million annual budget. Let’s not forget that the two CEOs initially said the status quo was unacceptable and that the two hospitals would have to trim $17 million from their combined budgets next year to achieve balance.

The next steps in the Scarborough-Rouge merger includes a formal integration proposal to the LHIN in December. That would trigger a 60-day integration decision. The LHIN makes their own recommendation to the Ministry of Health in late February. The Minister of Health is expected to look at the recommendation and make her own decision before the end of March.

If all goes according to schedule, the transition is expected to take another three years.

Already in Windsor we are hearing similar noises around the needs for a new mega-hospital to merge the operations of Windsor Regional Hospital and Windsor Hotel Dieu Grace. The language used to justify it is very similar to what we are hearing in Scarborough. In Niagara there is also a push to combine three smaller hospitals into a major South Niagara mega hospital following the recommendations of a Ministry-appointed supervisor to the Niagara Health System.

No doubt others will be watching the outcome of this merger. If approved, the “Scrouge” hospital becomes the 7th largest in the province.

After the presentation by the Scarborough and Rouge CEOs, the audience for the Central East LHIN board meeting thinned considerably.

That’s a pity.

Had they stayed they would have heard more health impacts resulting from funding restraint. That includes a presentation by Dr. Paul McGary, Director of Mental Health at Pinewood. Operated by Lakeridge Health, Pinewood and Destiny Manor offer addiction (drug and gambling) treatment as well as mental health supports. Recently Pinewood extended its reach into Scarborough. McGary was at the LHIN board to speak about the centre’s new strategic plan.

It’s hard to believe it wasn’t that long ago that the community was fighting a Ministry plan to close Pinewood. Now it is relied upon for key services in Durham and Scarborough.

With zero new base funding, Pinewood too is struggling with its mission. McGary says they have to find ways into the future to deliver the same services with fewer staff. Yet Lakeridge and the LHIN are counting on Pinewood to provide essential mental health services to reduce demand on the hospital’s ER. Last year 4600 patients showed up in the Lakeridge Oshawa ER with mental health issues.

Deb Hammons, the CEO of the Central East LHIN, said that mental health and addictions is a priority but recognized the situation in the region was getting worse, not better. McGary pointed out that there are five major gambling sites within easy access for Durham residents – this on top of a growing problem with internet gambling. Demand is high.

Similarly Lakeridge was looking for support to expand its pharmacy, long deemed to be too small to function efficiently. That presents issues around quality and safety. While the LHIN supported Lakeridge in its pre-capital submission to the province (the hospital plans to more than double the size of its pharmacy to 10,000 square feet), Lakeridge acknowledged that the larger pharmacy presents new operating pressures under an environment of zero-based budgets.

Towards the end of the meeting Hammons answered questions from the board around her monthly report. She acknowledged they were also struggling with the ability to provide needed respite beds given the high demand for full-time permanent long term care. She suggested that the number of available respite beds may be in decline.

The province has set up a system where hospitals will need to merge to surivive. Those mergers bring with them short-term significant costs.

The CEOs argue that we should keep our eye on the long term. It’s a good thought, but when we start expanding those merger costs province-wide, they stop becoming so inconsequential, especially when front line services are already going begging.

If the province truly wants to reduce its costs long term, it should look beyond hospital mergers to the full impact of austerity on health care.

Without appropriate mental health and addictions services or sufficient respite beds, there are higher long term costs to those shortfalls too.