The Financial. Acute Care. Management of. in Canada A REVIEW OF FUNDING, PERFORMANCE MONITORING AND REPORTING PRACTICES.

Transcription

1 The Financial Management of Acute Care in Canada A REVIEW OF FUNDING, PERFORMANCE MONITORING AND REPORTING PRACTICES March 2001 Ian McKillop, PhD School of Business & Economics Wilfrid Laurier University, Waterloo, Ontario George H. Pink, PhD Department of Health Administration University of Toronto, Toronto, Ontario Lina M. Johnson, MBA School of Business & Economics Wilfrid Laurier University, Waterloo, Ontario Canadian Institute for Health Information

2 The Financial Management of Acute Care in Canada A Review of Funding, Performance Monitoring and Reporting Practices March 2001

3 Contents of this publication may be reproduced in whole or in part provided the intended use is for non-commercial purposes and full acknowledgement is given to this report. Opinions expressed in this document are those of the authors. Endorsement of these opinions by the Canadian Institute for Health Information is not implied. For further information, please contact: Canadian Institute for Health Information 377 Dalhousie Street, Suite 200 Ottawa, Ontario Canada K1N 9N8 Telephone (613) Fax (613) ISBN Canadian Institute for Health Information TM Registered Trademark for the Canadian Institute for Health Information Cette publication est disponible en français sous le titre «La gestion financière des soins de courte durée au Canada : une revue du financement, du suivi du rendement et des pratiques de communication de l'information, mars 2001» ISBN X

4 Acknowledgements This comprehensive project could not have been completed without the tremendous support provided by ministries and departments of health across Canada. Each province and territory made freely available a wealth of documents and information for use in this study, and also offered expertise to review materials specific to their jurisdiction. We are extremely grateful to our provincial and territorial contacts, listed in Annex 3, who worked tirelessly to meet deadlines not of their own making. Projects of this scope benefit immensely from the insightful suggestions of reviewers. We were fortunate to receive comments from Vern Hicks (Health Economics Consulting Services, Nova Scotia); Frank Markel (Joint Policy and Planning Committee, Ontario); and Trevor Shaw (Office of the Auditor General, Alberta). We are also grateful to the Canadian Institute for Health Information for sponsoring the university-based research project from which this study emerged. Acting on behalf of CIHI, Christine Fitzgerald and Terry Campbell provided vital assistance that facilitated the effective management of the project. Ian McKillop School of Business & Economics Wilfrid Laurier University Waterloo, Ontario Canada George H. Pink Department of Health Administration University of Toronto Toronto, Ontario Canada Lina M. Johnson School of Business & Economics Wildfrid Laurier University Waterloo, Ontario Canada

5 Executive Summary This study provides a comprehensive inventory of practices related to the management of the financial resources dedicated primarily to hospitaldelivered acute care in Canada for the fiscal year April 1, 2000 through March 31, For each province and territory, the study reports on three issues related to the management of financial resources: 1. The approach used to determine funding allocations to organizations responsible for hospital-delivered acute care in each jurisdiction. 2. The methods used to evaluate the financial performance of these organizations by the provincial/territorial government providing the funds. 3. The financial reporting requirements imposed upon organizations providing hospital-delivered acute care. Observation of Canadian practice indicates that provinces and territories use one or more of eight different funding methods. The way in which the funding methods are applied depends upon the mandate of the organization receiving funds. The study finds a trend toward population-driven funding approaches, although the specific steps used to generate population-based funding allocations differs significantly among jurisdictions.

6 Table of Contents 1. Overview Using This Study...3 Approach...5 Hospital Spending in Canada Summary Classifying Funding Practices Funding Approaches Used in Canada Applying the Taxonomy Summary Funding Practices Acute Care Funding in Canada Primary Funding Approaches Secondary Funding Approaches Summary Performance Monitoring Practices Performance Monitoring Practices Prospective Monitoring Practices Retrospective Monitoring Practices Summary Reporting Practices Financial Reporting Practices The Role of CIHI Required Reporting Activities Non-Required Reporting Activities Summary Conclusion Summary Principal Findings The Future Provincial/Territorial Summaries Alberta Background Funding Approaches Performance Monitoring Reporting Practices British Columbia Background Funding Approaches Reporting Practices Performance Monitoring Manitoba Background Funding Approaches Performance Monitoring Reporting Practices

7 Table of Contents (cont'd) 7. Provincial/Territorial Summaries(cont'd) New Brunswick Background Funding Approaches Performance Monitoring Reporting Practices Newfoundland Background Funding Approaches Performance Monitoring Reporting Practices Nova Scotia Background Funding Approaches Performance Monitoring Reporting Practices Ontario Background Funding Approaches Performance Monitoring Reporting Practices Prince Edward Island Background Funding Approaches Performance Monitoring Reporting Practices Quebec Background Funding Approaches Performance Monitoring Reporting Practices Saskatchewan Background Funding Approaches Performance Monitoring Reporting Practices Yukon Background Funding Approaches Performance Monitoring Reporting Practices Annex 1 Additional Information on the MIS Guidelines Annex 2 Glossary of Terms Annex 3 Provincial/Territorial Contributors Annex 4 References

8 The Financial Management of Acute Care in Canada 1 1. Overview Although the guiding principles of the provision of health services are established by the Canada Health Act, responsibility for the management and stewardship of the health system is largely entrusted to the governments of the ten provinces and three territories. Provincial and territorial governments execute their responsibility for the provision of health services to their constituents in a manner consistent with the individual government s political environment and policy position. As a result, although there is a high degree of consistency in the purpose of the health system across Canada, a variety of organizational delivery structures, accountability requirements, and funding models have emerged. The fact that all jurisdictions share a common interest in providing quality health services, but choose to fund, monitor and evaluate the organizations providing these services differently, presents an interesting opportunity to compare the financial management practices related to hospital-delivered acute care across Canada. In doing so, this study makes the following contributions: New approaches to funding (particularly in the way in which funding models are developed and implemented) are emerging. This study provides a ready source of information describing these approaches and can be used by readers wishing to understand funding models used in specific jurisdictions. Given the size of the health budget in all provinces and territories, jurisdictions have an increased interest in expanding their performance monitoring capabilities. This report provides information on how these initiatives are developing. 1 / Overview

9 2 The Financial Management of Acute Care in Canada National standardized financial reporting practices have been adopted by almost all provinces and territories in the past few years. This report summarizes the state of required and nonrequired financial reporting activities in each jurisdiction. Understanding variations in funding and financial monitoring practices provides a valuable learning opportunity from which lessons and techniques with potential utility in other settings can be extracted. This study presents a comprehensive inventory of practices related to the management of the financial resources dedicated primarily to hospital-delivered acute care in Canada as of December Information on funding methods, performance monitoring practices and financial reporting practices is that which was applied for the fiscal year ended March 31, For each province and territory, the study reports on three issues related to the management of financial resources: 1. The approach used to allocate or flow funds by provincial/ territorial governments to organizations responsible for hospitaldelivered acute care. 2. The methods used to evaluate the financial performance of these organizations by the provincial/territorial government providing the funds. 3. The financial reporting requirements imposed upon organizations providing hospital-delivered acute care. The study was undertaken by a university-based research team with the support and sponsorship of the Canadian Institute for Health Information. 1 / Overview

10 The Financial Management of Acute Care in Canada 3 Using This Study The financial management practices of all jurisdictions in Canada except Nunavut and NWT are described. This study provides a single-source reference guide to the funding, financial performance monitoring and financial reporting practices of all provinces and territories in Canada except Nunavut and the Northwest Territories (NWT) related to the provision of hospitaldelivered acute care. Financial management practices evolve to reflect changing needs in all provinces and territories. Where information was available describing forthcoming changes in financial management practices, this information has been incorporated in the summary of province/territory practices in Chapter 7. For all provinces/territories, contacts within health ministries/departments have been provided where available. References to documents available from health ministries/departments related to financial management practices have also been noted where appropriate. Intended Audiences This inventory of fiscal management practices will be valuable to a number of audiences, including: A number of stakeholders will find the contents of this report valuable. researchers needing to understand the underlying rules and policies used by organizations responsible for hospital-delivered acute care to report financial and operational activity data found in MIS Guideline-based datasets; provincial health ministries and departments interested in comparing funding, financial reporting and financial performance measurement policies with those used in other provinces; federal government agencies requiring ready access to a simplified, yet comprehensive inventory of provincial and territorial financial administrative and management practices for health service organizations; health service managers seeking to identify managers in other jurisdictions who are faced with similar operational constraints with whom lessons learned could be obtained or shared; and 1 / Overview

11 4 The Financial Management of Acute Care in Canada users of the health care system who are interested in a comparative understanding of how organizations responsible for hospitaldelivered acute care are funded and monitored across Canada. Contents The study is organized in seven parts. Chapter 1 provides an overview of the structure of the hospital system in Canada and will be of value to readers from other countries wishing to gain a high-level overview of how hospital-delivered acute care is organized and managed in Canada. Chapter 1 also describes the purpose of the study, and outlines the process used to collect and validate the information presented. A taxonomy of funding approaches in Canada was developed as part of this study. Readers interested in an integrated overview of Canadian financial reporting practices will find Chapters 3 through 5 useful. Readers needing access to information on financial reporting practices in a specific jurisdiction will find this information in Chapter 7. Chapter 2 introduces a taxonomy that can be used to classify the funding approaches found in Canada. This taxonomy was developed after observing characteristics of the funding approaches reviewed to complete this study. The taxonomy provides a framework around which a discussion of funding approaches used in Canada can be developed. Chapters 3, 4 and 5 present an integrated discussion of the various funding methods, financial performance and financial reporting practices used by provinces/territories. Chapter 6 includes a discussion of the state of hospital financial performance management practices in Canada. Chapter 7 provides a reference to the specific financial management practices used by each province and territory included in this study. Links allowing readers to obtain further information specific to a province or territory are included where available. 1 / Overview

12 The Financial Management of Acute Care in Canada 5 Approach The process by which data were obtained, verified and assembled for presentation in this study is presented here. Because of the variation in hospital governance and organizational structures found in Canada, and the impact that this variation has on the selection of the unit of analysis, an explanation of hospital organizational structures is also provided. Sources of Data The data presented in this study was provided by provincial/territorial governments. The funding, performance monitoring and financial reporting information presented in this study was provided by provincial and territorial health ministries/departments. Data were gathered between August and November Governments were asked to provide documents such as policy manuals, ministry directives, and educational materials related to their financial management practices for the fiscal year 2000/2001. (All fiscal year ends occur at March 31.) The research team used these documents to create a summary of financial management practices specific to each province/territory as described by the provincial or territorial government. The extent to which organizations responsible for hospital-delivered acute care comply with these practices has not been investigated. Data Verification Provincial and territorial governments have reviewed and verified the information in Chapter 7. The summary of financial management practices created by the research team was sent to a pre-arranged representative selected by each ministry/department of health for review and verification. The representative was asked to provide details for missing data elements where these elements were relevant in their jurisdiction. Changes requested by provinces/territories were incorporated and a final copy of the provinces'/territories' summary of practices was returned to the provinces'/territories' contact person for final verification. Finally, all 1 / Overview

13 6 The Financial Management of Acute Care in Canada of the provinces/territories were sent a complete draft of the entire document and asked to provide comments. The material appearing in Chapter 7 was extracted from the verified data reports submitted by provinces/territories. Chapters 3, 4, and 5 were developed by synthesizing information provided by the provinces and territories to create an integrated discussion of funding, performance monitoring and reporting practices across Canada. The classification of the funding approaches used in each jurisdiction is that of the research team and is based on the authors' assessment of the information submitted by jurisdictions. Unit of Analysis This study focuses on the organizational unit in each province/territory that manages the delivery of hospital-based acute care. In this study, the unit of analysis in each province/territory is the organizational unit responsible for the delivery of hospital-based acute care services. Hospital-based acute-care services implies the availability of diagnostic services, inpatient nursing, surgical and/or post-surgical recovery capabilities, drugs, and medical services. This approach is taken because the variety of corporate structures used across Canada creates a situation in which the relationship between provincial/territorial health ministries/departments and individual acute-care hospitals differs from jurisdiction to jurisdiction. In some provinces/territories (e.g., Ontario), the unit of analysis is at the individual hospital level. In other provinces/territories (e.g., Alberta, British Columbia), the unit of analysis is a group of hospitals within a regional health organization that are treated as a single entity for funding and reporting purposes. The many types of organizational structures used in Canada means that the unit of analysis varies by province/territory. The result is that, in many jurisdictions, it is impossible for the government to directly observe the financial activities of hospitals responsible for the delivery of acute care. This situation occurs because many jurisdictions advance funds to organizations with mandates that include health services other than acute-care hospitals (such as community care, long term care, etc.). Even in settings such as Ontario where funds are directed to organizations that typically have an acute-care focus, it may be impossible to observe the 1 / Overview

14 The Financial Management of Acute Care in Canada 7 performance of individual hospitals because multiple sites report as a single accounting entity. Types of Hospital Corporate Structures in Canada Because the unit of analysis differs among jurisdictions, an overview of the various organizational and governance structures under which hospitals operate in Canada is provided. Some of these structures include: Many hospital governance and corporate structures are found in Canada. Regional health organization a corporate body with a single board of governors that is responsible for acute-care hospitals, as well as the delivery of a broad range of health care services other than acutecare hospitals; Single-site hospital a single hospital with an individual corporate identity and its own board of governors; Multi-site hospital multiple hospitals sharing a corporate identity with a shared board of governors; Alliance multiple hospitals sharing a single CEO but with individual corporate identities and individual boards of governors; and Network multiple hospitals with separate CEOs, individual corporate identities and individual boards of governors, but with shared or rationalized clinical and/or support services. In this report, the term health services organization is a generic term that refers to any corporate structure that includes an acute-care hospital. In this report, the term health service organization is a generic term that refers to any organizational structures that include an acute-care hospital. The term hospital is used only when it is necessary to specifically refer to an acute-care hospital, either as a single corporation or within a larger health service organization. Although health service organizations use a wide variety of corporate structures, all share some common characteristics. A number of these characteristics are listed below. 1 / Overview

15 8 The Financial Management of Acute Care in Canada The majority of revenues come from a single payer (the Ministry or Department of Health). With few exceptions, Canadian health service organizations exist as not-for-profit entities without share capital. Ownership of health service organizations usually resides with a municipal government, religious organization, university or other non-profit organization and seldom with the provincial/territorial government. In all cases, however, the provincial/territorial government manages the operating and capital funding process. Governance is usually executed by volunteer trustees. A variety of methods are used to appoint trustees. A number of fiscal and legal responsibilities and accountabilities exist between health service organizations and the Minister of Health (or equivalent). For most health service organizations, there is little interaction with the federal level of government. Funding/Reporting Organizations by Province/Territory The number of health service organizations that provide acute care varies widely by province. Table 1.1 shows the unit of analysis and the number of health service organizations in each province/territory as at April 1, / Overview

16 The Financial Management of Acute Care in Canada 9 Table 1.1 Organizational Unit Used for Funding, Performance Monitoring & Reporting (As at April 1, 2000) Jurisdiction Organizational Unit # of organizational units # of hospitals # of beds Alberta Regional Health Authorities ,634 British Columbia 1 Regional Health Boards; Community Health Councils ,156 Manitoba 2 Regional Health Authorities ,701 New Brunswick 3 Region Hospital Corporations ,014 Newfoundland and Regional Health Boards ,489 Labrador Northwest Territories Nova Scotia 4 District Health Boards ,099 Nunavut 1 34 Ontario 5 Public Hospitals ,270 Prince Edward Island 6 Regional Health Authorities Quebec 7 Regional Health and Social Services Boards ,957 Saskatchewan 8 District Health Boards ,813 Yukon Hospitals CANADA ,954 Source: Annual Hospital Survey FY2000/2001 (Preliminary) CIHI, unless otherwise specified. Notes: 1. Includes approved beds in Community Health Councils. Breakdown between Regional Health Board and Community Health Councils is not known. 2. Source: Manitoba Health. 3. Source: New Brunswick Health & Wellness (hospitals include 27 general, 2 psychiatric, and 1 rehabilitation). 4. The number of beds includes acute-care beds only (Source: Nova Scotia Health). 5. The number of organizations equals the number of hospitals because there are no regional health organizations in Ontario. The number of hospitals includes 144 acute, 12 chronic, 4 rehabilitation and 3 specialty (Source: Ministry of Health and Long Term Care). 6. Source: Prince Edward Island Department of Health and Social Services. 7. The number of beds includes acute and psychiatric beds only. (Source: Quebec Ministry of Health and Social Services). 8. The number of hospitals includes 69 acute-care hospitals and 1 rehabilitation centre and 1 psychiatric hospital. The number of beds includes 3,328 beds in the acute-care hospitals (comprising 2,944 acute, 183 psychiatric, and 201 long term care, rehabilitation, and other); 307 beds in the rehabilitation centre; and 178 beds in the psychiatric hospital (as at March 1, 2000) (Source: Saskatchewan Health). 1 / Overview

17 10 The Financial Management of Acute Care in Canada Hospital Spending in Canada In 2000/2001 it is projected that provincial and territorial governments in Canada will spend $63.1 billion on health care. Of this total, expenditures on hospitals will account for the largest share, 44.1% ($27.9 billion) 1. Two decades ago the proportion of health spending allocated to hospital services was 8.3 percentage points higher at 52.4%. This proportion has declined nearly every year since due to lower growth in hospital expenditures relative to other categories of health expenditure. Hospital expenditures declined for three consecutive years beginning in 1993/1994. By 1998/1999 they grew by 7.7%, a rate last experienced in the early 1990s. Provincial and territorial government expenditures on hospital services are forecast to grow by 3.2% in 1999/2000 and by 7.0% in 2000/2001. $1,200 Figure Provincial/Territorial Government Hospital Expenditure per Capita, by Province and Territory, 1998/99 and 2000/01 - Current Dollars $900 $2,041 $1,951 $1,547 $600 $ / /01f $0 Nfld. P.E.I. N.S. N.B. Que. Ont. Man. Sask. Province/Territory f = forecast data Sources: Canadian Institute for Health Information, Statistics Canada Alta. B.C. Y.T. N.W.T Nun. 1 Canadian Institute for Health Information, National Health Expenditure Database, These totals do not include deficits or surpluses carried on the books of regions or hospitals. Adjustments for regional and/or hospital deficits or surpluses are not made in the National Health Expenditure database unless the provincial government assumes them.. Once assumed by the provincial government, deficits are allocated to the years when the region and/or hospital incurred the deficit. In recent years this occurred both in the provinces of Quebec and Nova Scotia. In fiscal year 1998/99, the Quebec government paid out $1,346.2 million allocating these dollars to deficits/adjustments/ shortfalls of prior years as follows: $90 million in 1995/96; $63.5 billion in 1996/97; $378.7 million in 1997/98 and $814 billion in 1998/99. In 1998/99 the Nova Scotia government paid out $280 million to cover regional deficits. $123.6 million was allocated to 1998/99, and $156.4 million was allocated to 1997/98 and prior years. 1 / Overview

18 The Financial Management of Acute Care in Canada 11 Hospital spending per capita is highest in the Northwest Territories. Among the provinces, in 2000/2001, per capita hospital spending is projected to be highest in Newfoundland ($1124) and Manitoba ($1040). Saskatchewan is expected to have the lowest spending ($773). (Figure 1.1) During the 1990 s, health care consumed an increasing share of total provincial/territorial government spending. In 1999/2000 (the latest year for which estimates are available) health care in provinces and territories is estimated to average 36.1% in total provincial government spending, an increase of 3.0 percentage points from the average of the previous year. Summary This study provides a single source reference for stakeholders who require access to information describing the funding approaches, financial performance monitoring and financial reporting practices of provinces and territories in Canada related to the management of hospital-delivered acute care services. The document describes the financial management practices of all provinces and territories in Canada except Nunavut and the Northwest Territories. The unit of analysis for each province/territory matches the organizational unit used for funding, performance monitoring and reporting of the organization responsible for hospital-based acute care. There is substantial variation in the responsibilities and mandates of these organizational units among jurisdictions. 1 / Overview

19 The Financial Management of Acute Care in Canada Classifying Funding Practices A variety of approaches are used by provincial and territorial governments to apportion monies from provincial treasuries for spending by organizations responsible for hospital-delivered acute care. Chapter 2 of this study describes these approaches. Funding Approaches Used in Canada Funding approaches can be described in terms of scope and method. To assist in describing how provinces and territories choose to apportion funds for health service organizations, a taxonomy of funding approaches was developed. This taxonomy is based on observations derived from the sample of approaches submitted by the 10 provinces and 1 territory reviewed in this study. Each province s/territory s approach to funding of health service organizations can be described using a framework consisting of two elements. Table 2.1 shows that these elements are the scope of the funding approach, and the method used for apportionment. 2 / Classifying Funding Practices

20 14 The Financial Management of Acute Care in Canada Some provinces/territories use ex-post adjustments in their approach to funding. The impact of these adjustments is to alter the amount that would otherwise be determined using a specific method. These adjustments are called method modifiers in this study. It was also observed that jurisdictions sometimes choose between two alternative data sources when obtaining the data needed to operationalize various methods. The scopes, methods (and the underlying method modifiers and data sources) used in the funding of Canadian health service organizations are summarized in Table 2.2. Table 2.1 Elements of a Taxonomy for Classifying Funding Approaches Scope Method Element Sub-components of Methods: Method Modifiers Data Sources Explanation Describes the extent to which the funding targets money directly for hospital-based acute care, or whether the approach flows money to organizations that provide a variety of health services that includes acute care. Describes the mechanical elements of the process used to determine the specific dollar amount to be distributed. When applicable, describes techniques used to adjust the funding allocations determined by one of the funding methods on an ex-post ("after the fact") basis. When applicable, describes the premise used by a jurisdiction to obtain the data needed for certain methods. 2 / Classifying Funding Practices

21 The Financial Management of Acute Care in Canada 15 Table 2.2 A Taxonomy of Funding Approaches Used in Canada A province/territory s funding approach can be described by choosing one element from each column. Scope Methods Sub-components of Methods Comprehensive Population-based Method Modifiers Institutional Facility-based Penalty/Incentive adjustment Service specific Case mix-based Import/Export adjustment Global No loss adjustment Line-by-line Policy-based Data Sources Project-based Spending data Ministerial discretion Explanatory data Scope Table 2.3 shows that three funding scopes are used in Canada. Scope is determined by the mandate of the health service organization to which the province/territory is distributing funds and engaging in reporting/performance monitoring activities. Comprehensive funding approaches are used to determine funding allocations when distributing money to organizations with multi-sector responsibilities. These organizations often have responsibilities for long term care, community health, mental health, and other services combined with their responsibility for hospital-delivered acute care. Regional health organizations (with names such as Regional Health Authorities, Regional Health Districts, District Health Boards, etc.) are usually the recipients of provincially/territorially distributed funds. The specific sectoral responsibilities of these regional health organizations differ considerably across Canada. 2 / Classifying Funding Practices

22 16 The Financial Management of Acute Care in Canada Table 2.3 Scope of the Funding Approach Scope Comprehensive Institutional Service Specific Description Comprehensive funding approaches flow money to health service organizations with multi-sector responsibilities that includes hospital-delivered acute care. These organizations may have considerable freedom with respect to how they choose to distribute funds to each sector. Institutional funding approaches flow money directly to specific acute-care hospitals (or groups of acute-care hospitals operating as a single corporate body.) Although these organizations may have some discretion over how money will be spent within their organization, they are usually not permitted to re-direct money to other organizations. Service specific funding approaches flow money to organizations to support the provision of a specific service, or the care of a specific disease. The organization usually has a mandate to provide this care to residents drawn from a wide geographic area. Funds cannot be used for purposes other than the service or disease for which the funds were specifically granted. Because of the multi-sector responsibilities of regional health organizations, it is often not possible (nor desirable from an incentive point-of-view) for governments to specifically direct monies toward acute-care services in these settings. Regional health organizations are usually permitted considerable freedom to choose how best to direct funds provided by their province/territory to each of the sectors for which they have responsibility. Funding approaches with an institutional scope target monies directly to acute-care hospitals. In some cases, a group of hospital sites may be operating as a single corporate body, in which case funding may be directed at the corporate body. Health service organizations in settings where a funding approach with an institutional scope is used are rarely permitted to re-direct their funding for use in other sectors. This funding approach is common in settings where regional health organizational structures have not been implemented. Funding approaches with a service specific scope direct monies to support the provision of a specific service or the care of a specific disease. Funding approaches with a service specific scope tend to be specialized in nature and are rarely used as the primary approach for determining operating funds. For example, although a jurisdiction may 2 / Classifying Funding Practices

23 The Financial Management of Acute Care in Canada 17 distribute most of its acute-care funding to regional health organizations, it may also wish to provide direct support for a cardiac pacemaker program. A separate envelope of funds, determined using a funding approach with a service specific scope, can be used for this purpose. In a few cases, health service organizations may have the bulk of their allocation determined using a service specific funding approach. This occurs in settings where a health service organization has a narrow mandate to provide a specific service, or to care for a specific disease. Regional laboratories and cancer care centres are two examples. These are services or diseases that would otherwise fall under the responsibility umbrella of health service organizations responsible for the delivery of a wide range of hospital-based acute-care services. Methods Used for Funding The mechanism by which an actual dollar allocation is determined is the funding method. Eight funding methods were identified. All funding approaches use at least one method to determine the actual dollars that should be flowed to a health service organization. Most provinces/territories use more than one method. Typically, one method is used for apportioning the majority of operating funds. A number of secondary methods are used to distribute the balance of operating funds, usually targeted for specific issues or special programs. A third method is often used for funding capital projects. Methods observed in the funding approaches seen across Canada can be classified as being population-based, facility-based, case mix-based, global, line-by-line, policy-based, project-based, and ministerial discretion. An explanation of each method is presented in Table 2.4. ➀ Population-Based Methods Description Population-based methods recognize that population groups seek hospitaldelivered care with different frequencies. Population-based methods use demographic or other characteristics of the population (such as age, gender, socio-economic status, mortality, etc.) to determine the relative propensity of different population groups to seek health services. 2 / Classifying Funding Practices

24 18 The Financial Management of Acute Care in Canada By linking the cost of providing specific health services with the propensity of certain populations to seek these services at a specific health service organization, it is possible to estimate the spending profile of the organization. The spending profile can then be used to determine the organization's share of overall provincial/territorial spending. Table 2.4 Methods Used for Funding Method ➀ Population-based ➁ Facility-based ➂ Case Mix-based ➃ Global ➄ Line-by-line ➅ Policy-based ➆ Project-based ➇ Ministerial discretion Description Uses demographics or other characteristics of the population (such as age, gender, socio-economic status, etc.) to determine the relative propensity of different population groups to seek health services. Uses characteristics of the organization providing care (such as size of organization, type of organization, geographic isolation, occupancy rate) to estimate the cost of operating a health service organization. Uses a profile of cases and/or service volumes previously provided (such as number of knee replacements, number of dialysis procedures) to estimate the cost to sustain a specified profile of cases and/or service volumes in the future. Applies a factor to a previous spending figure (or to a forecast spending figure) to derive a predicted spending level for an upcoming period. Applies factors on an individual basis to previous cost experiences (or to forecasted costs) to derive a proposed funding level for each line item (such as housekeeping, inpatient nursing, etc.) for an upcoming period. Directs spending to address specific policy initiatives of the Department or Ministry of Health. These policy initiatives affect the operation of multiple organizations within the jurisdiction. Flows funds to a single health service organization in response to evaluating a proposal from that organization for one-time funding, often for a major expenditure. The Minister of Health decides on the specific dollar amounts to flow to health service organizations. 2 / Classifying Funding Practices

25 The Financial Management of Acute Care in Canada 19 Generalized Process The specific steps employed by provinces/territories that use a populationbased method can be found in Chapter 7. In general, the mechanical steps associated with this method are: 1. Assign each member of the population to a specific population group based on the characteristics of the individual. (e.g., age, gender, income quintile, aboriginal status). then either 2. Calculate a per capita rate of spending for health services for each specific population group across the province/territory. Population-based methods are found most frequently in provinces/territories using regional organizational structures. or 3. For each geographic region, multiply the per capita rate for each population group by the number of individuals in the group. Then, sum this amount for all population groups in the geographic region. 2. Determine the cost of providing care to each member of the population using service recipient costing For each population group within each region, sum the cost of providing care to all members of the population group. Then, for each region sum the total costs across all population groups. Advantages Objective this method uses data obtained from sources other than the entities being funded and does not require subjective assumptions to implement Comprehensive relevant characteristics of a population can be incorporated Shortcomings Complex involves the use of sophisticated routines to link databases 2 Service Recipient Costing is used to determine the cost of providing care to specific clients in Canadian health service organizations. 2 / Classifying Funding Practices

26 20 The Financial Management of Acute Care in Canada Can be difficult to implement demands considerable attention be given to the process of implementation Resource intensive from both an information systems perspective and a staffing perspective Potential lack of transparency depending on steps involved, may be difficult for users to understand how funding amounts have been determined Example of a population-based method A province / territory tracks each encounter every member of its population has with the health system. Members of the population are assigned to age and sex groups: males 0-5 years; females 0-5 years; males 6-10; females 6-10 males over 85, and females over 85. The average annual cost of providing care to individual people in each group is calculated. Funding is determined by multiplying the number of members of each population group living in the geographic area served by a health service organization by the average cost per member of that group. Funding = (# of males 0-5 years * annual rate for a male 0-5 years) + (# of females 0-5 years * annual rate for a female 0-5 years) (# of males over 85 * annual rate for a male over 85) + (# of females over 85 * annual rate for a female over 85) + Example only. Not intended to describe practice in a particular jurisdiction. This example uses spending data. ➁ Facility-Based Methods Description Facility-based methods reflect characteristics of a health service organization (such as teaching mandate) that are shown to affect the cost of providing services. Facility-based methods use characteristics of the organization providing care (such as size, amount of teaching activity, distance from nearest tertiary facility, occupancy rate, etc.) to estimate the cost to operate the health service organization. Generalized Process In general, the mechanical steps associated with this method are: 1. Decide the characteristics of a facility that influence the cost of providing care. 2 / Classifying Funding Practices

27 The Financial Management of Acute Care in Canada Fund the facility based at a per unit rate for each of the characteristics identified. Example of a facility-based method A province/territory decides to fund facilities based on the type of patient days (number of acute patient days; number of complex continuing care (CCC) patient days; etc.) A different rate is set for each type of patient day. Funding is determined by multiplying the number of patient days of each type in the facility by the rate per patient day for each type. The rate per patient day is established using the province's case costing data. Funding = (# of acute patient days * rate per acute patient day) + (# of CCC patient days * rate per CCC patient day) + (# of rehabilitation patient days * rate per rehab patient day) + Example only. Not intended to describe practice in a particular jurisdiction. This example uses spending data. Example of a facility-based method A province/territory uses regression to determine that the number of medical students training at a hospital largely explains the difference in cost structures between teaching and community hospitals. Using output from the regression formula, a rate per student day is determined. Funding is equal to some base amount (the intercept from the regression) plus the rate per student day times the number of student days. Funding = base amount + (# of medical student days * rate per student day) + Example only. Not intended to describe practice in a particular jurisdiction. This example uses explanatory data. Advantages A challenge in developing facilitybased methods is to design models that incorporate only factors deemed beyond management control. Recognizes that organizational structure (e.g., small rural health service organization versus large urban health service organization with a teaching hospital) can influence the cost of providing identical services Allows Ministries/Departments of Health to create funding incentives/disincentives for organizational characteristics that are deemed desirable/undesirable Shortcomings May not reward utilization efficiencies Not responsive to demographic or case mix changes 2 / Classifying Funding Practices

28 22 The Financial Management of Acute Care in Canada ➂ Case-Mix Based Methods Description Case mix- based methods use the volume and type of cases treated by a health service organization to determine funding. Case-mix based methods use information describing the types and volumes of services previously provided (such as number of dialysis procedures, number of knee replacements, etc.) to estimate the spending required for a specified profile of service volume and type. Generalized Process In general, the mechanical steps associated with this method are: The specific steps employed by provinces/territories that use a case mixbased method can be found in Chapter Determine the number of cases of each type, such as bypass surgery, dialysis, or hip and knee replacement, provided by a health service organization in period x. 2. Using data available from the CIHI, determine the total weighted cases based on the number of cases treated for each case-mix type. 3. Obtain the total actual costs for period x. 4. Calculate the average cost per weighted case. (= Total actual costs/total weighted cases). 5. Multiply the average cost per weighted case by the weighted cases expected in period x+1. Example of a case mix-based method A province/territory decides to fund cardiac bypass surgery (CABG) on a per weighted case basis. The annual cost of all CABGs in the province is divided by the annual number of CABG weighted cases in the province to obtain an average cost per weighted case. Funding is determined by multiplying a health service organization's number of CABG weighted cases by a rate per CABG weighted case. Funding = (# of CABG weighted cases * rate per CABG weighted case) + (Potential Enhancement: Fund the health service organization at the provincial average cost per weighted case times next year s anticipated weighted case volume.) Example only. Not intended to describe practice in a particular jurisdiction. This example uses spending data. 2 / Classifying Funding Practices

29 The Financial Management of Acute Care in Canada 23 Advantages Relates funding to actual services provided When used with provincial average cost per weighted case creates an incentive to provide care in as efficient a manner as possible Shortcomings May create an incentive for weighted-case creep (coding practices changing in an effort to maximize the weighting assigned to a case) ➃ Global Methods Description Global methods rely on accurate accounting information describing past spending. External validation of the accounting information (e.g.,, audits) is usually required. Global methods adjust a previous total spending figure (or a forecast spending figure) to derive a proposed funding level for an upcoming period. This can be accomplished by using a multiplier (such as 1 + rate of inflation) or an additive/reductive factor (such as giving each health service organization $1 million more than last year). When a multiplier is used, the factor is often set equal to the amount by which the provincial/territorial spending envelope has been increased or decreased since the previous funding allocation was made. Generalized Process In general, the mechanical steps associated with this method are: The specific steps employed by a province/territory when using the global method can be found in Chapter For each health service organization, begin with a base amount, such as the prior year's base allocation or total actual spending. 2. Adjust this amount by a predetermined factor. (Such as the rate of inflation; or the amount by which the provincial/territorial health spending budget has increased/decreased). 2 / Classifying Funding Practices

30 24 The Financial Management of Acute Care in Canada 3. The result is the health service organization's base funding for the current year. Example of a global method A province/territory decides to increase global funding for health service organizations by a specific percentage next year. Funding is determined by multiplying last year s global funding by the percentage increase. Funding = (Global funding provided last year * percentage increase) + Example only. Not intended to describe practice in a particular jurisdiction. This example uses spending data. Advantages Provides some degree of predictability because the base amount is similar to the current year's base Fairly straightforward to calculate Shortcomings Perpetuates inequities Does not encourage more desirable behaviours such as increased efficiency and more appropriate utilization of services ➄ Line-by-Line Methods Description Line-by-line methods also rely on the availability of accurate and validated accounting information on past performance. Line-by-line methods apply factors on an individual basis to previous spending experience (or to a forecast spending figure) to derive a proposed funding level for each line item for an upcoming period. Depending upon the organization, line items could be the nature of expenditures (such as housekeeping, inpatient nursing services, medical/surgical supplies, etc.) or line items could be programs or departments (such as family birthing unit; emergency care; cardiac care). 2 / Classifying Funding Practices

31 The Financial Management of Acute Care in Canada 25 Line-by-line methods are used by provinces/territories to engage in active oversight activities. The line-by-line method provides Ministries/Departments of Health with a more active instrument to direct spending within health service organizations to conform to changing province/territory mandates. For example, a province that wished to promote day surgery could increase the line funding available for this activity by a factor greater than that applied to the in-patient nursing line. Generalized Process In general, the mechanical steps associated with this method are: The specific steps employed by provinces/territories that use the line-byline method can be found in Chapter For each health service organization, begin with a base amount, such as the prior year's funding allocation or spending on a lineby-line basis. 2. Adjust the amount for each line item by a pre-determined inflation or adjustment factor, such as 3%. The factor applied to each line item can be different. 3. Sum the adjusted line items to determine the organization s revised base amount for the current year s funding. Example of a line-by-line method A province/territory decides to increase funding for nursing by x%, increase ambulatory care by y%, and decrease administration by z%. Funding is determined by multiplying last year s line-by-line funding by the percentage change. Funding = Nursing funding provided last year * (1+x%) + ambulatory care funding provided last year * (1+y%) + administration funding provided last year * (1-z%) + Example only. Not intended to describe practice in a particular jurisdiction. This example uses spending data. Advantages Allows Ministries/Departments of Health to promote focused policy initiatives via directed funding Provides some degree of predictability for the health service organization because the base amount is similar to the current year's base Simplicity 2 / Classifying Funding Practices