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Alberta

Activity-Based Hospital Funding in Alberta: Insights from Quebec and Australia

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From the Montreal Economic Institute

By Krystle Wittevrongel

Quebec has experienced increased productivity and efficiency, as well as reduced costs, in those sectors to which ABF has been applied

Alberta’s healthcare system costs more than those of many of its peers across Canada and internationally, yet underperforms by many metrics—wait times perhaps being the most visible.(1) For instance, while Alberta consistently spends a fair deal more per capita on health care than Canada’s other large provinces do, the median wait time from referral by a GP to treatment by a specialist was 33.3 weeks in 2022, versus 29.4 weeks in Quebec, 25.8 weeks in British Columbia, and 20.3 weeks in Ontario. Albertans waited a median 232 days for a hip replacement that year, longer than those in Quebec, British Columbia, and Ontario.(2) In Australia, meanwhile, the median wait time for a total hip replacement in 2022 was 175 days in public hospitals.(3)

One of the things keeping Alberta’s healthcare system from better performance is that it relies on global budgets for its hospital financing. Such a system allocates a pre-set amount of funding to pay for an expected number of services, based largely on historical volume. The problem with global budgets is that they disregard the actual costs incurred to deliver care, while undermining incentives to improve outcomes. This ultimately leads to rationing of care, with patients viewed as a cost that must be managed.

Activity-based funding systems are associated with reduced hospital costs, increased efficiency, and shorter wait times, among other things.

An alternative is activity-based funding (ABF), which has largely replaced global budgeting in many OECD countries, and is starting to do so in some Canadian provinces.(4) With ABF, hospitals receive a fixed payment for each specific service delivered, adjusted for certain parameters.(5) If a hospital treats more patients and delivers more services, it receives more funding; if it does less, it receives less. In essence, the money follows the patient, which has a dramatic effect: patients are now viewed as a source of revenue, not merely as a cost. Studies have shown that ABF systems that include appropriate safeguards for quality and waste are associated with reduced hospital costs, increased efficiency, and shorter wait times, among other things.(6)

To increase its capacity and performance, Alberta should consider moving to such a system for hospital financing. As over 25% of total health spending in the province goes to hospitals,(7) driving down costs and finding efficiencies is of paramount importance.

ABF models vary by jurisdiction and context to account for distinct situations and the particular policy objectives being pursued.(8) Two jurisdictions provide interesting insights: Quebec, with ABF hospital funding being gradually implemented in recent years, and Australia, where after more than three decades, ABF is the rule, global budgets the exception.

ABF in Quebec: Increased Performance and Decreased Costs

Quebec’s hospital payment reforms over the past two decades have been aimed at better linking funding with health care delivery to improve care quality and access.(9) These patient-based funding reforms (a type of ABF) have resulted in increased volumes and efficiency, and reduced costs and wait times for a number of surgical and other procedures in Quebec.(10)

These reforms started in 2004, when Quebec applied ABF in the context of additional funding to select surgeries in order to reduce wait times through the Access to Surgery Program.(11) The surgeries initially targeted were hip replacement, knee replacement, and cataract surgeries, but other procedures were eventually integrated into the program as well. Its funding covered the volume of surgeries that exceeded those performed in 2002-2003, and it used the average cost for each specific surgery. Procedures were classified by cost category, which also took into account the intensity of resource use and unit cost based on direct and indirect costs.

The expansion of ABF in Quebec aims to relieve hospital congestion by driving down wait times and shrinking wait lists.

By 2012-2013, this targeted program had helped to significantly increase the volume of surgeries performed, as well as decrease wait times and length of stay.(12) However, as ABF was applied only to surplus volumes of additional surgeries, efficiency gains were limited. For this reason, among others, the Expert Panel for Patient-Based Funding recommended expanding the program,(13) and in 2012, the Government of Quebec began considering further pilot projects for gradual ABF implementation.(14)

  • In 2015, ABF was implemented in the radiation oncology sector, which resulted in better access to services at a lower cost, with productivity having increased more than 26% by 2023-2024, and average procedure costs having fallen 7%.(15)
  • In 2017-2018, ABF was implemented in imaging, which resulted in the number of magnetic resonance imaging tests increasing more than 22% while driving the unit cost of procedures down 4%.(16)
  • Following the above successes, in 2018-2019, the colonoscopy and digestive endoscopy sector also moved to ABF, which led to a productivity increase of 14% and a 31% decrease in the case backlog.(17)

Overall, then, Quebec has experienced increased productivity and efficiency, as well as reduced costs, in those sectors to which ABF has been applied (see Figure 1).

The Department of Health and Social Services continued to expand ABF to more surgeries in 2023, following which it was expected that about 25% of the care and services offered in physical health in Quebec hospitals would be funded in this manner, with the goal of reaching 100% by 2027-2028.(18) Further, the 2024-2025 budget expanded ABF again to include the medicine, emergency, neonatal, and dialysis sectors.

This expansion of ABF aims to relieve hospital congestion by driving down wait times and shrinking wait lists.(19) It will also align Quebec’s health care funding with what has become standard in most OECD countries. In Australia, for instance, ABF is the rule, not the exception, covering a large proportion of hospital services.

Australia’s Extensive Use of ABF

Australia also implemented ABF in stages, as Quebec is now doing. It was first introduced in the 1990s in one state and adopted nationally in 2012 for all admitted programs to increase efficiency, while also integrating quality and safety considerations.(20) These considerations act as safeguards to ensure efficiency incentives don’t negatively impact services. For instance, there are adjustments to the ABF payment framework in the presence of hospital acquired complications and avoidable hospital readmissions, two measures of hospital safety and service quality.(21) If service quality were to decrease, funding would be adjusted, and payments would be withheld. Not only has ABF been successful in increasing hospital efficiency in Australia, but it has also enabled proactive service improvement, which has in turn had a positive impact on safety and quality.(22)

ABF now makes up 87.0% of total hospital spending in Australia, ranging from 83.6% in Tasmania to 93.0% in the Australian Capital Territory.

Currently, ER services, acute services, admitted mental health services, sub-acute and non-acute services, and non-admitted services are funded with ABF in Australia. This includes rehabilitation, palliative, geriatric and/or maintenance care.(23) Global budgets are still used for some block funding, but this is the exception, restricted to certain hospitals, programs, or specific episodes of care.(24) Small rural hospitals, non-admitted mental health programs, and a few other highly specialized therapies or clinics or some community health services tend to be block funded due to higher than average costs stemming from a lack of economies of scale and inadequate volumes, among other things.

When first introduced, ABF made up about 25% of hospital revenue (approximately where Quebec currently stands).(25) ABF now makes up 87.0% of total hospital spending in Australia, ranging from 83.6% in Tasmania to 93.0% in the Australian Capital Territory (see Figure 2).

There is more variability, however, at the local hospital network level within territories or states. For instance, between 2019 and 2024, an average of 92.3% of total funding for the hospitals in the South Eastern Sydney Local Health District was ABF, and just 7.7% was block funding.(26) For the hospitals in the Far West Local Health District, in comparison, ABF represented an average of 72.0% of total funding, and block payments 28.0%, over the same period.(27)

The proportion of ABF funding per hospital is dictated, for the most part, by the types and volumes of patient services provided, but also by hospital characteristics and regional patient demographics.(28) For example, there could be a need to compensate for differences in hospital size and location, or to reimburse for some alternative element of the fixed cost of providing services. In the Far West Local Health District, on average 65.1% of block funding between 2019-2020 and 2023-2024 was provided for small rural hospitals, while only 1.4% of the block funding in the South Eastern Sydney Local Health District was for these types of hospitals.(29) Ultimately, these two districts serve very different populations, with the Far West Local Health District being the most thinly populated district in Australia.(30)

Overall, ABF implementation in Australia has significantly improved hospital performance. Early after ABF implementation, the volume of care in Australia increased, and waiting lists decreased by 16% in the first year.(31) Between 2005 and 2017 the hospitals that were funded by ABF in Queensland became more efficient than those receiving block funding.(32) In addition, ABF can contribute to reductions in extended lengths of stay and hospital readmission,(33) both of which are expensive propositions for health care systems and also tie up hospital beds and resources.

Conclusion

ABF has been associated with reduced hospital costs, increased efficiency, and shorter wait times, areas where Alberta is lacking and reform is needed. To increase its health system performance, Alberta should consider emulating Quebec and moving to an activity-based funding system. Indeed, based on the experience of countries like Australia, widespread application should be the goal, as it is in Quebec. Alberta patients have already waited far too long for timely access to the quality care they deserve. The time to act is now.

The MEI study is available here.

* * *

This Economic Note was prepared by Krystle Wittevrongel, Senior Policy Analyst and Alberta Project Lead at the MEI. The MEI’s Health Policy Series aims to examine the extent to which freedom of choice and entrepreneurship lead to improvements in the quality and efficiency of health care services for all patients.

The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship. 

Alberta

Provinces should be cautious about cost-sharing agreements with Ottawa

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From the Fraser Institute

By Tegan Hill and Jake Fuss

According to Premier Danielle Smith, Alberta will withdraw from the federal government’s dental care plan by 2026 mainly because the plan would duplicate coverage already provided to many Albertans (although she plans to negotiate unconditional funding in lieu of being in the program). Indeed, all provinces should be wary of entering into such agreements as history has shown that Ottawa can reduce or eliminate funding at any time, leaving the provinces holding the bag.

In the 1990s, for instance, the federal government reduced health and social transfers to the provinces amid a fiscal crisis fuelled by decades of unrestrained spending and persistent deficits (and worsened by high interest rates). Gross federal debt increased from $38.9 billion in 1970/71 to $615.9 billion in 1993/94, at which point debt interest costs consumed roughly $1 in every $3 of federal government revenue.

In response to this debt crisis, the Chrétien Liberal government reduced spending across nearly all federal departments and programs. Over a three-year period to 1996/97, health and social transfers to the provinces were 51 per cent ($41.0 billion) less than what the provinces expected based on previous transfers. In other words, the provinces suddenly got a lot less money from Ottawa than they anticipated.

This should serve as a warning for the provinces who may find themselves on the hook for Ottawa’s big spending today. In the case of dental care, an area of provincial jurisdiction, the Trudeau government has earmarked $4.4 billion  annually for the provinces on an ongoing basis. However, any change in federal priorities or federal finances could swing the financial burden from Ottawa to the provinces to maintain the program.

The current state of federal finances only heightens this risk to the provinces. The federal government has run uninterrupted budget deficits since 2007/08, with total federal debt climbing from $707.3 billion in 2007/08 to a projected $2.1 trillion in 2024/25. The current government—or perhaps a future reform-minded government focused on balancing the budget—could reduce transfers to the provinces.

The Trudeau government has committed to significant new funding in areas of provincial jurisdiction, but provincial policymakers would do well to understand the risks of entering into such agreements. Ottawa can unilaterally reduce or eliminate funding at any point, leaving provinces to either assume the unexpected financial burden through higher taxes or additional borrowing, or curtail the programs.

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Alberta

Just in time for Canada Day weekend! Crescent Falls ready to be enjoyed again

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The new staircase structure and viewing platform are among many upgrades that visitors can look forward to at the reopening Crescent Falls Provincial Recreation Area. (Credit: Alberta Parks).

The popular Crescent Falls Provincial Recreation Area reopens following a significant capital investment to improve visitor safety and experiences.

Crescent Falls Provincial Recreation Area is ready to welcome visitors back to enjoy one of the most remarkable, accessible waterfall viewing opportunities in Alberta. The upgrades at Crescent Falls will help improve the park’s visitor experience. Guests can expect expanded parking, improved access roads, trails and day use areas, new and improved viewing areas to take in the falls and upgraded safety measures, including signage and wayfinding.

The Provincial Recreation Area (PRA) is reopening over the July long weekend after being closed since 2023. Visitors will notice increased public safety upgrades through additions such as new parking lots, a new stair structure to access the lower falls, new pedestrian trails, a new vehicle bridge to access the camping area and a viewing platform to enjoy the Crescent Falls.

“We are thrilled to welcome visitors back to Crescent Falls Provincial Recreation Area in time for the Canada Day long weekend. These additions will help visitors to safely access and enjoy the area’s natural beauty. Parks are for people and Alberta’s government will continue to invest in high-quality outdoor recreation opportunities.”

Todd Loewen, Minister of Forestry and Parks

“Today marks a significant milestone for our community as we reopen the Crescent Falls Provincial Recreation Area following extensive upgrades. Our province is well known for its incredible natural beauty, and these improvements will make our backcountry more accessible and ensure that Albertans and those visiting our great province can continue to explore our stunning landscapes for years to come.”

Jason Nixon, MLA for Rimbey-Rocky Mountain House-Sundre
This project is part of an investment of more than $12 million to upgrade 13 sites along the David Thompson Corridor. The improvements at Crescent Falls will provide improved safety measures and better visitor access to and from popular tourist destinations in the area. Partners from Clearwater County, Rocky Mountain House and other organizations were critical in helping to move the upgrades forward. Clearwater County and its officials worked with Alberta Parks staff to advise on the upgrades needed around the area.

Alberta’s government is committed to reconciliation and acknowledges the significance of the land around Crescent Falls Provincial Recreation Area to the Stoney Nakoda First Nation. The completed upgrades reflect an ongoing commitment to creating more outdoor recreation opportunities while protecting the land’s natural and cultural values so it can be enjoyed by current and future generations.

“The Alberta Government’s reopening of Crescent Falls is a remarkable achievement for our region. This project not only enhances recreational opportunities, natural beauty and accessibility in our area but also means safer, more enjoyable visits for our citizens and visitors alike.”

Michelle Swanson, councillor, Clearwater County

“The Town of Rocky Mountain House is where adventure begins, and we are thrilled that Crescent Falls Provincial Recreation Area has reopened to the public in time for the summer adventure season. This is a wonderful day trip destination for visitors and residents alike setting out from Rocky Mountain House. The provincial investment has only improved its accessibility and safety, making it a must-see destination if you are in the area.”

Dale Shippelt, incoming deputy mayor, Rocky Mountain House

“Westward Bound Campgrounds is the proud facility operator of the Crescent Falls Provincial Recreation Area and we are very excited to see our campers and visitors return to its beauty. These upgrades will have a significant impact on enhancing guest satisfaction levels, providing unique and memorable camper and visitor experiences while providing a safe environment to enjoy spectacular scenery.”

Lonnie and Edena Earl, Westward Bound Campgrounds

This work is part of an ongoing commitment to creating more outdoor recreation and camping opportunities, building trails and facilities and ensuring Alberta’s provincial parks can be enjoyed by all Albertans.

Quick facts

  • The upgrades at Crescent Falls PRA include the following improvements:
    • Enlarging the existing parking area
    • Developing a new parking area for large RV vehicles
    • Upgrading the access roads down to the lower area
    • Installing a new pedestrian trail to the lower day use area
    • Installing a new vehicle crossing from the day use to the camping site
    • Upgrading and expanding the day use areas
    • Increasing signage
    • Installing additional toilets and bear-proof garbage bins
    • Developing a new stair structure to access the lower falls areas with a viewing platform
  • Enhancing safety features throughout the PRA. The upgrades were part of a significant capital investment of $12.3 million by Alberta’s government to address safety and experience opportunities in 13 key provincial recreation sites along the David Thompson Corridor. Along with Crescent Falls PRA, other sites that were upgraded include:
    • Bighorn Dam Recreation Area
    • The following 11 Public lands and parks sites:
    • Coliseum
    • Allstone
    • Abraham Slabs
    • Hoo Doo Creek
    • Coral Creek
    • Pinto Creek
    • Preachers Point
    • Cavalcade
    • Kinglet/Tuff Puff
    • Wildhorse
    • Owen Creek
  • Crescent Falls PRA is located 22 km west of Nordegg on Highway 11 and 6 km north on a gravel access road. Crescent Falls PRA has a first-come, first-served campground with 12 tent-only sites and 22 RV sites. The day use area includes multiple viewing platforms of the upper and lower falls and picnic tables with views of the river. Access to the lower day use area is available on a 0.8 km trail from the main parking area or, alternatively, from the Bighorn Canyon lookout via a 3 km trail. The lower day use area also has accessible-only parking stalls adjacent to the viewing platforms with an accessible vault toilet and picnic areas.

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