From the Fraser Institute

By Nadeem Esmail

On Monday, the Smith government announced that beginning next year it will change the way it funds surgeries in Alberta. This is a big step towards unlocking the ability of Alberta’s health-care system to provide more, better and faster services for the same or possibly fewer dollars.

To understand the significance of this change, you must understand the consequences of the current (and outdated) approach.

Currently, the Alberta government pays a lump sum of money to hospitals each year. Consequently, hospitals perceive patients as a drain on their budgets. From the hospital’s perspective, there’s little financial incentive to serve more patients, operate more efficiently and provide superior quality services.

Consider what would happen if your local grocery store received a giant bag of money each year to feed people. The number of items would quickly decline to whatever was most convenient for the store to provide. (Have a favourite cereal? Too bad.) Store hours would become less convenient for customers, alongside a general decline in overall service. This type of grocery store, like an Alberta hospital, is actually financially better off (that is, it saves money) if you go elsewhere.

The Smith government plans to flip this entire system on its head, to the benefit of patients and taxpayers. Instead of handing out bags of money each year to providers, the new system—known as “activity-based funding”—will pay health-care providers for each patient they treat, based on the patient’s particular condition and important factors that may add complexity or cost to their care.

This turns patients from a drain on budgets into a source of additional revenue. The result, as has been demonstrated in other universal health-care systems worldwide, is more services delivered using existing health-care infrastructure, lower wait times, improved quality of care, improved access to medical technologies, and less waste.

In other words, Albertans will receive far better value from their health-care system, which is currently among the most expensive in the world. And relief can’t come soon enough—for example, last year in Alberta the median wait time for orthopedic surgeries including hip and knee replacements was 66.8 weeks.

The naysayers argue this approach will undermine the province’s universal system and hurt patients. But by allowing a spectrum of providers to compete for the delivery of quality care, Alberta will follow the lead of other more successful universal health-care systems in countries such as Australia, Germany, the Netherlands and Switzerland and create greater accountability for hospitals and other health-care providers. Taxpayers will get a much better picture of what they’re paying for and how much they pay.

Again, Alberta is not exploring an untested policy. Almost every other developed country with universal health care uses some form of “activity-based funding” for hospital and surgical care. And remember, we already spend more on health care than our counterparts in nearly all of these countries yet endure longer wait times and poorer access to services generally, in part because of how we pay for surgical care.

While the devil is always in the details, and while it’s still possible for the Alberta government to get this wrong, Monday’s announcement is a big step in the right direction. A funding model that puts patients first will get Albertans more of the high-quality health care they already pay for in a timelier fashion. And provide to other provinces an example of bold health-care reform.

Nadeem Esmail

Senior Fellow, Fraser Institute