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

From the Montreal Economic Institute

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.

Related Topics:#ActivityBasedHospitalFunding #KrystleWittevrongel #MontrealEconomicInstitute

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Schools should go back to basics to mitigate effects of AI

Published on December 15, 2025

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From the Fraser Institute

By Paige MacPherson

Odds are, you can’t tell whether this sentence was written by AI. Schools across Canada face the same problem. And happily, some are finding simple solutions.

Manitoba’s Division Scolaire Franco-Manitobaine recently issued new guidelines for teachers, to only assign optional homework and reading in grades Kindergarten to six, and limit homework in grades seven to 12. The reason? The proliferation of generative artificial intelligence (AI) chatbots such as ChatGPT make it very difficult for teachers, juggling a heavy workload, to discern genuine student work from AI-generated text. In fact, according to Division superintendent Alain Laberge, “Most of the [after-school assignment] submissions, we find, are coming from AI, to be quite honest.”

This problem isn’t limited to Manitoba, of course.

Two provincial doors down, in Alberta, new data analysis revealed that high school report card grades are rising while scores on provincewide assessments are not—particularly since 2022, the year ChatGPT was released. Report cards account for take-home work, while standardized tests are written in person, in the presence of teaching staff.

Specifically, from 2016 to 2019, the average standardized test score in Alberta across a range of subjects was 64 while the report card grade was 73.3—or 9.3 percentage points higher). From 2022 and 2024, the gap increased to 12.5 percentage points. (Data for 2020 and 2021 are unavailable due to COVID school closures.)

In lieu of take-home work, the Division Scolaire Franco-Manitobaine recommends nightly reading for students, which is a great idea. Having students read nightly doesn’t cost schools a dime but it’s strongly associated with improving academic outcomes.

According to a Programme for International Student Assessment (PISA) analysis of 174,000 student scores across 32 countries, the connection between daily reading and literacy was “moderately strong and meaningful,” and reading engagement affects reading achievement more than the socioeconomic status, gender or family structure of students.

All of this points to an undeniable shift in education—that is, teachers are losing a once-valuable tool (homework) and shifting more work back into the classroom. And while new technologies will continue to change the education landscape in heretofore unknown ways, one time-tested winning strategy is to go back to basics.

And some of “the basics” have slipped rapidly away. Some college students in elite universities arrive on campus never having read an entire book. Many university professors bemoan the newfound inability of students to write essays or deconstruct basic story components. Canada’s average PISA scores—a test of 15-year-olds in math, reading and science—have plummeted. In math, student test scores have dropped 35 points—the PISA equivalent of nearly two years of lost learning—in the last two decades. In reading, students have fallen about one year behind while science scores dropped moderately.

The decline in Canadian student achievement predates the widespread access of generative AI, but AI complicates the problem. Again, the solution needn’t be costly or complicated. There’s a reason why many tech CEOs famously send their children to screen-free schools. If technology is too tempting, in or outside of class, students should write with a pencil and paper. If ChatGPT is too hard to detect (and we know it is, because even AI often can’t accurately detect AI), in-class essays and assignments make sense.

And crucially, standardized tests provide the most reliable equitable measure of student progress, and if properly monitored, they’re AI-proof. Yet standardized testing is on the wane in Canada, thanks to long-standing attacks from teacher unions and other opponents, and despite broad support from parents. Now more than ever, parents and educators require reliable data to access the ability of students. Standardized testing varies widely among the provinces, but parents in every province should demand a strong standardized testing regime.

AI may be here to stay and it may play a large role in the future of education. But if schools deprive students of the ability to read books, structure clear sentences, correspond organically with other humans and complete their own work, they will do students no favours. The best way to ensure kids are “future ready”—to borrow a phrase oft-used to justify seesawing educational tech trends—is to school them in the basics.

Paige MacPherson

Senior Fellow, Education Policy, Fraser Institute

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The case for expanding Canada’s energy exports

Published on December 14, 2025

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From the Canadian Energy Centre

By Deborah Jaremko

For Canada, the path to a stronger economy — and stronger global influence — runs through energy.

That’s the view of David Detomasi, a professor at the Smith School of Business at Queen’s University.

Detomasi, author of Profits and Power: Navigating the Politics and Geopolitics of Oil, argues that there is a moral case for developing Canada’s energy, both for Canadians and the world.

David Detomasi. Photo courtesy Smith School of Business, Queen’s University

CEC: What does being an energy superpower mean to you?

DD: It means Canada is strong enough to affect the system as a whole by its choices.

There is something really valuable about Canada’s — and Alberta’s — way of producing carbon energy that goes beyond just the monetary rewards.

CEC: You talk about the moral case for developing Canada’s energy. What do you mean?

DD: I think the default assumption in public rhetoric is that the environmental movement is the only voice speaking for the moral betterment of the world. That needs to be challenged.

That public rhetoric is that the act of cultivating a powerful, effective economic engine is somehow wrong or bad, and that efforts to create wealth are somehow morally tainted.

I think that’s dead wrong. Economic growth is morally good, and we should foster it.

Economic growth generates money, and you can’t do anything you want to do in social expenditures without that engine.

Economic growth is critical to doing all the other things we want to do as Canadians, like having a publicly funded health care system or providing transfer payments to less well-off provinces.

Over the last 10 years, many people in Canada came to equate moral leadership with getting off of oil and gas as quickly as possible. I think that is a mistake, and far too narrow.

Instead, I think moral leadership means you play that game, you play it well, and you do it in our interest, in the Canadian way.

We need a solid base of economic prosperity in this country first, and then we can help others.

CEC: Why is it important to expand Canada’s energy trade?

DD: Canada is, and has always been, a trading nation, because we’ve got a lot of geography and not that many people.

If we don’t trade what we have with the outside world, we aren’t going to be able to develop economically, because we don’t have the internal size and capacity.

Historically, most of that trade has been with the United States. Geography and history mean it will always be our primary trade partner.

But the United States clearly can be an unreliable partner. Free and open trade matters more to Canada than it does to the U.S. Indeed, a big chunk of the American people is skeptical of participating in a global trading system.

As the United States perhaps withdraws from the international trading and investment system, there’s room for Canada to reinforce it in places where we can use our resource advantages to build new, stronger relationships.

One of these is Europe, which still imports a lot of gas. We can also build positive relationships with the enormous emerging markets of China and India, both of whom want and will need enormous supplies of energy for many decades.

I would like to be able to offer partners the alternative option of buying Canadian energy so that they are less reliant on, say, Iranian or Russian energy.

Canada can also maybe eventually help the two billion people in the world currently without energy access.

CEC: What benefits could Canadians gain by becoming an energy superpower?

DD: The first and primary responsibility of our federal government is to look after Canada. At the end of the day, the goal is to improve Canada’s welfare and enhance its sovereignty.

More carbon energy development helps Canada. We have massive debt, an investment crisis and productivity problems that we’ve been talking about forever. Economic and job growth are weak.

Solving these will require profitable and productive industries. We don’t have so many economic strengths in this country that we can voluntarily ignore or constrain one of our biggest industries.

The economic benefits pay for things that make you stronger as a country.

They make you more resilient on the social welfare front and make increasing defence expenditures, which we sorely need, more affordable. It allows us to manage the debt that we’re running up, and supports deals for Canada’s Indigenous peoples.

CEC: Are there specific projects that you advocate for to make Canada an energy superpower?

DD: Canada’s energy needs egress, and getting it out to places other than the United States. That means more transport and port facilities to Canada’s coasts.

We also need domestic energy transport networks. People don’t know this, but a big chunk of Ontario’s oil supply runs through Michigan, posing a latent security risk to Ontario’s energy security.

We need to change the perception that pipelines are evil. There’s a spiderweb of them across the globe, and more are being built.

Building pipelines here, with Canadian technology and know-how, builds our competitiveness and enhances our sovereignty.

Economic growth enhances sovereignty and provides the resources to do other things. We should applaud and encourage it, and the carbon energy sector can lead the way.