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Alberta

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

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14 minute read

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

Premier Smith says Auto Insurance reforms may still result in a publicly owned system

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Better, faster, more affordable auto insurance

Alberta’s government is introducing a new auto insurance system that will provide better and faster services to Albertans while reducing auto insurance premiums.

After hearing from more than 16,000 Albertans through an online survey about their priorities for auto insurance policies, Alberta’s government is introducing a new privately delivered, care-focused auto insurance system.

Right now, insurance in the province is not affordable or care focused. Despite high premiums, Albertans injured in collisions do not get the timely medical care and income support they need in a system that is complex to navigate. When fully implemented, Alberta’s new auto insurance system will deliver better and faster care for those involved in collisions, and Albertans will see cost savings up to $400 per year.

“Albertans have been clear they need an auto insurance system that provides better, faster care and is more affordable. When it’s implemented, our new privately delivered, care-centred insurance system will put the focus on Albertans’ recovery, providing more effective support and will deliver lower rates.”

Danielle Smith, Premier

“High auto insurance rates put strain on Albertans. By shifting to a system that offers improved benefits and support, we are providing better and faster care to Albertans, with lower costs.”

Nate Horner, President of Treasury Board and Minister of Finance

Albertans who suffer injuries due to a collision currently wait months for a simple claim to be resolved and can wait years for claims related to more serious and life-changing injuries to addressed. Additionally, the medical and financial benefits they receive often expire before they’re fully recovered.

Under the new system, Albertans who suffer catastrophic injuries will receive treatment and care for the rest of their lives. Those who sustain serious injuries will receive treatment until they are fully recovered. These changes mirror and build upon the Saskatchewan insurance model, where at-fault drivers can be sued for pain and suffering damages if they are convicted of a criminal offence, such as impaired driving or dangerous driving, or conviction of certain offenses under the Traffic Safety Act.

Work on this new auto insurance system will require legislation in the spring of 2025. In order to reconfigure auto insurance policies for 3.4 million Albertans, auto insurance companies need time to create and implement the new system. Alberta’s government expects the new system to be fully implemented by January 2027.

In the interim, starting in January 2025, the good driver rate cap will be adjusted to a 7.5% increase due to high legal costs, increasing vehicle damage repair costs and natural disaster costs. This protects good drivers from significant rate increases while ensuring that auto insurance providers remain financially viable in Alberta.

Albertans have been clear that they still want premiums to be based on risk. Bad drivers will continue to pay higher premiums than good drivers.

By providing significantly enhanced medical, rehabilitation and income support benefits, this system supports Albertans injured in collisions while reducing the impact of litigation costs on the amount that Albertans pay for their insurance.

“Keeping more money in Albertans’ pockets is one of the best ways to address the rising cost of living. This shift to a care-first automobile insurance system will do just that by helping lower premiums for people across the province.”

Nathan Neudorf, Minister of Affordability and Utilities

Quick facts

  • Alberta’s government commissioned two auto insurance reports, which showed that legal fees and litigation costs tied to the province’s current system significantly increase premiums.
  • A 2023 report by MNP shows
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Alberta

Alberta fiscal update: second quarter is outstanding, challenges ahead

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Alberta maintains a balanced budget while ensuring pressures from population growth are being addressed.

Alberta faces rising risks, including ongoing resource volatility, geopolitical instability and rising pressures at home. With more than 450,000 people moving to Alberta in the last three years, the province has allocated hundreds of millions of dollars to address these pressures and ensure Albertans continue to be supported. Alberta’s government is determined to make every dollar go further with targeted and responsible spending on the priorities of Albertans.

The province is forecasting a $4.6 billion surplus at the end of 2024-25, up from the $2.9 billion first quarter forecast and $355 million from budget, due mainly to higher revenue from personal income taxes and non-renewable resources.

Given the current significant uncertainty in global geopolitics and energy markets, Alberta’s government must continue to make prudent choices to meet its responsibilities, including ongoing bargaining for thousands of public sector workers, fast-tracking school construction, cutting personal income taxes and ensuring Alberta’s surging population has access to high-quality health care, education and other public services.

“These are challenging times, but I believe Alberta is up to the challenge. By being intentional with every dollar, we can boost our prosperity and quality of life now and in the future.”

Nate Horner, President of Treasury Board and Minister of Finance

Midway through 2024-25, the province has stepped up to boost support to Albertans this fiscal year through key investments, including:

  • $716 million to Health for physician compensation incentives and to help Alberta Health Services provide services to a growing and aging population.
  • $125 million to address enrollment growth pressures in Alberta schools.
  • $847 million for disaster and emergency assistance, including:
    • $647 million to fight the Jasper wildfires
    • $163 million for the Wildfire Disaster Recovery Program
    • $5 million to support the municipality of Jasper (half to help with tourism recovery)
    • $12 million to match donations to the Canadian Red Cross
    • $20 million for emergency evacuation payments to evacuees in communities impacted by wildfires
  • $240 million more for Seniors, Community and Social Services to support social support programs.

Looking forward, the province has adjusted its forecast for the price of oil to US$74 per barrel of West Texas Intermediate. It expects to earn more for its crude oil, with a narrowing of the light-heavy differential around US$14 per barrel, higher demand for heavier crude grades and a growing export capacity through the Trans Mountain pipeline. Despite these changes, Alberta still risks running a deficit in the coming fiscal year should oil prices continue to drop below $70 per barrel.

After a 4.4 per cent surge in the 2024 census year, Alberta’s population growth is expected to slow to 2.5 per cent in 2025, lower than the first quarter forecast of 3.2 per cent growth because of reduced immigration and non-permanent residents targets by the federal government.

Revenue

Revenue for 2024-25 is forecast at $77.9 billion, an increase of $4.4 billion from Budget 2024, including:

  • $16.6 billion forecast from personal income taxes, up from $15.6 billion at budget.
  • $20.3 billion forecast from non-renewable resource revenue, up from $17.3 billion at budget.

Expense

Expense for 2024-25 is forecast at $73.3 billion, an increase of $143 million from Budget 2024.

Surplus cash

After calculations and adjustments, $2.9 billion in surplus cash is forecast.

  • $1.4 billion or half will pay debt coming due.
  • The other half, or $1.4 billion, will be put into the Alberta Fund, which can be spent on further debt repayment, deposited into the Alberta Heritage Savings Trust Fund and/or spent on one-time initiatives.

Contingency

Of the $2 billion contingency included in Budget 2024, a preliminary allocation of $1.7 billion is forecast.

Alberta Heritage Savings Trust Fund

The Alberta Heritage Savings Trust Fund grew in the second quarter to a market value of $24.3 billion as of Sept. 30, 2024, up from $23.4 billion at the end of the first quarter.

  • The fund earned a 3.7 per cent return from July to September with a net investment income of $616 million, up from the 2.1 per cent return during the first quarter.

Debt

Taxpayer-supported debt is forecast at $84 billion as of March 31, 2025, $3.8 billion less than estimated in the budget because the higher surplus has lowered borrowing requirements.

  • Debt servicing costs are forecast at $3.2 billion, down $216 million from budget.

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