"Previous approaches tinkered with incremental change while allowing profound problems with funding systems and payment models to linger and, in some cases, worsen."
Ontario Premier Doug Ford uses the term “hallway medicine” to describe the overcrowding in hospitals, with patients languishing outside for want of beds. The image creates a potent picture of people needlessly suffering because of an ill-organized and poorly funded non-system in which institutional interests are put before patients. This image has defined the problem to be addressed. The appointment of a thoughtful and respected membership to the Premier’s Council on Improving Heathcare and Ending Hallway Medicine, under the leadership of the distinguished Dr. Rueben Devlin, creates a real opportunity for major change in how we organize and fund our health-care system in Ontario.
Previous approaches tinkered with incremental change while allowing profound problems with funding systems and payment models to linger and, in some cases, worsen. Ontario’s contract dispute with its doctors, ongoing since 2014, is one of the most public examples. Health-system participants know that this dispute is a symptom of the underlying systemic flaws in the funding of care in Ontario.
Fundamentally, Ontario’s payment system is too complex and incoherent. It often creates perverse incentives and makes it difficult for policymakers to achieve desired outcomes. Our current acute-care non-system includes an alphabet soup of HBAM, QBP, PPP, ICC, HQO, CCO, and POC (translation: health-based allocation model, quality-based procedures, public-private partnerships, Integrated Comprehensive Care, Healthy Quality Ontario, Cancer Care Ontario, and Programs of Choice) This problem calls for a radical simplification and a fresh, fundamental idealism about how we pay for value in our health-care system. Enter value-based funding.
Value-based funding pays healthcare providers for outcomes, not for each siloed service individually. For many well-defined treatment protocols in acute settings, it does this by establishing a known price based on current costs and allowing providers flexibility on how they deliver the service. The price is based on historic costs (“ABC or activity-based costing”). The innovative hospital with costs below the ABC price has more money for other things, which serves as an incentive to improve care and innovate, and in the long run, the price can come down.
Under a version of this model, hip and knee joint-replacement surgeries have become much less costly in Ontario. Length of stay, operating room time and the costs of prosthetics have all been reduced by a third or more. Several Toronto hospitals are now experimenting with same-day surgery. The bundled price of $8,600 for knees and $9,600 for hips includes patient care outside the hospital when they return home and a readmission guarantee for 90 days. By comparison, both hip and knee replacements are priced at US$11,000 to US$70,000 in U.S. hospitals. Value-based models are often most successful in areas in which the decision to treat is very clear.
A natural extension of value-based care is “bundled funding.” In this model, the price covers several types of service that often include a well-defined acute-care stay and may also include home care or a stay in a rehabilitation centre. This bundle may include professional fees, drugs and devices. This model fits in well with another current idea; the “hospital hub,” which allows a core hospital to hold the funds for all the providers across the continuum of required care and pay for these other services. Once again, this model allows for innovation and competition. Ontario did experiment with this model through the Integrated Comprehensive Care (ICC) pilots that promote integrated and coordinated care.
Models for value-based care in home care, nursing homes and long-term care facilities have also been developed internationally. Australia is experimenting with giving a needs-based allocation to individuals and their family to spend, and allows top ups by these individuals. The U.S. has created Accountable Care Organizations that take on the entire care needs of seniors in and out of institutions. The Dutch have created the “Burtzog” model where neighbourhoods are treated as the unit of responsibility for the care team. In each case, the amount funded can be used in a way that best meets the needs of the patient — and keeps them out of hallways.
Value-based care for complex chronic conditions is more difficult, but here again we have some relevant experience to build upon. The successful system for funding chronic kidney diseases and the ICC pilots have shown promise. The challenge here is to provide funding for a broad spectrum of medical conditions (pulmonary, cardiac, diabetes etc.) and mental health care that encourages collaboration and integration without creating a funding system that can be easily gamed. Inclusion criteria are not as clear in these areas and there is much under-treatment. Together this may mean that value-based care for some medical conditions and mental health may increase system costs, but this should not be an excuse for continuing our siloed non-system.
Value-based funding allows an expansion of the players competing in the market and the introduction of new private capital into the system. Large Canadian grocery chains, telcos, distributors and insurers have all created major healthcare operations and want to expand those delivery systems. Private competition could be an important source of new capital investment and innovation.
Ontario’s government and its new review commission should leverage market forces to improve health-care efficiency and address hallway medicine. Competition based on value for money will allow the Ontario health system to do more with less. This is a tough message for several health-care groups in Ontario that have operated in protected markets and/or have seen their income skyrocket as innovation has dropped their costs but not the prices charged. Competition and innovation are essential to restoring balance in our health-care system.
Published in the Financial Post
Will Falk is a senior fellow at the C.D. Howe Institute.
