To better control spending on hospitals, Alberta should:
A: Adopt a pay-for-performance model.
B: Treat more patients at home and community clinics.
C: Close a bunch of rural health centres.
D: Allow (dare we say it) more private care facilities.
However you choose to answer, it’s fair to say there is no shortage of multiple-choice options that have been floated for Alberta to curb its cash-consuming hospital obsession.
Almost everyone has an opinion, yet it’s hard to know which approaches provide the best chance of success.
By any measure, the issue is a big one.
Alberta’s hospitals are estimated to have cost the province nearly $10 billion last year, making it the largest area of expense for the government.
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While the growth of hospital-based costs has decelerated in recent years, efforts to reverse the spending trends have been slow and uneven. Several factors have stymied progress, from a lack of seniors’ care beds, to Alberta’s large number of hospitals, to a health-care culture that continues to excessively rely on them.
However, a Postmedia investigation found another factor that is also contributing to the issue: financial management.
An analysis of expense patterns at Alberta Health Services hospitals showed the institutions routinely exceed their annual spending limits. Of the 86 hospitals included in the analysis, Postmedia found an average of 62 hospitals record a fiscal deficit each year.
Exactly why this is occurring is debatable, but it is also clear that the issue is a challenging one to solve, and not just in Alberta.
“Every country in the developed world is struggling with the same things we are struggling with,” said McMaster University health economist Arthur Sweetman.
“And none of them has been successful at figuring it out.”
Below is a discussion of several potential solutions touted to deal with cost overruns and to rein in hospital spending generally.
Continue to increase long-term care and home care
One of the NDP government’s election promises was to create 2,000 long-term care and dementia beds, a goal the health ministry says it is on track to complete by next year.
Those units can’t arrive quickly enough.
Alberta Health statistics show the province has been falling further and further behind its targets for accommodating continuing care patients, to the point that barely half of Albertans needing a space were placed within 30 days last year.
While waiting for a unit to open, many of those patients are stuck for weeks or even months in a much more expensive hospital bed.
At the same time as developing new long-term care spaces, the government says it is pumping more money into home care with the goal of relieving pressure on hospitals.
However, it is less obvious the efforts will actually result in emptier hospital wards or significantly reduced costs.
Health Minister Sarah Hoffman noted a situation in Peace River, where a new community paramedic service is helping patients avoid trips to hospital by providing them IV medication and other services at home.
Still, staff at the local hospital are still busy tending to other patients, Hoffman said.
“It’s not like you open one service and close another service. There is demand for people to still go to the hospital.”
Continue to improve primary care
Another major provincial effort has been to strengthen the services offered by family doctors’ clinics, including longer hours and access to varied teams of health professionals.
Such improvements have been cited as particularly beneficial for people with chronic diseases — diabetes, asthma, hypertension, etc. — a group that accounts for close to $5 billion in Alberta health costs each year.
The idea is that better care for such patients will result in reduced hospital traffic.
Sweetman, however, said similar efforts in Ontario have not entirely worked out. “It may be good for people in the sense it’s improving their health. But the analysis I’ve seen suggests it’s not reducing health-care costs, at least not obviously.”
As an example, Sweetman said one of his students analyzed what happens when the primary care system provides diabetic patients with more stable care and medication management.
The study found there was no change in hospitalization rates, and the rate actually went up for older women.
“We think that by virtue of having more primary care visits, doctors are finding more problems,” Sweetman said. “And when they find more problems, they send more people to the hospital.”
Change the budgeting process
With so many provincial hospitals posting deficits each year, it’s conceivable there is something amiss with how their budgets are created.
Deb Rhodes, AHS’s chief financial officer, said the budgeting process begins by analyzing the previous year’s financials, and then adds in a number of other variables.
Some of these factors are known ahead of time, such as wage hikes for unionized staff, while other factors are less certain.
AHS will also make budget adjustments if leaders feel they can achieve certain savings, while costs would be added if the health authority wants to make progress on certain priorities, such as increasing specific surgeries, Rhodes said.
However, she said AHS is making a major change that will move hospitals to “activity-based budgeting,” which funds facilities at standard rates based on the types of activity (services) they provide. Two facilities that offer the same services would theoretically receive similar money, while hospitals that do more complex things would get a larger budget.
Duncan Campbell, the former chief financial officer for AHS and Vancouver Coastal Health, said he supports activity-based budgeting which is already used in Alberta for long-term care beds.
“Hospitals get paid for what they actually do, and Alberta is well placed for that,” he said. “It levels the playing field between the complex and less complex hospitals.”
Introduce pay for performance
A related idea to activity-based budgeting is to implement a pay-for-performance model, in which a portion of facilities’ budgets is based on whether they meet certain targets.
For example, performance funding could flow to hospitals that successfully reduce wait times, or increase cancer surgeries, or decrease the number of patients who have to be readmitted.
“It allows you to focus on and value the things that you really want the health system to do,” Campbell said.
To work properly and avoid “game-playing,” Campbell said the performance money should be distributed by a standalone organization separate from government.
In addition to reaching specific medical targets, performance pay could also be handed out to hospitals that meet their budget, he said.
However, not everyone is sold on the concept.
Sweetman said colleagues who have studied pay-for-performance found success rates were decidedly mixed.
“And we can’t really figure out why,” he said. “People adjust their behaviour to the new payment model. Some of those adjustments are what you want and some are not.”
He noted that Ontario is now trying a slightly different strategy of paying hospitals to do more of the things they are good at, but it is too early to determine if it’s working.
Allow more private care
As the theory goes, if you give wealthier people the option to pay for hospital services, it can help reduce costs for the public system.
Supporters of this idea suggest it would reduce patient traffic at the public facilities and potentially allow them to get a better handle on overtime costs. At the same time, public facilities would be forced to improve efficiency in order to adequately compete with the private operations, they say.
But there is much debate as to whether things would actually play out as presented, including concerns that private facilities would take only the easiest, most lucrative cases and leave the most complex and costly cases to the public system.
Such a move could also create more uncertainty for hospitals, potentially increasing the likelihood of deficits — at least in the short term.
Sweetman said Canadians only need to look at the high health costs of the United States to see that private care may not be the best answer.
Close rural hospitals
Alberta continues to operate a relatively large number of hospitals compared with other jurisdictions.
Around 20 of the hospitals — particularly some of the smallest rural facilities — can fairly be said to be underused, since they often have occupancy rates of less than 60 per cent. Postmedia’s analysis also found several of those sites have posted high cumulative deficits in recent years.
This is not efficient and there is a compelling argument that some of the facilities should be closed, or have their bed totals reduced.
Some observers have called for moving those sparsely used beds to higher-volume hospitals where possible, which would help reduce pressure at those sites.
However, it’s also fair to say such moves would do little to rein in spending or control overruns.
Rural hospitals as a group account for well under 20 per cent of all provincial hospital spending, so downsizing a handful of the smallest sites would have a negligible effect on costs.
AHS is developing a new $1.6-billion clinical information system called Connect Care that will serve as the prime computer network for all of the health authority’s care facilities.
Among others benefits, Rhodes said the upgrade should generate information that will help managers to create more accurate budgets and track their finances.
Campbell said he is a fan of such technology, but warned that a new clinical information system by itself may not significantly increase efficiency.
He said other systems are needed, including predicative analytics that can accurately forecast patient demand and allow managers to set appropriate staffing.
Campbell also believes AHS should equip its major hospitals with integrated operations centres, which act as a kind of mission control room.
Such centres contain video feeds of the high traffic areas and computers with real-time statistics, while leaders from key parts of the hospital work together to decide how best to spread staff and resources around the facility.
Sweetman agreed that technological innovation offers potential to improve financial management, but cautioned that the logistical issues are greater than advertised.
“The technical challenges are enormous to get this working properly,” he said. “It’s not just the technology itself, but all the people who use it, enter data and interact with the technology.”
Instil spending discipline
If hospitals are overshooting their spending limits, then it would seemingly make sense to implement some system of discipline to discourage it.
This could be handled in a variety of ways, from more regular audits, to demoting local managers, to withholding money for renovations.
Yet this kind of approach may be more difficult than it sounds, and could even be counter-productive.
Not all overruns are the fault of local managers, who can’t close the doors on needy patients when they have reached their spending limit. And more spending scrutiny can quickly turn into micromanagement.
Rhodes said the AHS approach does not rely on audits, but will look for spending trends.
“We would look to see if there is a spike in minor equipment purchases toward the end of the year, or travel and things like that.”
She said the health authority also tries to build a “sense of community.” As an example, units running a surplus might be told their efforts are helping other units struggling to meet demand.
“I don’t know that there is a perfect answer,” Rhodes said. “What we have tried to instill in folks is get them to ask, ‘If you had to pay for this yourself, what decision would you make?’”