Reviewing the Potential Roles of Financial Incentives for Funding Healthcare in Canada

Full Report (PDF, 546 KB)

Jason M. Sutherland, PhD
Centre for Health Services and Policy Research
School of Population and Public Health, University of British Columbia

Nadya Repin, MA
Centre for Health Services and Policy Research
School of Population and Public Health, University of British Columbia

R. Trafford Crump, PhD
Centre for Health Services and Policy Research
School of Population and Public Health, University of British Columbia

Key Messages

  • Healthcare costs have been consistently rising, now constituting around 40 percent of provincial GDPs, and threaten to overwhelm the ability of provinces to fund the breadth of healthcare needs of their residents. The ways in which Canadian provinces fund healthcare is an important issue facing policymakers since ineffective, inefficient and unsafe care is a waste of taxpayers’ money and potentially harms patients.
  • Currently, most provinces fund healthcare through a ‘global budget,’ where a fixed amount of funding is distributed to a provider (e.g. a hospital or a health authority) to pay for all insured healthcare services for a fixed period of time. The key benefit of global budgets is that they provide a method to control expenditures. Hospitals account for the largest piece of these expenditures, at about 28 percent of total healthcare costs.
  • Compared to international norms, Canada is unusual in its extensive use of global budgets to fund healthcare. Most countries fund healthcare based on the type and amount of services provided, known as activity-based funding (ABF).
  • Funding healthcare providers based on the type and amount of services provided increases transparency in the healthcare system and creates financial incentives for increasing access. However, with more services provided, there is a commensurate increase in healthcare expenditures.
  • Many countries have been able to use the financial incentives of ABF to improve access to care while effectively minimizing the downside risks to quality and safety.
  • With clearly articulated policy objectives, provinces are in a position to learn from other countries’ experiences in healthcare funding reforms, adapt effective strategies and avoid risks to quality and access.