Trafford Crump, University of British Columbia

The policy option presented here was chosen to stimulate discussion, but is only one of several options examined by the author in the report “Exploring alternative level of care (ALC) and the role of funding policies: An evolving evidence base for Canada” . A related report,Hospital Payment Mechanisms: An Overview and Options for Canada”, by Jason Sutherland”


About the presenter

Trafford Crump is a post-doctoral fellow working with Jason Sutherland at the University of British Columbia’s Centre for Health Services and Policy Research. In this capacity he has co-authored several papers on hospital and post-acute care funding options. His research interests include funding mechanisms for acute, post-acute and ambulatory care; variations in the utilization of care; patient reported outcome measures and preference elicitation methods. He earned his PhD from Dartmouth College in Hanover, New Hampshire.

Main concern/problem

There is a lack of coordination among hospital and post-acute facilities. The current system in Canada relies on funding hospitals through a global budget mechanism, where a fixed amount of funding is distributed to each hospital to pay for all services. While global budgets create budgetary predictability, they do not provide incentives for increasing volume or caring for patients with greater complexity, nor do they reward high quality or efficient hospital care. Post-acute care, on the other hand, is funded through a mix of global budgets and capitation, with few adjustments made for patients’ levels of need. This has contributed to a lack of coordination between post-acute settings and, in some cases, inappropriate care intensity matched to a patient’s level of need. One consequence of this misalignment in financial incentives is an inefficient discharge and transition period between acute and post-acute settings—referred to as alternative levels of care (ALC). High ALC utilization limit hospitals’ bed capacity, thus reducing their availability for emergency room admissions, facility transfers, and elective surgeries.

Proposed Option

Activity-based funding (ABF) is one option available for increasing volume and efficiency of care. Under this mechanism, care is remunerated based on the type and volume of services provided. Combining properties of ABF and global budgets may optimize their respective strengths, for example, by using global budgets to cover fixed costs and ABF to cover variable costs.


ABF provides powerful financial incentives to stimulate volume (i.e., patient through-put) and efficiency. In hospitals, ABF is associated with higher volumes of care and shorter lengths of stay, neither of which seem to come at the expense of lower quality of care. In post-acute care, the benefits of ABF depend on the setting. In rehabilitation, ABF has reduced episode costs and lowered length of stay; in long term care, it has lowered costs and there is some evidence to suggest that it improves performance scores (though this evidence is tenuous). There is no evidence on ABF in funding home care. ABF can provide a more precise payment mechanism for reimbursements between regions and provinces.

Experience/evidence of success

There is a large body of evidence from the international literature regarding the introduction of ABF to fund acute care. A recent survey of the impact of ABF on hospitals in 28 countries observed an increase in overall spending, and mixed results on volume and length of stay. Mortality decreased, but only for certain causes of death. There is considerably less evidence regarding the use of ABF in post-acute care. Consequently, it is difficult to draw definitive conclusions on the links between ABF and performance. There have been no studies into the effect of ABF on the transition of patients from acute to post-acute settings, nor any supporting its ability to reduce ALC.

Challenges and limitations

Reliable, accurate and timely data are necessary to support ABF and ensure appropriate payment amounts. Such data sources currently do not exist for postacute care in Canada. The observed increase in overall costs (due to an increase in volume) may pose a challenge for those provinces already facing tight budgets. It is not known if there is sufficient spare capacity in post-acute settings to accommodate the increase in volume. There may also be reduced access to care in rural settings, a notable limitation for many Canadian provinces. Given the mix of public and private providers in post-acute care, ABF may carry serious unintended consequences in terms of premature discharge, lower functionality at discharge, and overall poorer quality of care. The ability to generalize the international literature to the Canadian setting, particularly in post-acute care, is not known.

Considerations for Canada

Given the challenges and limitations, ABF must be approached with caution and consideration. If ABF is to be implemented, either in acute or selected postacute settings, a long-term commitment is required to encourage healthcare administrators to develop and initiate plans to balance cost efficiency with quality. Threats to quality and access (timeliness, geography and equity) must be monitored and addressed in a timely fashion. Effects of ABF on ALC utilization and patient transitions between settings must also be tracked and reported. While there are serious reservations about ABF in post-acute care, there is a clear need to better align financial incentives to improve the coordination of care between acute and post-acute settings.