Hospitals across Canada are in the red—but simply sending them more money is the wrong solution

Hospitals certainly think so, and the public hears stories of long waits and high pay for doctors, medications, and supplies. On the other side of the argument, governments ask whether more spending on hospitals will shorten wait times, reduce overcrowding in emergency departments, stem departures of highly skilled professionals for greener pastures, or slow the revolving door of very hard-to-treat complex patients. Governments see that hospitals don’t always spend on things that improve patients’ health. Examples include costly duplicate imaging, unnecessary prescriptions or laboratory tests, and surgeries that provide questionable value. Governments also grapple with understanding why hospitals have significant differences between them in the volume and costliness of their care, even after adjusting for the complexity of their patients. So, are the amounts provided by governments to fund hospitals fair to the hospitals—and fair value for money to the taxpayer? There is no referee to judge what is fair. Maybe it’s time we had one. Hospitals and governments need advice regarding what is a fair amount of funding to ensure efficient, effective, and safe care. There is no function in Canada that currently provides this advice. But such a role exists in other countries. Australia, for example, has an organization that every year publishes an amount that they think hospitals should be spending on each patient case. This organization is federally funded, and its experts are drawn from areas of economics, health data, and health system expertise. Australia pairs this strategy with financial incentives for hospitals to be more efficient using activity-based funding policies, which advocates have argued further reduces wait times. In a federal system like Canada, such an organization’s funding targets would be non-binding for provinces and territories, just as they are for Australia’s states. So how would this improve our system? It creates a mediator position for a highly contestable field, but one for which there is evidence and expertise. Hospitals would benefit by knowing whether they are spending too much or have some room to spare. Governments would benefit by untangling financial shortfalls from patients’ needs. There are, of course, risks too. For some hospitals, their managers will face greater strains, pulled toward achieving spending targets. For governments, the targets may be more than they can afford, given they have to make allocative decisions between bridges, schools, and hospitals, among other priorities. An agency setting targets for government funding on hospitals will not solve all the ills in our health-care system. But it would be a step toward transparency and the use of best practices and evidence.