Q&A

QHC finance chief outlines the hospital corporation’s response to funding challenges

In recent years, the Ministry of Health and Long Term Care has changed the way it funds health services to encourage competitiveness, creativity and innovation among providers with a goal of doing more with less money.

The new formula consists of three streams of revenue—one based on traditional funding, another on activity (funding based upon what the provider does and how cost-effectively) and another on quality (how well it performs).

Two years into the new formula, it is clear that Quinte Health Care is performing less well than its peers on the measures that drive activity based funding or Health Based Allocation Methodology (HBAM). The hospital corporations’ cost structures place it above the median compared to its peers. That is a problem. The HBAM formula is designed to reward efficiency by taking away funding from poor performers and giving it to more cost effective hospitals. That means QHC must out-perform its peers just to catch up.

QHC says this is unfair because it manages a multi-site hospital with a mix of hospital types. The Local Health Integration Network (LHIN) says the funding model pushes hospitals to innovate.

The Times put the following questions to QHC’s senior leadership. VP and Cheif Financial Officer Brad Harrington provided the response below—much of it covered in the Times briefing here. But we are making Mr. Harrington’s full response available to you, our readers.

Q. Does QHC’s senior leadership feel it clearly understands the factors behind its relative under-performance?

Brad Harrington: Under-performance is a relative term. QHC actually outperforms many peer hospitals on key clinical health outcomes such as length of stay and number of patients receiving day surgery procedures.

The Health Based Allocation Methodology (HBAM) formula is made of many elements that are both within and outside management’s control. HBAM is actually a statistical regression model used to equitably distribute what funding the government has available to Ontario hospitals. The funding provided doesn’t represent the funding currently required by Ontario hospitals to serve their communities, but is the amount of money the government has to distribute.

Many elements that the formula adjusts for are outside of management’s control. This includes such factors as the aging of the population, which is more prevalent in the County than the rest of the province, and population growth which is lower in our region than the rest of the province;. Although there are adjustment factors within the formula for these elements to create equity in the funding distribution, QHC does not believe these adjustment factors fully take into account the complexity of our region or of running multi-site rural hospitals.

A simple example is the costs to run four 24X7 Emergency departments. In the new funding formula QHC is competing for resources with other Ontario hospitals that treat the same volume of patients through one Emergency department; however their catchment area is simply much smaller than the Quinte region. It simply costs more to operate and support four emergency rooms compared to one large emergency room. QHC management is working closely with the SELHIN and Ministry to understand the region’s needs, including the cost to operate four emergency departments and the funding that will be required to support them long-term.

Having said the above, there are elements of the formula that are within management’s control that QHC’s needs to perform better. QHC is not as cost efficient as other Ontario hospitals. QHC’s multi-site system does contribute to QHC’s higher cost structure; however there are improvements which can be made to how QHC delivers services that are not a result of where the service is offered. An example is our staffing model where a detailed benchmarking review this year highlighted that our staffing was one area that showed we are spending more than other similar and more efficient hospitals in Ontario. QHC currently has a 70:30 RN to RPN ratio where many of the most efficient hospitals have a 60:40 nursing split. The recent media releases have highlighted planned changes to our staffing mix for next year.

Q. Are the remedies being unveiled currently, address these factors directly? Or is this a matter of getting smaller and more selective about what QHC does?

Brad Harrington: The planned changes in staffing mix and other changes in QHC’s 2015/16 plans does address improving QHC’s cost structure for the long term. These changes, however, are not enough.

As a result of the recent funding announcement, QHC now has a year to work with the SELHIN, Ministry and most importantly the communities to understand what hospital services are required for the Quinte region and how best they can be delivered from our four hospitals. These will be difficult discussions and the decisions will require change if the region wants to retain four hospitals into the future.

The healthcare system is transforming to the reality that there are fewer financial resources to deliver care than there has been in the past. A hospital’s role in health services delivery is very different than it was even 10 years ago as a result of advances in clinical practice. Although very difficult, the region’s health system planning over the next year must reflect on these changes and be willing to explore different models of service delivery. If not, the hospitals and health services in the region are at significant risk of getting smaller as a result of falling behind other communities that are transforming how they deliver services to best meet their community’s needs.

Q. Does QHC’s senior leadership believe that the impact of a multi-site, mix of rural and urban hospital is minor?

Brad Harrington: No, QHC management disagrees. Paul is correct that sub-working group of Health System Funding Reform (HSFR) did review the impact to multi-site hospitals and determined that while there was an impact on multi-site hospitals, it was not significant enough to warrant a change to the formula.

The analysis performed was a review of all multi-site hospitals, not each multi-site hospital individually. The group did not determine that there was not an impact; but that it was not as statistically as significant as other adjustment factors in the formula and did not warrant a change at the present time.

QHC’s Chief Financial Officer, Brad Harrington was invited to the final meeting of the group before a decision was made and highlighted that there are real costs associated with running multi-site hospitals that are not incurred by single site hospitals. The extent of these types of costs would be dependent on many factors including the number of hospital sites and geographic distance between the hospitals. These factors are prevalent for QHC. Mr. Harrington pressed the group to further review the impact on multi-hospital systems of running multiple 24X7 Emergency departments.

It is important to note, that although the group did not recommend a change to the formula; one multi-site hospital system had already been exempted as a result of the cascading of elements under the formula that do not treat them equitably against other hospitals. QHC management has been working to highlight this same impact on the Quinte region with the Ministry.

Q. In a system that rewards efficiency by taking away from one hospital to give to another, Huras also makes the point that it will be difficult for QHC to make up ground—that this is a chronic challenge facing the hospital corporation?

Brad Harrington: Paul is very much correct. Although the new one-time funding announcement by the Ministry is good and allows QHC some time to plan for the long term; other communities are moving forward with more significant service improvements for their communities today. If QHC is not able to negotiate permanent alleviation or exemption from the formula; the region is at risk of falling behind other communities and possibly greater service contraction than if decisions were made sooner. Although this risk is real; QHC management does believe both the Ministry and SELHIN are now more aware of the complexities of our four hospital system and are committed to determining a viable and financially sustainable plan for the region.

Q. How disruptive might QHC’s funding challenge become? In terms of staff? Range of services? Role of each site?

Brad Harrington: QHC management is working very hard for all four of our hospitals to minimize the impact on staff and to retain the services required for our communities. The funding announcement last week is the result of education from QHC management to highlight the unique challenges faced by the Quinte region and the need for a long-term financially sustainable plan for the region. The overall impact will be dependent upon the community engagement process that will now begin to inform the future of the four hospitals, including the services provided by each and the ability of all of us to accept change will be required to ensure we maximize services to all our communities. There are no predetermined solutions, other than knowing that we want to retain four hospitals with 24-hour emergency access and continue to plan for the new hospital in Picton.

Q. Finally, has QHC’s MOHLTC funding for fiscal 2015/16 been confirmed? What is the current deficit that must be balanced?

Brad Harrington: Funding is not confirmed from the MOHLTC until we receive an official funding letter from the SELHIN. That typically occurs in September, although for our current fiscal year we did not receive our funding letter until January 2015!

QHC does not have a deficit. QHC has balanced its books for the last four years and has been very proactive in highlighting that we have very significant financial challenges under the new funding formula which if not addressed will lead to future deficits.

QHC management is working diligently to balance the books again this year and is cautiously optimistic about achieving that objective.