Transformation

Paul Huras speaks to County residents at Patrons of our County hospital (POOCH) meeting on February 18.

Health services funding reform hurting QHC more than other hospitals

Staff at Quinte Health Care (QHC) are learning this week what the latest cuts to the hospital corporation’s budget mean to them. Thirty-nine people are expected to lose their jobs. Communities served by QHC, however, will have to wait a bit longer to know what services and resources they will lose from hospitals in Picton, Belleville, Trenton and Bancroft. Since the four hospitals were thrust into a forced marriage in 1998, these communities have been served a steady diet of cuts to services and capacity. QHC says it has cut more than $20 million from its budget over the past three years alone.

Yet more cuts are coming. Last week the province delivered a $3.5 million cheque, making clear this was a one-time gift. It will help QHC narrow the $12 million deficit that must be erased by the end of this month, and buys the hospital corporation more time to figure out how to manage under the province’s current funding formula.

UNDERPERFORMING
But even if it manages to balance this year’s budget, it won’t eliminate QHC’s bigger problem. Compared with its peers, QHC is an inefficient hospital corporation. It uses healthcare dollars less effectively than more than half of comparable hospitals in the province. Since 2012, the province has been rewarding efficient hospitals and penalizing laggards. QHC is one of those laggards. Until it vastly improves efficiency, it will continue to lose funding to more agile and cost-effective hospitals.

QHC challenges the notion that they are underperforming their peers, noting the hospital corporation outperforms many peer hospitals on key clinical health outcomes such as length of stay and number of patients receiving day surgery procedures.

Yet, a large portion of its funding is now based on improving efficiency—something it says is beyond its control. QHC says it is addressing the factors in its control. But the model doesn’t reflect the complexity of the hospital corportation’s multi-site mix of rural and urban hospitals and QHC believes it should be exempted from those effects in whole or in part.

It will use the next year to make this case.

HEALTH SERVICES FUNDING REFORM
Three years ago, the province adopted a form of activity-based funding for hospitals. Until then, Ontario hospitals had been funded largely based upon the amount they received the year before. Hospitals negotiated increases based upon their perceived need. Some were more skilled at this negotiation than others.

With costs spiralling upward—consuming everlarger portions of the provincial budget—the government wanted hospital funding tied to activities it could measure. It also wanted hospitals to compete to deliver services cheaper and more effectively.

It wasn’t alone. Hospitals around the world were implementing activity-based funding models.

In 2012, the Ontario Ministry of Health and Long Term Care began phasing in the Health Based Allocation Methodology (HBAM) and Quality Based Procedures (QBP), reducing the portion delivered by the traditional global funding approach.

The HBAM is a complex formula that combines a prediction of hospital performance based o n factors such as the age of the population served and patterns of service, with a target for dozens of hospital activities.

For example, the model determines the amount it should cost to treat a broken arm—based on a variety of environmental, historical and competitive inputs—and funds the hospital accordingly.

But efficiency, while important, means little if the outcomes are poor or in decline. The QBP model, therefore, is a layer that seeks to go deeper into targeted areas of activity by providing incentives to deliver quality—linking funding for a defined list of conditions to the prices paid for the best practices.

Currently, 30 per cent of a hospital’s funding is based on traditional global funding, 40 per cent is based the HBAM calculation and 30 per cent on QBP performance.

The full implementation of the province’s health-services funding reform has revealed winners and losers. Efficient hospitals keep their savings and may use them elsewhere in their operations to expand services or capacity. Inefficient hospitals, including QHC, must scavenge for money or resources to offset losses they incur when the cost of service they deliver exceeds the amount for which they are funded.

BEHIND THE CURVE
In a system that rewards efficiency by taking away from one hospital to give to another, those who fall below the median face a chronic funding challenge. This is a problem for QHC.

“[QHC] compares poorly with their peer group hospitals on the cost structures within almost all of their 27 functional departments,” explainsPaul Huras, CEO of the South East Local Health Integration Network—the agency that directs regional funding of health care. “In almost every one of them, QHC is higher than the median. Their staffing mix is different than other hospitals in their peer group in these 27 areas. Their cost structure is such that they are paying more to attain the same results.”

QHC says some relative under-performance is due to the fact that it manages a multi-site hospital— that inefficiencies are unavoidable in this context.

But a ministry-appointed panel looked at the impact of funding reform on multi-site hospitals and concluded the impact—though negative—was minor.

“The formula recognizes that all hospitals are different,” says Huras. “The expert panel found that you could replace a knee for a determined price and that all hospitals could achieve that.”

QHC disagrees. Brad Harrington, VP and chief financial officer, says the adjustment factors in the HBAM formula aren’t sufficient to account for the complexity of a region or a multi-site rural hospital. He points to the cost of managing four emergency departments, all open seven days a week, 24 hours a day.

“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.”

Harrington acknowledges there are things QHC can, and must, do to streamline its cost structures. “QHC is not as cost efficient as other Ontario hospitals,” says Harrington. “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 registered nurse (RN) to registered practical nurse (RPN) ratio where many of the most efficient hospitals have a 60:40 nursing split.”

Harrington says QHC is implementing changes this year to bring that ratio more in line with its peers.

NO EASY FIX
QHC’s challenges defy an easy solution. Even as it strives to improve efficiency other hospitals will be doing the same, in effect lowering the HBAM funding.

“It’s like a horse race,” explains Huras. “If you are in the back half of the field, it is a longer way to the finish line. That is why I say QHC must aim to be in the top 25 per cent in terms of efficiency by the HBAM measures. Even the hospitals currently in that top quartile are working to lower costs. When they do that QHC has to go farther just to catch up with their peers.”

Harrington says the gap is likely to widen until QHC’s particular circumstances are addressed.

“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,” says Harrington.

Harrington warns that without relief, QHC will get smaller.

“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.”

SIZE MATTERS
Efficiency, by definition, means doing more with less. In some cases, Huras acknowledges, the volume of a service delivered at QHC will never be enough to match the efficiency of another hospit

“If the volume is low—you have to question your ability to achieve that price point,” says Huras. “But also your ability to achieve quality.”

The upshot is that QHC may have to get out of the business of delivering services it currently provides because it lacks the volume necessary to provide these services as efficiently as others in its peer group.

Both Huras and Harrington offer the oftheard banality that health services delivery is being transformed in Ontario and elsewhere. Both say it is essential that the community keep an open mind as to how services are delivered.

“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,” says Harrington.

In other countries where activity-based health funding has been tried, small and rural hospitals were exempted. They maintained global funding for these places, recognizing both the distinct role these hospitals play in their communities, and the relative disadvantage they would face in competing on efficiency with their urban counterparts. Even in Ontario, small hospitals, including Lennox and Addington in Napanee, are spared the Darwinian struggle to compete to deliver services.

Harrington contends that QHC should be exempt from the HBAM for the same reason. He notes that one multi-site has already been exempted as a result of cascading elements under the formula that do not treat them equitably against other hospitals.

Huras acknowledges the pressure will be disruptive, but necessary.

“These type of pressures create innovation,” said Huras. “It will force [hospitals] to provide better ways to deliver better services.”