I remember an editorial from The Press from 2011 where columnist Ariane Krol wrote that most healthcare facilities were unable to say precisely how much your last hospital visit cost1.
Posted at 1:00 p.m.
However, 10 years later, Francis Vailles reports in his column that the Ministry of Health and Social Services wants to change things and has undertaken a colossal task to find out the costs attributable to the thousands of health care interventions2. All costs were measured for each intervention: from needles to disposable gloves, from heating to administrative costs, including the remuneration of doctors, the salaries of nurses and other employees.
From 1er April 2023, the government will finance each surgical intervention according to a tariff defined according to best practices. The countdown has begun and institutions are preparing for it.
Global budget
For ages, health facilities have been funded through a global budget. The global budget is a budgetary envelope allocated to the managers of the establishments in exchange for a formal commitment to provide services to the population.
The envelope is subdivided into two components: a global component, which includes non-salary expenses and labor expenses, and a detailed component, which is used to justify specific expenses. These components are indexed according to standards or administrative decisions. Capital expenditures and physician compensation are excluded.
This method of budgeting is simple and easy to apply. The government turns a blind eye to the volume, complexity of cases, productivity, efficiency and focuses on the scale of institutional expenditures.
However, there are few incentives. Less efficient hospitals continue to be mediocre without penalty, while high performing hospitals are forced to manage their budgets more tightly and derive no benefit from being excellent.
“What is not measured cannot be managed or improved”
In most industrialized countries, health expenditure accounts for a large share of gross domestic product (GDP). For many, this significant increase in health costs is due to significant factors, such as the aging of the population, the contribution of new technologies and the development of new treatments.
But others believe that a fundamental source of cost growth is being overlooked. There is an almost complete misunderstanding of what it costs to provide patient care and how those costs compare to goal achievement.
Take the example of knee replacement operations. Surgeons use different surgical procedures, specific devices and various implants which generate significant cost variations for the treatment of patients in similar situations.
However, by comparing process and resource costs for similar situations, one can determine whether variations are due to protocols, productivity, or other influences. Managers can also consolidate less used and more expensive treatments in specific institutions to create a critical mass of care and services.
The DRG model
Since the 1990s, many European countries and the United States have introduced activity-based funding in the form of a prospective payment system by DRG (Diagnosis Related Groups).
The idea behind DRGs is to classify cases according to patient diagnoses. Diagnostics that have similar clinical characteristics and comparable costs. Hospitals are then paid a sum that reflects the cost of treatment for patients in this group. The DRG payment system aims to improve efficiency, increase transparency and reduce lengths of stay in hospitals.
However, it can also create unfavorable conditions for certain treatments. For example, incentives to reduce lengths of stay can hurt specialties like emergency and intensive care. Diagnoses and costs related to certain specialties such as psychiatric care can be difficult to assess. And what to do with care that is difficult to compare such as traumatology, the calculation of costs may not be precise enough?
It is clear that the budgeting and cost evaluation processes are numerous and complex and that each country has its own models and ways of doing things. In European countries, activity-based funding can represent 60 to 85% of hospital revenues and coexist with other forms of budgeting such as global budgets for mental health.
Budgeting well to act better
Whatever direction the Department of Health and Social Services intends to take, the various payment systems have strengths and weaknesses in relation to the objectives sought.
Activity-based funding will not solve all the network’s ills. It requires a managerial culture, strategic planning, budget distribution and accountability.
We want monitoring of expenses and knowledge of the evolution of episodes of care. In addition, the method requires the compilation of information according to the diagnosis of the disease and the resources allocated. This leads to higher administrative costs.
Nevertheless, the initiative is interesting since, by not knowing the real cost of patient care, decision-makers have come to reduce the more expensive services, financial compensation and reduce the available workforce. Reducing healthcare costs can have a major impact on the quality and supply of services if done blindly.
In this context, hospitals should be encouraged to seek out best practices and establish partnerships to share knowledge. A well-considered budget remains a powerful tool for evaluating the effectiveness of managers and laying the cards on the table regarding the plan that will help achieve the objectives that hospitals have set for themselves.