Imagine two organizations.
In the first scenario, each new customer brings in additional revenue.
If the organization finds a way to serve more people with the same resources, it benefits.
In the second, the budget is essentially fixed in advance.
Each additional person it serves increases its workload, uses more equipment, mobilizes more of its staff, and occupies more of its facilities.
But his income doesn't necessarily follow.
Which of the two organizations will naturally have the most interest in increasing its size?
The question seems almost insulting because the answer is so obvious.
For a long time, however, a large part of the Quebec health network was much closer to the second model than to the first.
And this helps to understand some of his difficulties.
The historic budget
For decades, the funding of Quebec institutions has largely relied on historical budgets.
In simple terms, an institution received a budget based largely on what it had received previously, then adjusted according to changes in costs, government decisions and various programs.
This system has a clear advantage.
It makes expenses relatively predictable.
But it also creates a strange incentive.
Suppose a hospital finds a way to perform 1,000 additional procedures with its existing facilities.
These interventions entail costs.
We need staff.
Equipment.
Medications.
Time spent in the operating room.
Analyses.
Beds.
But if funding does not directly follow activity, additional patients initially represent additional expenses.
In other words:
In a closed budget, the marginalized patient may look more like a cost than a source of resources.
It's not because doctors, nurses, or managers don't want to treat more patients.
It's simply the financial logic of the system.
And when you build an organization around an incentive, it would be surprising if that incentive had no effect.
Queues also ration resources
A queue is not necessarily the product of a conscious decision to make people wait.
But it remains a form of rationing.
If an institution has a fixed number of operating room hours, a limited budget, and a limited number of teams, it cannot indefinitely produce more care simply because the demand exists.
The patient who cannot be treated immediately is therefore delayed.
He waits.
This is an important difference compared to a supplier who loses something when a customer decides to go elsewhere.
In a competitive environment, excessive expectation can mean the loss of a customer and the corresponding revenue.
In a system where demand consistently exceeds funded capacity, this unmet demand may instead accumulate in a list.
Rationing has not disappeared.
It simply took the form of time.
Quebec has started to change the rules
The most interesting thing is that the Quebec government itself has undertaken to gradually move away from this logic.
For several years, he has been deploying the patient-focused funding, or DPF.
The principle is to establish a more direct link between patients treated, their care pathway and the funding allocated to institutions.
The plan presented by the ministry envisioned a gradual rollout: 25% of physical health funding in 2023, 50% in 2024, 60% in 2025, 70% in 2026, and 100% in 2027 for the targeted sectors. Surgery, emergency services, dialysis, outpatient services, pharmacies, and laboratories are to be progressively integrated into this approach. Source: MSSS.
In other words:
Money is starting to follow the patient more closely.
And that changes the incentive.
Treating an additional patient is no longer just an additional expense.
The activity also generates funding.
What happens when funding follows activity more closely?
This is where the Quebec experience becomes particularly interesting.
Because we are no longer solely in the realm of theory.
In sectors where this financing method has been introduced, the government itself has reported several improvements.
In radiation oncology, the productivity would have increased by more than 26% compared to 2014-2015, while the average cost decreased by 7%.
In medical imaging, the volume of procedures in certain units has increased by more than 22%, while the unit cost decreased by 4%.
For colonoscopies and digestive endoscopies, the volume has increased by 18%, the productivity of 14%while the number of cases pending beyond the prescribed deadlines decreased by 31%. Source: Quebec Budget Plan.
We need to be cautious with these figures.
These are not controlled experiments where the funding method is the only variable that has changed.
Technologies are evolving.
Clinical practices are evolving.
The teams change.
The organization is changing.
It would therefore be excessive to automatically attribute all of these gains to the FAP alone.
But it would be just as strange to ignore the signal.
When resources kept pace with activity, some sectors produced more while reducing their unit costs.
This is at least compatible with what economic theory teaches us about incentives.
Fixed costs count
Why might such a change produce gains?
Because a hospital has a huge number of fixed costs.
The building costs money even if an operating room is empty.
An imaging device represents a significant investment whether it operates eight hours or twelve hours a day.
Emergency services, on-call teams, laboratories and specialized services must be maintained regardless of the exact number of patients who present themselves on any given Tuesday.
Let us therefore assume that an establishment already possesses the necessary equipment, premises and some of the staff.
Performing more interventions can help spread these fixed costs over a larger number of patients.
The average cost can then decrease.
But in order to exploit this capacity, the system must first give the institution a reason to do so.
If producing more simply means spending more within the same budget, the incentive is weak.
If the additional activity also brings the resources that accompany it, the calculation changes.
More money isn't always the whole answer
When waiting lists grow, the usual political reaction is to demand more resources.
And sometimes, that's exactly what's needed.
There may genuinely be a shortage of doctors.
Nurses.
Of beds.
Of rooms.
Or equipment.
But something is missing from the diagnosis if we stop there.
We also need to ask how existing resources are being used.
How many hours do imaging devices operate?
What proportion of available time are the operating rooms actually active?
What tasks must absolutely be performed by a doctor?
Which of these tasks could be performed by other professionals?
Which facilities remain unused due to a lack of staff, organization, or funding to increase activity?
These are questions of productivity.
They are less spectacular than an announcement of a few billion more.
But a poorly used resource does not become more productive simply because a second one is added to it.
It is not enough to simply change the accounting formula
However, it would be naive to believe that patient-centered financing solves all the problems.
Any incentive can produce unintended negative consequences.
If volume is the sole reward, an institution may be tempted to favor the simplest cases or the most lucrative procedures.
You can increase the quantity without necessarily improving the quality.
We can reduce a cost here by moving it elsewhere.
This is precisely why the most elaborate models seek to integrate not only volume, but also patient complexity, quality, clinical outcomes and sometimes the entire care pathway.
The ministry also presents the FAP as a family of mechanisms ranging from activity-based financing to models integrating performance, results and patient trajectory.
Once again, incentives matter.
But not all incentives are created equal.
Should the patient follow the money, or should the money follow the patient?
The fundamental difference can almost be summed up by this question.
In the historical model, the patient must enter a capacity largely funded in advance.
In patient-centered financing, it's more the money that follows the activity generated by the patient.
The difference is considerable.
An institution that treats more patients receives more resources.
Improving productivity becomes more interesting.
Measuring costs per episode of care becomes more important.
The patient gradually ceases to be merely an expense to be absorbed within a budget.
It also becomes the reason why resources are allocated.
A step in the right direction
We must clearly acknowledge this:
Patient-centered financing is a step in the right direction.
It does not solve the staff shortages.
It does not eliminate professional rigidities.
It does not guarantee better organization.
It does not automatically create competition between establishments.
And it doesn't necessarily give the patient more choice.
But it corrects an important part of the problem.
It brings financing closer to actual activity.
And the results reported so far suggest that this change deserves to be pursued and seriously evaluated.
What is particularly interesting is that this is not a privatization.
Incentives can be profoundly modified within a public network itself.
That's already an important lesson.
But where is the patient's choice?
However, the FAP only recreates part of the market mechanism.
An establishment may now have a greater incentive to increase its activity.
But what happens if the patient cannot easily choose between several providers?
What happens if their results are difficult to compare?
What if the deadlines are unclear?
If an inefficient institution continues to receive its patients despite everything because they have no real alternative?
So an essential part of the competitive discipline remains missing.
To go further, funding would need to keep pace not only with activity, but also more the patient's choice when this choice is possible.
The establishment would no longer be solely seeking to increase its production.
It would also be in his interest to be the one the patient chooses.
Quebec is already testing part of the solution
Perhaps this is the most interesting observation.
The Quebec debate is constantly presented as a battle between the public and private sectors.
Meanwhile, the public network is already introducing mechanisms that profoundly alter incentives.
Funding is more closely linked to activity.
The costs per episode become more visible.
Productivity can be compared.
The results can be measured.
This is not the market in the classical sense.
And this is not a privatization.
This is simply the recognition of a principle we have encountered since the first article in this series:
The rules governing the financing of an activity influence how that activity is organized.
The DPF is therefore an improvement.
But he immediately raises the following question.
If a public institution can become more efficient simply by changing its incentives, perhaps our eternal opposition between "public" and "private" tells us very little about what really matters.
Perhaps the question should be:
What rules give suppliers a reason to produce more, better, and at a lower cost?
This will be precisely the subject of the next article:
Public, private: the wrong question.
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