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There is a revolution occurring in hospitals in British Columbia. Hospitals are paid for helping patients instead of being paid for just keeping their doors open.

This new method of funding for hospitals is called “patient focused funding”. This is activity and performance based funding with clearly articulated service level targets.

The economic basis of this approach is described by the eminent management leaders and academics Robert Kaplan and Michael Porter in “How To Solve The Cost Crisis In Health Care” in the Harvard Business Review ( September 2011).


In most provinces, hospitals receive an annual global budget. This is known as block funding. All expenses come out of this bucket of money. When a patient goes to the emergency department, it costs the hospital money for each patient. This money comes from the global budget.

If you extend the logic, the hospital will do best financially by discouraging patients from coming to the E.R.  or being operated on in the O.R. The new change in funding has removed this “perverse incentive” which is an unintended consequence of the old system of block funding of hospitals.

With the new system of patient-focused funding, the hospital receives revenues from the province when the patient is helped in the E.R. The E.R. becomes a revenue center. The operating room and other parts of the hospital also become revenue centers- not profit centers.

This has helped in dramatically improving healthcare services for B.C. residents.

According to the Globe and Mail page A 9 Dec 10 2011, waiting times in E.R’s have been reduced by 50% fuelled by incentives as high as $600 for each extra patient admitted to an acute care bed within 10 hours.

The new money rolling into the hospitals is being reinvested in infrastructure and capacity. One hospital’s E.R. now has its own lab technician and a five bed unit for patients needing more treatment but not needing admission.

In one hospital in Nanaimo, the number of shoulder operations will double bringing to the hospital $3000 for each additional procedure.

In the first year of the patient-focused funding pilot, only $53M in new money from the province resulted in 67,000 more patients being treated on time in the E.R.’s of the 14 hospitals involved and an additional 36,000 procedures in B.C.’s 23 largest hospitals.

Waiting lists for ambulatory surgeries were cut by 25% in the first year of the programme.

Hospitals receive more funding for complex cases and for surgical quality care systems

This is a revolution in how hospitals are funded. The change is based on solid business management economics. The results for patients have been dramatic. The new model that can be scaled will likely be a mix of global budgeting plus patient-focused funding.

Good for B.C. They are getting it right. In fact, we are nominating the B.C. Ministry of Health for the Dr. Bill Water’s virtual award in applied economics for innovation in health system management.

Other provinces, such as Ontario, are starting to build momentum by introducing pay for performance. We hope that they will soon introduce B.C.’s model of  “patient focused funding” for hospitals.