In 1989, the hospital transitional funding initiative, which incorporates case mix measurement into the hospital funding process, was started in Ontario. This initiative is the beginning of a new, more objective basis for determining hospital funding. In its initial stages, incremental growth and interhospital equity adjustments are made to the global budgets. In this paper, we describe the launching of this initiative and the funding formulas that emerged from its first phase. The issue of incentive effects is then discussed and, as this is an evolving or “transitional” undertaking, we comment on several economic issues arising as a result of this new venture.
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References
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The hospitals have also argued that the hospital sector in general has been underfunded, an issue not addressed in this paper.
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CaplinElinor, Minister of Health; speech to the Ontario Hospital Association, October 1988.
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The methods of setting a global budget has evolved over time.This global budget method described in the text is accurate as of 1989.
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The DRGs were developed by researchers at Yale University and are the basis of payment in the Prospective Payment System for Hospitals under the Medicare program in the United States.
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In Canada, discharge diagnoses are coded according to the (four-digit) ICD-9 disease classification system; in the United States, they are coded according to the ICD-9-CM (clinical modification) disease classification system, by which a fifth digit is added to record patients' health-related conditions. Most CMGs could be directly mapped onto DRGs, though a few DRGs, which used data from the fifth digit, could not be.
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The patient level costs data from the United States is derived from hospital charge information. However, the charges are adjusted to take into consideration differences in the cost to charge ratio at the department level. See Carmichael and Company. 1989. Selecting the Appropriate Case Weighting Method Comparison of HMRI: NY Database Weights, unpublished manuscript.
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The actual formula was slightly more complex, including per diem adjustments for psychiatry and long-term care, and an adjustment for revenue-producing activity.
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