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Linking hospital quality to payment in Ontario

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For several decades, the amount of funding that Ontario’s hospitals receive each year has been based more or less on the funding they received the previous year, regardless of their patients or their performance.

But over the next three years, the government plans to begin partially funding hospitals based on the number of patients they treat and the quality of care they provide. It’s an ambitious plan that could fall flat or set a new global benchmark.

How we pay hospitals has a strong effect on how they behave. Changing the way hospitals are funded will have impacts on how patients access care and the type of care they receive. The traditional global budget lump sum funding approach still used by other provinces is widely seen to provide little motivation for hospitals to improve either their quality of care or their efficiency.

Ontario is introducing a new approach to the Canadian hospital funding scene, known as quality-based procedures (QBPs). The plan is to fund hospitals based on the volume of services provided at a given price. This will be applied to selected types of hospitalizations, such as knee replacements and stroke.

Funding hospital care based on a fixed price is commonplace in most of the developed world. But what is innovative about the QBPs is the way the Ontario government plans to set the price. Expert panels of clinicians and researchers have been struck to determine "best practice" processes of care for patients — essentially, defining high-quality care for each disease or procedure. The government’s plan is to then figure out what this best practice care costs and set prices for QBPs accordingly.

This is a significant change from the way hospitals tend to be funded, which is based on their average or historical costs. Linking prices to high-quality care has the potential to reduce unwarranted variations in spending and outcomes between hospitals.

Ontario has long led the way among the provinces in using data and information to drive its funding models, but the new payment concept is unprecedented not only in Ontario, but for world standards.

No country has yet managed to set a price on high-quality care.

The challenges are many and will pose serious hurdles for Ontario.

For instance, how many days should a patient with respiratory disease stay in hospital? The degree of a patient’s illness has a huge impact on hospital costs, yet good evidence to adjust for them is scarce.

There are few rigorous clinical trials pointing the way to a black and white definition of high-quality care. These gaps in the evidence will open up the government’s QBP prices to being contested by hospitals, other health-care providers, as well as drug and device producers.

Finally, the government’s rollout scheme for the new policy is not without critics. The province is targeting QBP funding at certain types of patients and surgeries, adding stroke, congestive heart failure, chronic obstructive pulmonary disease, chemotherapy and colonoscopy to a short list that already pays hospitals with a fixed price for hip and knee replacements, chronic kidney disease treatments and cataracts. This risks lies in creating a system where hospital revenue is attached to some patients but not to others. So some funded procedures become winners while others become losers.

There are huge benefits to be had if Ontario is able to realize its vision for new hospital funding. The approach has the potential to drive all hospitals to provide an equally high standard of care, regardless of location. If the prices paid to hospitals accurately reflect patient pathways defined by the expert panels and extend beyond the hospital walls, Ontario may finally be taking much-needed steps toward funding providers in a way that reduces fragmentation between sectors of the health-care system.

Ontario’s new hospital funding plan is hugely ambitious and other provinces are watching with interest. Paying hospitals based on the expected cost of high-quality care is an attractive idea, but is also an idea that has a ways to go before becoming reality.


Jason Sutherland is an expert advisor with and assistant professor, centre for health services and policy research, school of population and public health, University of British Columbia, Vancouver. His and Erik Hellsten’s C.D. Howe Institute publication, Paying for Hospital Services: A Hard Look at the Options, can be found at


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