Moving towards different health care funding models

The challenge for jurisdictions funding the Canadian health care system is determining how to provide the best possible care for the best possible value.

In particular, wait times and access to health care services are two of the most prominent topics in the ongoing conversation about healthcare in this country. Meanwhile, many jurisdictions are also discussing the need to improve how we allocate funding.

The question is: Can we address these long-standing challenges by changing how funding is allocated? One funding option available to provinces may help answer this question.

Case mix systems and their use in funding models

Case mix systems provide valuable insights on the health care system by linking the clinical characteristics of patients (and nursing home residents, etc.) to the financial expenses associated with their course of treatment.


The (CIHI) has taken a lead role in developing and implementing these methodologies, which group patients together in statistically and clinically meaningful ways based on clinical and administrative data, together with financial data.

Case mix systems assign a measure of cost to each category. This may be the average cost of an episode within the given case mix group; however it is more common for case mix systems to represent cost using a relative cost weight. In cases like this, the average cost of all episodes across all case mix groups is set as the anchor point, and the cost weight for each episode is set relative to that anchor point.

An example: Activity-based funding

Describing cases in both clinical and cost terms means case mix systems can have many applications—including funding allocations among hospitals. As a specific example, cost weights inform allocations determined using activity-based funding (ABF).

ABF is one of several methods that use case mix to fund healthcare service organizations such as acute care hospitals, long-term care facilities, home-care providers and rehabilitation facilities for the care and services that they provide.

Each case mix category has a predetermined ABF payment price. Funders then reimburse healthcare providers for the services that they provide, based on the volume and types of patients treated.  It is important to note that case mix funding models typically also take quality of care into account as well as activity.


Using ABF, hospitals would be paid more if their patients required more care and less if they didn’t. Funding to hospitals would be more equitable because one hospital would only receive more than another hospital if it had patients that required more resource intensive care. This is different from the global budget approach. Under the global budget approach, one hospital could receive the same or less funding than another hospital even though they had more patients that required resource intensive care.

There are many things to consider when designing a funding model using ABF. If you’re interested in this this complex topic, I would invite you to read CIHI’s The Why, the What and the How of Activity-Based Funding in Canada: A Resource for Health System Funders and Hospital Managers.

CIHI contributes to the conversation

It is at the very heart of our work to provide the kind of timely, relevant data that funders need to assess their system and evaluate needs within it.

CIHI has a long history of providing context and perspective. In fact, our National Health Expenditures Database (NHEX) celebrates its 40th anniversary this year. This important resource is used to facilitate provincial/territorial, national and international comparative reporting.

Coupled with our clinical and financial databases and case mix methodologies—those that provide building blocks for funding systems like ABF—this kind of information is integral to identifying what may be a jurisdiction’s inefficiencies and where there may be opportunities to improve.

The next step is implementation of funding models that promote efficiency. For jurisdictions looking to implement funding systems like ABF, CIHI can:

  • Enhance the way existing case mix products are used and applied in funding, and creating new products
  • Perform research and providing technical expertise to jurisdictions to help them design, implement, monitor and evaluate
  • Help provinces and territories share their experiences and activities

CIHI can also contribute to the evaluation of a jurisdiction’s health funding system. We have produced a measurement framework for jurisdictions using ABF, for example

Evidence-based funding models are part of a worldwide challenge, as health funders have been rethinking how they pay for healthcare.

The tools exist within Canada to employ funding models that promote efficiency in health care delivery—and further demonstrate commitment to value and accountability.