What Is Alberta’s New ‘Activity-Based’ Health Care Funding About?

A treatment room in the emergency department at a hospital in Calgary, Alta., on Aug. 22, 2023. The Canadian Press/Jeff McIntosh

Alberta will change how it funds surgeries starting next year. Instead of paying hospitals upfront based on projected service targets, the province will pay for surgeries actually performed—an “activity-based” model used in other countries with universal health care and comparably shorter wait times.

Premier Danielle Smith announced the change earlier this month, saying the current funding model lacks accountability, with hospitals often missing their targets or stalling on surgical procedures to use their global funding in other ways.

Under the current global budgeting model, the province sets the health care budget, and Alberta Health Services (AHS), the province’s health authority, distributes the money to providers. Most provinces have been using global budgeting for decades.

The premier said the new funding model, which the province also calls “patient-focused funding,” will increase transparency and ensure that “money follows patients,” while motivating providers to improve their services to attract patients.

The Opposition NDP argues the change is a further step toward privatizing health care, saying that companies will benefit by focusing on the easiest and most profitable surgeries, while public providers receive less funding.

The province has previously taken steps seen by some critics as moving toward privatizing health care, such as moving hospital ownership away from AHS and leasing the facilities to other operators who can keep the lease if they meet performance goals.

“It’s about creating more privatization—more private hospitals and more private surgical centres,” NDP health critic Sarah Hoffman said in an April 7 social media post after the premier announced the new funding model. “Albertans deserve better. Patients should be the priority, not profits for corporations.”

Nadeem Esmail, a senior fellow at the Fraser Institute who specializes in health care research, says the new funding model is a “step in the right direction,” and that while Alberta is leading the way in Canada, it is a latecomer compared to other countries that have already adopted the funding model successfully.

“If we look at the developed nations that really don’t have any struggles with waiting times, that have the timeless access to health care services, we see activity-based funding, which Alberta is now moving towards,” Esmail told The Epoch Times in an interview.

“When we look internationally, other developed nations with universal access health-care systems have been going down the activity-based funding roads [since] the early 1990s,” he said, citing Sweden, the United Kingdom, and Germany as examples.

“There’s over 30 years of experience in how to do this properly around the developed world–lessons that can inform Alberta’s approach from the start,” he added.

Activity-based funding was piloted in British Columbia between 2010 and 2013, and partially applied in Ontario. Quebec has also used the funding model for certain procedures since 2004.

Health reform has been a key part of Smith’s agenda, with a system overhaul underway since 2023. The changes are aimed at improving access to care and decentralizing decision-making to the front lines. The new model will establish four organizations, each focused on a type of care: primary care, acute care, assisted living, and recovery.

Alberta had some of the longest health care wait times in Canada last year, second only to the Atlantic provinces, which reported the highest wait times in the country, according to a Dec. 12, 2024, study by the Fraser Institute.

Alberta’s average wait time for surgical and other therapeutic treatments averaged 38.4 weeks in 2024, while the national average was 30 weeks—the longest in more than three decades.

The premier has previously said she is not satisfied with the state of health care in the province.

“It’s no secret I have been unhappy with the level and quality of service delivered by AHS and in the inability of AHS to deliver quality and timely healthcare to Albertans,” she said in a Feb. 8 social media post.

“I will continue to relentlessly push forward to make improvements. Although that has required difficult decisions and major change, I do not accept the current results.”

‘Flip the System on Its Head’

Esmail said the new funding model changes how health providers see patients, from being costs within a set budget to being a source of revenue. This, he said, encourages providers to improve their service efficiency and quality.

“Right now, every patient is a drain on the budget because of the way we pay,” he said. “Every hospital gets a big bag of money each year and is told, ‘okay, go look after patients.’ That means every extra patient is reducing the resources available to the hospital, and so they’re treated as costs.

“What activity based funding does is flip the system on its head. It brings money with the patient to the hospital, so every additional patient is now adding to the financial resources of the hospital, and it’s now in the hospital’s interest to treat more patients, treat them quickly, treat them effectively, to attract even more patients,” Esmail added.

Smith says the new model will encourage competition among medical centres, including chartered surgical facilities and hospitals, to increase surgeries while reducing wait times.

“The current global budgeting model has no incentives to increase volume, no accountability and no cost predictability for taxpayers,” Smith said in an April 7 press release.

“By switching to an activity-based funding model, our health care system will have built-in incentives to increase volume with high quality, cost predictability for taxpayers and accountability for all providers.”

Critics of for-profit health services argue the model reduces service quality.

“For-profit health care services deliver worse care by design,” said Curtis Jackson, vice-president of the Alberta Union of Provincial Employees, in an Aug. 30, 2024, press release in response to the province’s plan to transfer ownership of AHS hospitals.

“Private providers are primarily motivated to make money. They cut corners to maximize profit at the expense of the quality care patients deserve.”

The premier said the new funding system will involve three steps. First, common surgeries will be given clear, fixed prices. Facilities will then compete to provide these surgeries, and finally, be paid based on the number of procedures they perform.

“[The model] incentivizes volume because funding is only delivered when the service is provided,” Smith said. “Facility administration has to be accountable to deliver results and is motivated to use resources efficiently or their funding dries up.”

Strain on the System

The Health Sciences Association of Alberta, a union representing health care workers, argues the activity-based model will create incentives for private companies to “cherry-pick low-complexity surgeries that maximize profits.”

“The number and quality of major surgeries performed in the public system will go down, as hospitals lose staff and become forced to rent public [surgical] suites back to specialists within these same corporations,” said association president Mike Parker in an April 7 press release.

The association urged the province to prioritize “people over profit,” and to reduce wait times by investing in the health care workforce within a publicly funded and publicly delivered system.

Esmail argued that the best-performing health care systems use a combination of public and private care, with private facilities helping to ease pressure on the public system.

“All of the developed world’s top performing universal access healthcare systems, 100 percent of them, with the best outcomes and the shortest wait times, include a blend of both public and private care,” he said.

“No top-performing nation has managed that performance with this fixation on government provision.”

He said the success of the system will depend on the province ensuring that all procedures are properly funded, no matter where they are performed or how complex they are. He added the government needs to consider the added administrative work for hospitals and the auditing needed to support the new model.

“But again, we are latecomers. Other developed nations have been doing activity-based funding so long that they are now on their second and even third generations of activity-based funding,” said Esmail. “We’re not starting down some unknown path.”