Is there a way to adjust funding for Regional Health Authorities to residents' need for health care? A new report by the Manitoba Centre for Health Policy (MCHP) says yes. However, the report cautions, many other factors must be resolved in order to make it work.

The responsibility for health care services has been transferred from the provincial government to thirteen Regional Health Authorities (RHAs): two in Winnipeg, one in Brandon and ten in rural and northern Manitoba. Each RHA is responsible for the planning, integration and delivery of health care, using the budget that is provided by Manitoba Health for a group of core services. The budget is based on historical precedent, that is, patterns of spending that have developed over the years.

As Manitoba embarked on a new way of delivering health care, it seemed an ideal time to look into more methodical funding approaches. Manitoba Health established a Methodology Committee, of which MCHP was a member. The Committee reviewed the evidence and made recommendations about how RHA funding could be adjusted to account for health care needs.

The MCHP report, A Needs-Based Funding Methodology for Regional Health Authorities - A Proposed Framework, describes the needs-based funding method. The report also outlines other factors that would need to be resolved by Manitoba Health before this method could be implemented.

Defining Need for Health Care
How can we measure need for health care? A key factor is age: populations with a higher proportion of older people need more health care services than younger populations. In addition, populations with the same age profile may be more or less healthy. The methodology developed by MCHP uses the age profile and the health status of residents of a region to adjust per capita funding according to need.

The capacity to benefit is what defines the need for health care. Benefits may mean an improvement in health, be it a complete cure as in surgery for appendicitis, or a reduction in symptoms, as in medication for chest pain. Or the benefits may mean maintaining health, for example, through immunization, or through home care services like Meals-on-Wheels. In a perfect health care system, all health problems which could benefit from therapy would get care, and all health problems which couldn't benefit from therapy would not. However, in fact, a proportion of the care provided will not protect, restore or maintain health, and a proportion of the health care needs of the population will not be met.

How the Funding Methodology Works
Six service categories or "pools" were defined by Manitoba Health that grouped health care services with similar roles and functions. The six service pools were:

1. Institutional acute care (e.g. hospitals)
2. Institutional long-term care (e.g. nursing homes)
3. Home-based continuing care
4. Health promotion and disease prevention (e.g. immunization)
5. Medical care
6. Pharmacare benefits

In brief, the funding method used the following steps:

1. Calculate per capita health care spending based on the age and sex of the population.
2. Develop a measure of the need for health care.
3. Use the need measure to adjust the per capita spending allocation.
4. Multiply the new per capita spending allocation by the population of each RHA.

The first step was to calculate an age-sex-specific per capita funding allocation for each service pool. To do this, the entire population of Manitoba was categorized by gender and five-year-age groups. Total health care dollars were counted for each category in each service pool. Then, the average amount of services (in dollars) used per person for each five-year age group was calculated for each service pool.

Figure 1 shows the average use of hospital acute care services per person in Manitoba, classified by five-year age groups. With the exception of the first year of life, when use of hospital care is valued at approximately $3,131 per infant, the use of hospital resources rises with age, reaching amounts in the range of $3,000 per person by age 80.

In a separate process, measures of health status were evaluated for the RHAs to see which measures should be used to indicate the need for health services. The measures selected for the funding method combine information on premature mortality (deaths of people before the age of 75), and the social and economic characteristics of the residents of each region.

Measures of the social and economic status of a population can be considered proxy indicators of health status. There is a large body of evidence showing that, at all ages, individuals with fewer economic, educational and social resources are in poorer health.

The measure of need for health care was used to adjust the age-specific per capita funding allocation within each service category. The allocation was adjusted up if residents of a region were in poorer health, and down if they were in better health. The per capita allocation for each region was then multiplied by the population count in each age group to produce a total need-adjusted allocation of health care resources for each Regional Health Authority.

A Simulation
To illustrate how this funding method would work, we present simulated examples using populations of 100,000 people.

In our simulation, one population group is older than the Manitoba age distribution; the second is similar to the Manitoba age distribution; and the third is younger. The older population group is typical of many southern rural regions; the group similar to the provincial age distribution is typical of Winnipeg; and the younger group is typical of northern RHA populations.

The health care resource allocations for each of these three population groups is then simulated under different assumptions of need for health care: high, average and low need. The service category or pool we have selected for this example is hospital acute care.

Figure 2 shows the effect of population age on the allocation of resources. Look first at the middle bar in each group. Each shows the funding that would be allocated to the three populations if they all had a need for heath care identical to the Manitoba average. An older population of 100,000 people would receive approximately 17% more resources for hospital acute care than a population with an age distribution similar to the provincial average. A younger population would receive approximately 30% less. In our example, the older group would receive $90.4 million, the "balanced" population group $77.2 million, and the younger group $53.2 million.

But what happens when you factor in the relative health of these simulated population groups? The lighter coloured bars tell the story. The top bars represent an adjustment for low need for health care - that is, a healthier population. The bottom bars show the adjustment for high need, or a sicker population. Looking at just the three bars representing the younger population, there is a 30% difference in funding for acute hospital care between a low-need younger population ($49.7 million) and a high-need younger population ($64.5 million).

Factoring both age and need into the funding method has a dramatic impact on resource allocation. Our simulations show an older, high-need population receiving double the allocation of a younger, low-need group; $100.9 million compared to $49.7 million.

The proposed framework for a needs-based funding methodology for Regional Health Authorities is feasible. It achieves the central objective of ensuring that resources are allocated in proportion to needs that arise because of differences in the age and health of regional populations.

However, we do not make the assumption that the resources allocated by this funding methodology are necessarily sufficient to meet all existing needs for health care. The total amount of resources to be allocated is set by Manitoba Health. Governments, both provincial and federal, are constrained by the revenues available to them. If the resources available to finance health care services are insufficient to meet all needs for health care, the funding methodology should distribute unmet need equitably.

It should be noted that historically, hospitals have been built in response to population growth, increases in volume of use, technological imperatives and political pressure. Despite what sounds like an illogical nonsystem, MCHP has previously found that much of the care delivered in Manitoba is closely related to the health characteristics of residents across the province: Manitoba spends less delivering health care in areas where residents are more healthy, and more where residents are less healthy.

Because historical funding follows need so well, there is no urgency to implement the new funding method. Indeed, there still are a number of important implementation issues associated with the proposed funding methodology. They include adjustments for:

  • Cross-boundary flows: Residents of one RHA may travel to another RHA to receive care. A method must be developed to transfer funds between RHAs accordingly.
  • Cost differences: Costs of services may differ between regions. An example is home care-RHAs with large rural populations will have more home care travel costs. These differences in the costs of services must be taken into consideration.
  • Tertiary care hospitals: Higher level hospital care - or tertiary care - is available only in Winnipeg and Brandon. Many of the patients using these facilities live in other RHAs. One possible solution is to fund these hospitals separately. Another is to provide funding for tertiary care to each RHA which would then be transferred back to these facilities.
  • Schedule of implementation: It would be necessary to establish a schedule for the transition from the historic practice of funding facilities to the new approach of funding populations. The schedule would have to consider carefully the implications of a gradual phase-in. For example, would distortions arise if needs-based hospital funding was phased in prior to needs-based physician funding?
  • The current project dealt only with an adjustment for age, gender and need, not the implementation issues - issues that Manitoba Health would have to resolve before a needs-based funding method could be introduced. Changes would need to be made carefully and thoughtfully to ensure a fair health care funding mechanism for all residents of Manitoba.


    Summary written by Cheryl Hamilton and Carolyn De Coster, based on the report: Needs-Based Funding Methodology for Regional Health Authorities: A Proposed Framework: by Cam Mustard and Shelley Derksen.

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