Main photo: A handful of community members along with MAHC volunteers, staff, board members and North Simcoe Muskoka Local Health Integration Network representatives gathered in the board room at Huntsville hospital on Monday to hear a presentation about the province’s complex funding formula.
The need to centralize certain hospital procedures and services once offered at both the Huntsville and Bracebridge sites may be an inevitable result of the Province’s complex funding formula.
Speaking at a public meeting Monday, held to explain the province’s funding formula and Muskoka Algonquin Healthcare’s financial position going into its 2018/2019 fiscal year, MAHC CEO Natalie Bubela said that by centralizing services such as cataract surgery, the organization was not only able to achieve savings, but make room for a new service, gynecological surgery, which also resulted in more funding.
According to the organization’s incoming CFO Terry Shields, the Province was funding cataract surgeries at a rate of about $500 per procedure, while it was costing MAHC an average of about $850 per procedure. “So every case that we did we lost about $350,” he said, which meant pulling from other resources. As a result of centralizing the service at one site and working with suppliers to keep the cost down, MAHC is now able to provide cataract surgeries at a lower cost than the funding it gets for the same.
A handful of community members who attended the meeting also heard that hospitals, particularly medium-sized hospitals that don’t see the type of volumes their counterparts do in the GTA, are having to get creative under the Province’s new funding formula—one which no longer simply provides global funding but a three-pronged approach. The formula, which began to take root in 2012, is comprised of base funding, which currently represents about 61 per cent of the total amount Muskoka Algonquin Healthcare (MAHC) will receives from the Province, thanks to persistent lobbying from senior staff and the board. There’s also a Health Based Allocation Methodology, which involves things like demographics, catchment areas and services offered. That makes up about 30 per cent of the money MAHC gets from the Province. Then there’s the standardized Quality Based Procedures, for which hospitals get a set amount. Those procedures represent about nine per cent of MAHC’s provincial funding.
There are 23 Quality Based Procedures on the list and MAHC participates in nine of them, including cataract surgery.
“The larger hospitals will do all of those types of QBPs (Quality Based Procedures) and get incremental funding associated with that,” said Shields, but you have to have enough volume to be efficient at it. “Like the cataract story, we were able to lower the cost and be effective at it, but if you do not have enough volume, you’re going to lose your money. You’re going to lose and end up in a hole.”
While on the one hand the Province’s formula forces hospitals to become more efficient, on the other, a perhaps unintended consequence, hospitals are being set up to compete against each other for a piece of the funding pie, said Shields. And because the funding formula relies heavily on volume, it presents problems for the Huntsville and Bracebridge hospitals, particularly when it comes to staffing.
“The assumption is that you are able to staff your operation relative to the volume that you have,” he said. “However, what the funding formula doesn’t recognize is minimum standards. If you go to run an ED (Emergency Department) at night time, you have to have three nurses.”
Bubela elaborated further on the issue and said the hospitals’ ER departments, as an example, require a minimum of three nurses per shift, although the volumes don’t necessarily support that. To the contrary, if there were only two nurses per shift and one were to be off on break while a patient came in with a heart attack, it would be impossible for one nurse to look after that patient and the rest of the patients in the ER, she said.
“It’s one of the things that I’ve sometimes said in the past, which people have assumed is my trigger for a one-hospital model. It’s that if the two sites were combined, and I use the Emerg (Emergency Department) as an example, we could staff for three nurses, maybe four, but we’ve got three and three at each site so right away we would automatically require two less, which is a cost saving and it’s more efficient. You’re still providing safe quality care but you don’t require the same human resource element there.
“As soon as you operate two sites which is the argument that we’re putting forward to the Ministry, is we have a structural challenge here because our volumes don’t desaturate the staffing costs because we have to staff two sites,” said Bubela. She said the same is true for existing MAHC hospital units that have just 15 beds, which are not an optimal number for staffing purposes. “When you’re down at 15 I still have to have two or three staff on, but if you had a larger unit you wouldn’t need that many per patient. So our issue structurally here is the way our buildings are designed, the number of actual beds and the fact that we’ve got two sites.”
The funding formula applies to medium and large hospitals, while small hospitals are exempt and receive global funding. Bubela said the province has generally increased global funding for small hospitals by about one or two per cent annualy to keep them running, “whereas we have been frozen for years without getting a lot of extra increases, I mean we’ve received some funding in order to be able to balance but there was not traditionally an increase to funding for medium and large hospitals over the years,” she said.
Huntsville Councillor Bob Stone, who attended the meeting, asked whether the two hospitals could be deamalgamated into two separate sites, thereby classing them as small hospitals. Shields said the cost would go up with the requirement of two separate administrations and there would also be additional costs associated with separate reporting. “And more importantly than that, the hospital is actually receiving more funding than what we would receive from being a small hospital… so from a financial standpoint, we’re in a better situation than we would’ve been separately.”
MAHC Board Chair Phil Mathews said the funding formula is a volume-based exercise. “The piece in that formula that was there to cover overheads or fixed costs is fine if you have the volume that throws it out in large amounts of dollars, but in our case it’s throwing it out in very small amounts of dollars and it’s not enough to cover the base that we have and the overhead we have. By getting all of this work done to get that base (funding) up to 61 per cent and hopefully up to 65 per cent, we should cover all of our budgets going forward—that’s the exercise we’re in right now,” he said of the way the Province funds MAHC. He said the organization does not want one-time funding to help it balance its books, but an increase do its annual base funding, which it continues to lobby for.
“Just so you know, yes we’ve balanced the annual budget this past year but we have an accumulative deficit on our balance sheet of about $12.2 million, which is the funding that the government is really behind (on) and in terms of working capital the difference between our current assets and our current liabilities, we have a working capital deficit of about $9 million.”
Bubela said the organization relies on an $8 million line of credit from the bank in order to ensure that MAHC is able to meet payroll and other obligations throughout the year because at times there isn’t enough cash flow and it can’t count on one-time funding from the Ministry until it gets proper notification.
“It’s an interesting way to manage a hospital, but I would say it’s not unique to us. This has been repeated throughout Ontario,” she said. “I know our board sometimes struggles with that because they think ‘how can you run a system like this in that way,’ but we’re used to it.”
The organization is projecting $82 million in operating expenses and $79.5 million in operating revenue for 2018-19, leaving it with an anticipated operating deficit of $2.5 million on top of the $2.45 million in additional funding that it has been promised by the province.
Much of the deficit is being attributed to things like increases to collective agreements related to staff salaries, new workplace legislation and increases to the cost of utilities, pharmaceuticals and other supplies as well as higher occupancy rates than those it was funded for, which resulted in additional costs, explained Bubela.
Eighty-five per cent of MAHC’s revenue comes from the Ministry of Health, while the remainder comes from things like out-patient diagnostics, parking (about $600,000 from both sites), and co-payments for out-of-province patients, semi-private accommodations and the leasing of space for physio services.
Hospitals do not receive capital funding for things like beds, bed-side tables stretchers and medical equipment. They can apply for funds for specific capital needs like roof or elevator repairs, but they mostly depend on funding from the community through the hospital auxiliaries and foundations.
Bubela said MAHC has identified about $39 million in infrastructure needs and another $9 million in capital needs.
“People are getting mixed up a little bit. I have heard from some individuals in the communities ‘I’m not going to donate to the hospital until I know what the model is and then I’ll start to give.’ Well those models are only being looked at to come to fruition, you know 15 years or so from now,” she said, adding that funding from the community is key in order to support current hospital operations.
The task force studying the various future hospital models is expected to make its recommendation at the beginning of August.
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