Hospitals set for funding overhaul

The new funding model will support the move to a single-tier health insurance system, advocates say

Image from the Government’s consultation document on Money Follows the Patient, which illustrates the model that is going to be introduced.

Image from the Government’s consultation document on Money Follows the Patient, which illustrates the model that is going to be introduced.


A new system of funding public hospitals in Ireland is to be introduced by January 2014 that promises to be fairer, more efficient and more transparent than the current model.

Its advocates say it will ultimately support the move to an equitable single-tier universal health insurance system.

The activity-based funding model funds episodes of care as opposed to the current financing model where public hospitals get most of their budget in one lump sum at the beginning of the year. The six new hospital groups will have to make retrospective claims for payment of services delivered to patients.

Dr Brendan McElroy, a lecturer in economics at University College Cork, says that while the proposed new “Money Follows the Patient” system of funding has “more positives than negatives”, he has serious misgivings about the ambitious timescale set out by the Government for its implementation.

“I think the timescale of January 1st, 2014 to have this model developed and put in place is far too ambitious, particularly given that the hospital groups have not actually been formed yet.

“There is a lot of infrastructure that needs to be put in place first, including new financial management and IT systems, the coding of patients into diagnosis-related groups (DRGs) and quality and monitoring systems. I think a phased introduction over a longer period would be better.”

The greatest hurdle to the smooth implementation of this new model next year, says McElroy, is the lack of integration between the primary, community and continuing care sectors in Ireland which is critical in a model where early discharge is encouraged.

A member of the Health Economic Group at UCC, McElroy is one of the keynote speakers at a healthcare forum taking place in the university on Thursday, entitled A New Healthcare System: Organising for Change.

His paper, co-authored with Aileen Murphy, A new form of Hospital Financing: How well does Money Follows the Patient measure up? reviews the recently published Department of Health consultation document Money Follows the Patient.

The Government’s proposals focus on public treatment in public hospitals, which they say will be complemented by further policy development on a new charging regime for private patients in public hospitals.

The proposals will also be continually developed so that the funding system evolves to support integrated care across different settings, so the money can always follow the patient to the most appropriate care setting.

A new national information and pricing office will set national DRG prices for the year ahead using activity and cost data. For example, a national price will be agreed for a hip replacement which will be paid to each hospital group.

A separate purchasing entity, the healthcare commissioning agency, will be established to conclude annual performance contracts with each public hospital group.

The Follow the Money model is being run in parallel to the current financing system for the remainder of 2013 to flag potential problems and to allow health service staff to become familiar with the new arrangements.

However, as McElroy points out, there will not be enough time to address any issues that might be flagged given the short timescale.

There are a number of advantages to the new model, according to McElroy.

First, there is a clear improvement in the transparency of hospital financing, as there will be a direct link between hospital activity and hospital financing.

Second, as payments are per case, it generates the incentive to increase throughput, spreading fixed costs over a greater number of cases and reducing hospital cost per case. (This should also reduce waiting lists and times.)

Third, it can build on the well-established capacities of the current system in coding and classifying patients.

Fourth, it is more suited than the current model is to the future development of universal health insurance in Ireland.

And fifth, although there is no consensus internationally that it is the best approach, activity-based funding has been growing in popularity and is in use in parts of the health systems in the US, UK and Germany, among others.

However, McElroy warns that the emergence of “perverse incentives” needs to be closely monitored.

He refers to the phrase used in the US of discharging patients “sicker and quicker” from hospital.

‘Reducing inputs’
“Reducing cost per case could lead to reducing inputs into patient care, such as reduced nursing staff per patient or earlier discharge from ICU, with obvious implications for patient safety and quality of care. Patients may also be discharged early into the community.

“Given that our primary, continuing and community care sectors are poorly integrated and have poor governance structures, early discharge could have calamitous effects on some patients. It may be profitable for hospital groups to select against patients for whom costs exceed benefits.”

The third forum on Health Service Reform will take place on Thursday from 1.30pm-6pm in Áras na Laoi, UCC. More information is available at and registration is €50 for the day.