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Introducing activity-based financing: a review of experience in Australia, Denmark, Norway and Sweden

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  • Andrew Street

    (Centre for Health Economics, University of York)

  • Kirsi Vitikainen
  • Afsaneh Bjorvatn
  • Anne Hvenegaard

Abstract

We review and evaluate the international literature on activity-based funding of health services, focussing especially on experience in Australia (Victoria), Denmark, Norway and Sweden. In evaluating this literature we summarise the differences and pros and cons of three different funding arrangements, namely cost-based reimbursement, global budgeting and activity-based financing. The institutional structures of the four jurisdictions that are the main focus of the review are described, and an outline is provided about how activity-based funding has been introduced in each. We then turn to the mechanics of activity-based funding and discuss in detail how patients are classified, how prices are set and how other services are funded. Although concentrating on the four jurisdictions, we draw on wider international experience to inform this discussion. We review evidence of the impact of activity-based funding in the four jurisdictions on efficiency, activity rates, waiting times, quality and overall expenditure. Finally we conclude with a brief commentary of some of the challenges that would have to be faced if implementing activity-based funding.

Suggested Citation

  • Andrew Street & Kirsi Vitikainen & Afsaneh Bjorvatn & Anne Hvenegaard, 2007. "Introducing activity-based financing: a review of experience in Australia, Denmark, Norway and Sweden," Working Papers 030cherp, Centre for Health Economics, University of York.
    • Handle: RePEc:chy:respap:30cherp
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    References listed on IDEAS

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    1. David Epstein & Anne Mason, 2006. "Costs and prices for inpatient care in England: Mirror twins or distant cousins?," Health Care Management Science, Springer, vol. 9(3), pages 233-242, August.
    2. Andrew Street, 2004. "Activity Based Funding for Hospitals: English Policy, International Experience," Monograph 000487, Office of Health Economics.
    3. Keeler, Emmett B. & Carter, Grace M. & Trude, Sally, 1988. "Insurance aspects of DRG outlier payments," Journal of Health Economics, Elsevier, vol. 7(3), pages 193-214, September.
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    5. Mikkola, Hennamari & Keskimaki, Ilmo & Hakkinen, Unto, 2002. "DRG-related prices applied in a public health care system--can Finland learn from Norway and Sweden?," Health Policy, Elsevier, vol. 59(1), pages 37-51, January.
    6. Jackson, Terri, 2001. "Using computerised patient-level costing data for setting DRG weights: the Victorian (Australia) cost weight studies," Health Policy, Elsevier, vol. 56(2), pages 149-163, May.
    7. Llewellyn, Sue & Northcott, Deryl, 2005. "The average hospital," Accounting, Organizations and Society, Elsevier, vol. 30(6), pages 555-583, August.
    8. Anni Ankjær-Jensen & Pernille Rosling & Lone Bilde, 2006. "Variable prospective financing in the Danish hospital sector and the development of a Danish case-mix system," Health Care Management Science, Springer, vol. 9(3), pages 259-268, August.
    9. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
    10. A. Street & D. Dawson, 2002. "Costing hospital activity: the experience with healthcare resource groups in England," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 3(1), pages 3-9, March.
    11. Marisa Miraldo & Maria Goddard & Peter C Smith, 2006. "The incentive effects of payment by results," Working Papers 019cherp, Centre for Health Economics, University of York.
    12. Street, Andrew & Duckett, Stephen, 1996. "Are waiting lists inevitable?," Health Policy, Elsevier, vol. 36(1), pages 1-15, April.
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    Cited by:

    1. Annear, Peter Leslie & Kwon, Soonman & Lorenzoni, Luca & Duckett, Stephen & Huntington, Dale & Langenbrunner, John C. & Murakami, Yuki & Shon, Changwoo & Xu, Ke, 2018. "Pathways to DRG-based hospital payment systems in Japan, Korea, and Thailand," Health Policy, Elsevier, vol. 122(7), pages 707-713.
    2. Mads Leth Felsager Jakobsen & Thomas Pallesen, 2017. "Performance Budgeting in Practice: the Case of Danish Hospital Management," Public Organization Review, Springer, vol. 17(2), pages 255-273, June.
    3. Delo, Caroline & Leclercq, Pol & Martins, Dimitri & Pirson, Magali, 2015. "Costs of disposable material in the operating room do not show high correlation with surgical time: Implications for hospital payment," Health Policy, Elsevier, vol. 119(8), pages 1126-1132.
    4. Roberta Longo & Marisa Miraldo & Andrew Street, 2008. "Price regulation of pluralistic markets subject to provider collusion," Working Papers 045cherp, Centre for Health Economics, University of York.
    5. Gintare Valentelyte & Conor Keegan & Jan Sorensen, 2021. "Analytical methods to assess the impacts of activity-based funding (ABF): a scoping review," Health Economics Review, Springer, vol. 11(1), pages 1-15, December.
    6. Miraldo, M & Crea, G & Longo, R & Street, A, 2014. "Collusion in regulated pluralistic markets," Working Papers 15402, Imperial College, London, Imperial College Business School.
    7. Zeynep Or & Thomas Renaud, 2009. "Activity based payment in hospitals: Principles and issues drawn from the economic literature and country experiences," Working Papers DT23, IRDES institut for research and information in health economics, revised Mar 2009.
    8. Jurgita Januleviciute & Jan Erik Askildsen & Oddvar Kaarboe & Luigi Siciliani & Matt Sutton, 2016. "How do Hospitals Respond to Price Changes? Evidence from Norway," Health Economics, John Wiley & Sons, Ltd., vol. 25(5), pages 620-636, May.
    9. Socha, Karolina, 2014. "Mixed reimbursement of hospitals: Securing high activity and global expenditures control?," DaCHE discussion papers 2014:3, University of Southern Denmark, Dache - Danish Centre for Health Economics.
    10. Zeynep Or & Thomas Renaud & Laure Com-Ruelle, 2009. "One price for all? Sources of cost variations between public and private hospitals," Working Papers DT25, IRDES institut for research and information in health economics, revised May 2009.
    11. Anne Mason & Marisa Miraldo & Luigi Siciliani & Peter Sivey & Andrew Street, 2008. "Establishing a Fair Playing Field for Payment by Results," Working Papers 039cherp, Centre for Health Economics, University of York.
    12. Sara Jamalabadi & Vera Winter & Jonas Schreyögg, 2020. "A Systematic Review of the Association Between Hospital Cost/price and the Quality of Care," Applied Health Economics and Health Policy, Springer, vol. 18(5), pages 625-639, October.
    13. Baxter, Pamela E. & Hewko, Sarah J. & Pfaff, Kathryn A. & Cleghorn, Laura & Cunningham, Barbara J. & Elston, Dawn & Cummings, Greta G., 2015. "Leaders’ experiences and perceptions implementing activity-based funding and pay-for-performance hospital funding models: A systematic review," Health Policy, Elsevier, vol. 119(8), pages 1096-1110.

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