No. 45: Activity-Based Funding of Hospitals and Its Impact on Mortality, Readmission, Discharge Destination, Severity of Illness, and Volume of Care: A Systematic Review and Meta-Analysis

Palmer KS, Agoritsas T, Martin D, Scott T, et al. (2014) Activity-Based Funding of Hospitals and Its Impact on Mortality, Readmission, Discharge Destination, Severity of Illness, and Volume of Care: A Systematic Review and Meta-Analysis. PLoS ONE 9(10): e109975. doi:10.1371/journal.pone.0109975


Activity-based funding (ABF) of hospitals is a policy intervention intended to re-shape incentives across health systems through the use of diagnosis-related groups. ABF was originally designed in the US and implemented there starting in 1983. Three provinces – Quebec, Ontario and British Columbia – are now implementing ABF in hospitals and other provinces are watching with interest.


This study focused on how ABF affects six key measures, each with the potential to affect patients and health care system capacity: acute care mortality (AC mortality); and post-acute care mortality (PAC mortality); readmission rates; discharge destination measured by discharge to post-acute care (PAC) following hospitalization; severity of illness; and volume of care.

The study followed classic systematic review methodology. Eligibility criteria included studies providing original analyses of quantitative data that compared the impact of ABF versus alternative funding systems implemented in acute care settings (hospitals and non-hospital medical or surgical facilities) published in any language.

Three study designs were included: before-after studies in single jurisdictions (before ABF vs. after ABF implementation); parallel group studies in multiple jurisdictions (jurisdictions without ABF vs. jurisdiction with ABF); or a combination of both designs (e.g. difference-in-difference analyses, time-series). Studies that did not include a comparator group in which ABF was not implemented were excluded. Editorials, letters, news, and notes as defined by the databases, were excluded.

The search was limited to articles published from 1980 through 2012. Studies were identified through 9 electronic bibliographic databases. In addition to electronic databases, reference lists of eligible studies and those of previously published reviews, books, websites, policy papers, personal files were hand-searched, and experts were consulted.

Sets of paired reviewers independently screened for eligibility, abstracted data, and assessed study credibility according to a pre-defined scoring system, resolving conflicts by discussion or adjudication.


The main limitation of this review lies in the deficiencies of the primary studies. Low credibility of many studies limits strong inferences from the evidence. However, the authors assessed whether higher quality studies yielded different results than lower quality studies. This was not the case, suggesting that inferences can be drawn from the whole body of evidence.


This is the first systematic review of the impact of activity-based funding on the outcomes studied, amassing worldwide evidence from the last 30 years.

Systematic search found 16,565 unique citations, of which 65 studies were eligible studies: 50 US studies and 15 studies from nine other countries (i.e. Austria, Australia, England, Germany, Israel, Italy, Scotland, Sweden, Switzerland, US)

Results show a 24% relative increase in discharges to post-acute care after an acute hospital stay; no systematic impact on mortality or volume of care (though results varied); and a possible increase in readmission and severity of illness (both highly variable). Increase in severity of illness may or may not be attributable to differences in coding, with some evidence highly suggestive of inappropriate upcoding to maximize hospital reimbursement.


“Sicker and quicker” discharge from hospital is not necessarily undesirable, assuming there is sufficient publicly-funded post-acute care capacity in the community to meet the demand. Since we have traditionally kept patients in hospital until they are well enough to go home, our post-acute care capacity is limited. Although Canada has publicly-funded hospital and physician care, funding for home care, rehabilitation care, or other forms of intermediate post-acute care in the community is a mixed public-private enterprise. Increased pressure on post-acute care capacity in communities, of the magnitude suggested by this study, could seriously undermine equitable access in Canada, unless accompanied by substantial increases in public funding. Such a large increase in post-acute care admissions might also offset any potential savings from the shorter length of hospital stay associated with ABF.

The ABF story provides testimony to how modifications in health policy without adequate evaluation leave their impact open to great uncertainty. The variation in results across studies suggests that the impact of ABF may differ across settings, though the evidence does not provide many clues about the determinants of differential effects. Evidence on the variables studied neither supports strong advocacy for, nor strong rejection of, a change to ABF from other hospital funding methods.

A dearth of consistent and conclusive evidence on the outcomes studied does not allow a jurisdiction to predict if ABF would be harmless. Decision-makers considering adoption of ABF should be aware of the anticipated increase in admissions to post-acute care and other possible unintended adverse consequences that may arise. The authors conclude shifting to ABF takes a “leap of faith”.

This study should give pause to governments currently implementing ABF, and others considering it. Policymakers should consider the implications for patients; hospitals; post-acute care capacity; human resources; public funding; equitable access to care; costs not only to hospitals but to the whole health system, and stewardship of the health care system.



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