An economic analysis of money follows the patient

Abstract

Introduction

As part of the proposed changes to re-design the Irish health-care system, the Department of Health (money follows the patient—policy paper on hospital financing, 2013b) outlined a new funding model for Irish hospitals—money follows the patient (MFTP). This will replace the existing system which is predominately prospective with hospitals receiving a block grant per annum. MFTP will fund episodes of care rather than hospitals. Thus, hospital revenue will be directly linked to activity [activity-based funding (ABF)].

Theory and literature review

With ABF there is a fundamental shift to a system where hospitals generate their own income and this changes incentive structures. While some of these incentives are intended (reducing cost per case and increasing coding quality), others are less intended and less desirable. As a result, there may be reductions in quality, upcoding, cream skimming and increased pressure on other parts of the health system. In addition, MFTP may distort health system priorities. There are some feasibility concerns associated with the implementation of MFTP. Data collection, coding and classification capacity are crucial for its success. While MFTP can build on existing systems, significant investment is required for its success. This includes investment in coding and classification, infrastructure, skills, IT, contracting, commissioning, auditing and performance monitoring systems.

Conclusions

Despite the challenges facing implementers, MFTP could greatly improve the transparency and accountability of the system. Thus if the downside risks are managed, there is potential for MFTP to confer significant benefits to Irish hospital care.