Needs{Based Health Care Funding: Implications for Resource Distribution in Ontario

Capitation models have been suggested as an alternative to funding methods based on historical utilization patterns. Capitation funding distributes resources to regions or programs according to their population, adjusted for the age and gender composition and relative need. The most commonly used relative needs measure is the Standardized Mortality Ratio (SMR). This paper compares the distribution of resources in Ontario implied by a variety of capitation formula. Another aspect of this research is to design a mechanism that translates the SMR into a funding allocation index. We specify a non{linear model to capture the relationship between current expenditures and the SMR while controlling for historical utilization factors. In contrast to previous work which has assumed a linear relationship between expenditures and need, our estimates suggest that the relationship may actually be highly non{linear. This non-linearity increases transfers to regions of relative need relative to a linear capitation program. The authors thank the National Health Research and Development Program (NHRDP) for nancial support. Bedard also thanks the Canadian International Labour Network (CILN) at McMaster University, and Roberts thanks the Social Science and Humanities Research Council of Canada for nancial support. We thank John Burbidge, David Feeny, Paul Grootendorst, and four anonymous referees for helpful comments. We are grateful to D. O'Mahonie, P. Brenders, M. Zwyer, and S. Charbonneau at the Ontario Ministry of Health for providing us with data.