OHA Analysis of Ontario 2005 Budget

For the Attention of Hospital CEOs, Board Chairs, CFOs, OHA Board of Directors and CACN Members

From Hilary Short, President & CEO

2005 Ontario Budget
Yesterday, Ontario Finance Minister Greg Sorbara presented the 2005 Ontario Budget in the legislature.

Participating in this year's Budget Lock-up were: Sheila Jarvis, OHA Board Chair, Mark Rochon, Chair, OHA Advocacy Committee, Hilary Short, Steve Orsini, Lou Reidel and Christopher McPherson.

Sheila Jarvis and Hilary Short addressed the media immediately following the Budget speech. In addition, Mark Rochon chaired a teleconference with Members to provide an assessment of the Budget as it relates to hospitals.

The OHA also issued a news release to the media.

The 2005 Ontario Budget made clear that restraining health care spending is a priority for the Government.

"Growth in health care spending that exceeds growth in revenue can only "crowd out" available funding for other programs, services and investments, ultimately threatening the long-term economic growth potential of the Province. Health care expense must more closely align with the rates of growth in Provincial revenue to address the structural deficit. The government’s medium-term fiscal plan is based on lowering the rate of growth in health care spending to be more in line with economic and revenue growth."¹

OHA's Budget Analysis
Hospital Operating Funding - 2005/06:
The 2005 Ontario Budget Papers clearly show that total hospital operating funding for 2004/05 included more than $400 million² in one-time funds, for a total of $11.9 billion.³

As a result of the one-time funding, the total funding shortfall for hospitals in 2004/05 was reduced to $200 million from earlier projections. However, since a large portion of this one-time funding went to ongoing programs and services that carry over to the next year, hospitals started the 2005/06 fiscal year with an estimated $300 million shortfall -- even before factoring in this year’s cost increases.

The 2005/06 Budget allocated $12 billion for hospital operating funding (which includes what is characterized as a $504 million base allocation increase). However, after factoring in one-time funding from last year, the net new funding increase for hospital operating funding is roughly $100 million, or less than a 1% increase over 2004/05.

The $12 billion in hospital funding for 2005/06 includes funding for wait times, medical and diagnostic equipment, annualization of programs started in 2004/05, new post-construction operating plan funding, other priority program funding and an undefined amount for inflationary pressures. Hospitals received $11.9 billion last year for essentially the same basket of program and services, yet face another year of higher costs.

Assuming hospitals receive $12 billion in funding for 2005/06, hospitals could still require up to $500 million in additional funding to provide essential patient services and meet the Governments’ 2005/06 balanced budget deadline. In other words, no matter how you look at the Budget announcement, hospitals will need to consider some very significant and sizeable cuts to programs and services in order to balance in 2005/06.

The Budget also announced that hospital operating funding will increase to $13 billion in two years in 2007/08. However, the amount going to hospitals in operating funding in 2006/07 was not disclosed in the Budget or by Ministry staff during the Budget Lock-up.

Comparison of Year-to-Year Funding Increases
The table below compares the 2004/05 funding increase for hospitals with the 2005/06 "base" funding increase for 2005/06.

Last Year - 2004/05
The $470 million in funding is broken down as follows:

$200 million or 1.8% increase to be distributed using the JPPC Integrated Population Based Allocation (IPBA) funding formula, including a 1% floor;
$90 million for priority programs (directed to volume only);
$77.3 million for operating pressures;
$50 million for the annualization of previously expanded services at restructured hospitals (with virtually no money for new PCOPs);
$30 million for staff stabilization; and
$22.8 million for critical care programs.

$220 million in Transitional and Year-End Funding is broken down as follows:·

$89 million for operating pressures and performance·
$91 million for labour adjustment·
$20 million for peer review hospitals·
$20 million year end funding for operating pressures

Total Operating Funding Increase: $690 million

This Year - 2005/06
The $504 million in "funding increase" will need to cover the following cost pressures:

$300 million in funding shortfalls that hospitals are carrying over into 2005/06 from last year;
New wait time volumes announced in the Budget (no funding details provided in Budget);
Other priority programs increases (no details provided in Budget);
Annualization of previously expanded services at restructured hospitals and any new money for new PCOPs (no details provided in Budget);
Funding to address unique pressures such as growth, teaching, small/rural hospitals, multi-site facilities, specialty facilities (no details provided in Budget); and
General inflationary pressures (no details provided in Budget).

Hospital Negative Working Capital:
On February 24, 2004, Minister of Health and Long-Term Care George Smitherman promised to address the problem of hospitals’ accumulated $721 million in negative working capital.

On June 30, 2004, in a meeting with the OHA and Minister Smitherman, Premier McGuinty assured OHA representatives that the accumulated negative working capital issue would be addressed in the 200/06 fiscal year.

The 2005/06 Ontario Budget is silent on this issue.

Capital Project Funding:
The government announced a five-year infrastructure renewal plan that speaks of major new capital investments in health, education and the economy. The total value of these investments is more than $30 billion. However, no details were provided beyond the following statement:

"Funding new, upgraded and expanded hospitals to reduce wait times, provide better services in high growth areas, and modernize older hospitals"⁴.

Service-Based Funding:
The Budget committed the Government to providing hospitals with multi-year service-based funding.⁵ This is a positive development, and one that the OHA has long advocated for.

Balanced Budget Deadline:
This Budget did not indicate any change to the Government’s March 31, 2006 deadline for hospitals to balance their budgets.

Supply Chain Management:
The Government recognizes the work hospitals have undertaken to improve system sustainability through better supply chain management, particularly, the Hospital eSupply Chain Project.⁶

Next Steps
An All Members Forum will take place on May 25 from 1:00pm to 4:00pm in Toronto. The 2005 Ontario Budget will be on the agenda, along with other issues.

For more information on this Bulletin or the All-Members Forum, please contact Steve Orsini, Vice President, Policy, Public Affairs and Member Communications at 416-205-1339 or sorsini@oha.com or Lou Reidel, Director of Policy and Research at 416-205-1320 or lreidel@oha.com

Questions related to communications materials and strategy can be directed to Chris McPherson, OHA Public Affairs at 416-205-1305 or email cmcpherson@oha.com

¹. 2005 Ontario Budget Papers, page 30.
². This figure includes the diagnostic and medical equipment funding announced by the Government of Canada in September 2004.
³. 2005 Ontario Budget Papers, page 43.
⁴. 2005 Ontario Budget Papers, page 113.
⁵. 2005 Ontario Budget Papers, page 22.
⁶. 2005 Ontario Budget Papers, page 45.