PEI 1997 Lomas and Rachlis

Jonathan Lomas Michael M. Rachlis

Moving rocks: block-funding in PEI as an incentive for cross- sectoral reallocations among human services

Abstract: In 1993, Prince Edward Island introduced block-funding to five Health and Community Services regional boards for all human services except education. We view this as the introduction of a financial incentive (or removal of a disincentive) to undertake cross-sectoral reallocations to address the broader determinants of health. We use case-study methods to evaluate the way in which this incentive was communicated from policy makers to the regions, how the regions interpreted the policy makers’ signals, and how the regions responded. The block-funding incentive became a ”fuzzy” signal to the regions, because it was communicated as part of a larger reform package that included expenditure reductions, devolved governance, and the need for integration and coordination. Nevertheless, the regional boards interpreted the block-funding as facilitating cross-sectoral reallocations, but because of various concerns, including opposition expressed by their employee providers, as well as their physicians and the public, they moved only cautiously to exploit the incentive. Most regions focused more on enhancing administrative efficiency through integration and coordination than on cross-sectoral reallocations to address the determinants of health. Finally, lessons for other jurisdictions are outlined based on the PEI experience.

Sommaire : En 1993, I’ile-du-Prince-Edouard a adopt6 le mode de financement en bloc

Jonathan Lomas has a master of arts degree and is professor in the Department of Clinical Epi- demiology and Biostatistics, McMaster University, and the Centre for Health Economics and Policy Analysis. Michael M. Rachlis is a doctor of medicine and has a master of science degree. He is assistant professor in the Department of Clinical Epidemiology and Biostatistics, McMas- ter University. This study would not have been possible without the exemplary research assistance of Sameer Kumar. We are also grateful for the help of Mita Giacomini and Laurie Goldsmith, overall leader and coordinator of the larger project, “Financial Incentives in the Canadian Healthcare System,” of which this was a part. Funding for the project was provided by Health Canada through the National Health Research and Development Program. Useful comments on an earlier draft were provided by John Eyles and Jerry Hurley. Finally, the time and assistance provided by all our interviewees in Prince Edward Island were central to our ability to complete the analysis, and any misrepresentations that may remain after their input and feedback is our responsibility alone. The Journal’s anonymous referees are gratefully acknowledged.

CANADIAN PUBLIC ADMINISTRATION / ADMINISTRATION PUBLIQUE D U C A N A D A VOLUME 39, NO. 4 (WINTER/HIVER) , PP.581-600

582 JONATHAN LOMAS A N D MICHAEL M. RACHLIS

en ce qui concerne cinq Conseils regionaux de services de sante communautaires, pour tous les services humains sauf l'education. A notre avis, il s'agit 11 d'un incitatif financier (ou de l'elimination d'un anti-incitatifl pour entreprendre des reallocations entre les secteurs afin qu'on s'occupe des elements plus fondamentaux qui determi- nent la sante. Nous utilisons des methodes &etude de cas pour Cvaluer la maniPre dont cet incitatif a et6 communique par les decideurs politiques aux regions, la maniPre dont les regions ont interpret6 ce que leur disaient les decideurs, et la reaction des regions. L'incitatif de financement en bloc est devenu un signal wague)) pour les regions parce qu'il faisait partie d'un ensemble de rCformes plus vaste comprenant la rCduction des depenses, la gkrance decentralisee et le besoin &integration et de coordination. Neanmoins, les Conseils regionaux ont interpret6 ce financement comme un moyen permettant de faciliter la reallocation entre secteurs, mais i cause de diverses preoccupations, dont l'opposition exprimee par leurs employes, leurs medecins et leur public, ils se sont montrks trPs prudents dans l'exploitation de cet incitatif. La plupart des regions se sont concentrbes davantage sur l'efficacite administrative que permettaient l'integration et la coordination plutbt que sur les reallocations entre secteurs afin de s'occuper des determinants de la sante. Enfin, on mentionne des leqons que peuvent tirer d'autres territoires en fonc- tion de l'expkrience dans l'ile-du-Prince-Edouard.

In October 1993, the Prince Edward Island government implemented a new Health and Community Services Act that radically altered the structure and underlying principles for human services delivery in the province.' This act was based on the work of a task force from the previous y e a s and an implementation paper.3 These reports recommended refocusing on the broad determinants of health, pooling human services funding and establishing regional governance.

Similar recommendations are found in numerous academic, provincial and federal reports of the last decade in Canada.4 Health-policy analysts have focused recently on the need to address both the broader determinants of health and to break down "silos" by doing cross-sectoral reallocations within a fixed b ~ d g e t . ~ Prince Edward Island, however, has gone further than any other province by enabling a new institutional structure to tackle the broader determinants of health using a consolidated block-fund made up of the previously separate budgets for hospitals, other health-care programs (excluding physicians' services and pharmaceuticals), addictions, social services, child welfare, income security, public housing, and probation and corrections. The combined budgets for these programs are now under the control of five regional boards. The boards are responsible for the delivery of a list of core programs, but the provincial planning documents encourage them, as much as possible, to broadly reallocate funds in line with the recognized determinants of health.

Prince Edward Island's experience with block-funding for human services has broader relevance to the rest of Canada, for four reasons. First, there is a general move by governments to devolve responsibility for social policy by

BLOCK-FUNDING IN PEI 583

providing increased authority over combined but reduced budgets. For instance, in its 1995 budget, the federal government merged its provincial transfers for health and post-secondary education (under the Established Program Financing Act) with the transfer program for social assistance (under the Canada Assistance Plan), creating a "block-fund" called the Canadian Health and Social Transfer (CHST). Some of the previous restric- tions on the use of these funds have been eliminated. Although the federal government will decrease the overall cash transfers by approximately $5.2 billion from 1995-96 to 1997-98, the provinces do have an opportunity to reconsider the way in which they allocate their social-policy resources.

Second, in terms of addressing the broad determinants of health, the PEI

reforms have the potential to move beyond the rhetoric and to change the philosophy behind publicly funded health-care delivery. By block-funding health care with other human services, which previously had separate budgets, an opportunity for the reallocation of priorities is created. The results of this enabling reform, therefore, have relevance for governments contemplat- ing institutional change to address the broad determinants of health.

Ourframework for analysingfinancial incentives .. . was developed to counteract the inadequacies of the classic "s ticks-and-carrots" view

Third, nine provinces have created devolved authorities for their health- care systems.6 Prince Edward Island has devolved authority for the broadest array of services. As other provinces contemplate expanding the scope of services under the authority of their devolved boards, they may find lessons in PEI's experience with block-funding for human services.

Finally, the case study serves to illustrate how political and citizen consid- erations can modify the theoretical outcomes of a planned administrative or financial reform.

This paper analyses PEI's move to block-funding for human services as a financial incentive policy. The case study uses a policy analysis framework for financial incentives that sees them as a communication process in which funding-changes convey a signal from a policy maker to target individuals or organizations - in this case the policy maker is the provincial government and the target, the five regional boards in PEI. The target receives the message conveyed by a funding-change signal, interprets it (not necessarily in the fashion desired by the policy maker) and thereby imbues the funding-change with its incentive (or disincentive) properties. Finally, the target responds, thus returning a message to the policy maker, and the cycle of adjustment, accommodation and/or coercion continues. Our framework for analysing

584 JONATHAN LOMAS AND MICHAEL M. RACHLIS

financial incentives is discussed more fully elsewhere7 and was developed to counteract the inadequacies of the classic “sticks-and-carrots” view.

After describing the methods of the case study, we outline the overall context for the introduction of block-funding. Then the funding-change is described according to the components of the framework - description of the signal, its communication and interpretation and the response to it. Finally, some of the conclusions from the PEI experience are discussed in a national context.

We recognize that there may be limits to the generalizability of our case- study findings, for at least two reasons. First, the size of PEI (total population approximately 130,000) may lead to somewhat unique approaches to informal communication, adaptation processes and so on. Second, we were undertaking investigation of a major structural and philosophical change only eighteen months after its initiation. Too little time has elapsed for the full impact of the new financial incentive to be realized. This is, therefore, largely a case study of policy implementation.

Met hods We used recognized case-study methods? and the analysis included a review of legislation, provincial and regional documents, and newspaper clippings from 1991 to 1995. In addition, we conducted interviews and obtained interviewees’ feedback on our initial drafts. Also, the authors have made regular visits to the island as consultants to the overall evaluation of the reforms. A detailed description of the methods, interview process, interviewees and document review is available elsewhere;’ what follows is a brief outline.

Interviews Twenty interviewees were selected from three distinct levels: the provincial policy makers (nine), the regional authorities (six, from two of the five regions) and local stakeholders (five). All those approached agreed to the interviews, which were conducted by telephone between July and August 1995, using a semi-structured interview instrument.

The interviewees were sent a list of possible questions in advance, which familiarized the interviewee with our issues of interest. Interviews covered the relative roles of central and regional levels of governance, the philosophy behind the funding-change and the other reforms, the signal communicated by policy makers to the regions, the signal as interpreted by the regions, the response of the regions, and the major constraints faced by the system.

Document review In addition to the legislation initiating the changes, we used three types of


resource documents: policy documents, budget materials and newspaper clippings. The policy documents provided a comprehensive history of the reforms and ranged from the preliminary reports made by the PEI Task Force on Health in 1991 to the Health and Community Services System "Pro- vincial Plan" presented in June 1995. The budget materials were the annual reports for the fiscal year 1994-95 for each of the regions and for the newly created central Health and Community Services Agency (see below). Finally, newspaper clippings dating back to 1992 from the two daily papers in the province were reviewed. We compiled these clippings from two sources: the in-house library of PEI's largest hospital and the province's Ministry of Health and Social Services.

Validation of the analysis Once the first draft of the analysis was complete in late 1995, it was sent for fact-checking and feedback to a representative cross-section of six interviewees. Five responded, and all indicated that the draft was generally fac- tually accurate and a reasonable representation of events. Any inaccuracies were corrected before finalization of the analysis presented here.

The reform package The details of the reforms in PEI are contained in government documents" and published reports." What follows is a brief summary of the salient structural changes and the reforms' philosophical underpinnings.

Structures The Health and Community Services Act of 1993 established five regional boards and two new central bodies - the Health Policy Council and the Health and Community Services Agency. The Ministry of Health and Social Services was substantially changed, with approximately 2000 staff reas- signed to the regional authorities (public health, psychiatric staff, etc.) and approximately 120 to the two new central bodies, leaving the department with only 80 employees.

In narrow terms, the P E l funding-change had one enabling element: the provision of a single blockfund to replace previously insulated human-services budgets

As described in the legislation and supporting documents, the Ministry of Health and Social Services provides broad policy guidelines and an overall budget to the Health and Community Services Agency. It is also responsible €or intergovernmental affairs and evaluation. The Health Policy Council


provides arms-length strategic policy advice to the minister, sets broad health goals, and offers an environment for communication between providers, communities and individuals. The agency allocates a budget to each region and to provincial-level programs, defines core services, sets and negotiates human-resource payments and polices, and provides program development and support to regions. With 100 to 120 employees, it is the largest of the three central policy-making bodies.

The remaining functions of delivering and managing the services, employing the salaried service providers, assessing regional needs, setting regional priorities, and allocating the regional budgets are the responsibility of the five regional authorities. They cover population bases as large as 60,000 (Queens Region) or as small as 7,000 (Southern Kings Region). Other boards (e.g., hospital boards) were eliminated, coincident with the establish- ment of the regional authorities. The minister of health is responsible for appointing board members to the regions, the council and the agency, although by 1999 the regional boards are to be directly elected. The regions currently have boards of at least seven members. The agency also has a board comprising one nominee from each region, a province-wide member- at-large, and four representatives of service-provider groups. The council has an appointed board of twelve members representing occupational groups, regions, service recipient groups, and members-at-large.

Philosophy In addition to recognizing the importance of addressing the broad determinants of health, the reform documents and the policy makers also stressed one or more of the following objectives:

1. More prima y and community-based care. There was a need to have available a broad array of both service providers and programs through delivery organizations such as community health centres (indeed, the reform plans include as-yet unim- plemented community health centre pilot projects).

2. Improved effectiveness and eficiency. These were seen as being achieved within institutions via utilization management and also between institutions and services via integration and coordination.

3. Needs-based planning. Need assessments, conceived in broad value terms as principles and in specific provision terms as services, were seen as a cornerstone of the regional planning and priority setting.

4. lncreased personal responsibility. Calls were made to encourage improved lifestyle choices, awareness of the costs of using services, use of family and community volunteer resources, and responsibility for the welfare of children, families and the community.

5. Community empowerment. Involving more community members in more of the decision-making was not only seen as a means of achieving some of the goals but also as a laudable goal in itself.


Finally, coincident with the reforms was fiscal restraint. For instance, in the first full year of the reforms, there was a 7.5-per-cent rollback in public- sector salaries and physicians’ fees. In 1994-95, a three-year business plan was set ”that [would] save 2.06% of the entire [$796-million, three-year] budget of the Health and Community Services System.””

The signal We can ask three questions to describe a funding-change: “What is being paid for?“ “How and when are payments made?” and “Who is paid?” In narrow terms, the PEI funding-change had one enabling element: the provision of a single block-fund to replace previously insulated human-services budgets. However, in broader terms there was a prior predisposing element: recognition of the influence of broad social determinants, as well as health care, on a community’s health. Using the three descriptive questions, we explore below how this was formulated into a specific signal.

“What is being paid for?” Before the funding-change, the provincial Ministry of Health and Social Ser- vices paid citizens or provider organizations directly for individual service categories such as ”income security,” “hospital care,” “addiction services,“ ”public housing” and so on. Over time, the development of entrenched interests meant that the focus was less on meeting needs and more on sus- taining (and sometimes developing) multiple independent service programs. Since the reforms, the regional authorities have been paid to deliver a package of core services defined in broad terms on the basis of provincial needs and to invest public funding in additional areas deemed a priority on the basis of local needs assessment.

The core programs are broadly defined (e.g., “oncology,” ”home care and support services,” “detoxification and rehabilitation,” “welfare assistance,” ”crime prevention”). Essentially, the core services subsumed all publicly funded human services except education. The report on core services (pre- pared under the auspices of the agency in collaboration with the regions and major community “stakeholder” organizations) stated that ”the descriptors of core services and the process set in place for adjustments must have flexi- bility and be established under the spirit of adaptability to assure that change and innovation occur.”“?

The provincial policy-makers believe that they are paying the regions to meet local and provincial needs, and that these needs should be defined and prioritized in a relatively formal fashion. The extent to which regions fail in this responsibility is the extent to which the agency feels justified in stepping in and/or reducing their discretion over budget allocation decisions. Cur- rently, the agency is using services as a way of expressing their expectations,


but they intend, as the data and monitoring systems develop, to move more towards outcomes. As one policy maker said, ”Over time the ’core services,’ that were developed on a historical basis, should be changed to ‘core outcomes.’ I don’t care if in a particular region there are five beds or fifty beds, as long as the final outcome is achieved.”

“How and when are payments made?” As an incentive the block-funding mechanism in PEI has little in the way of built-in penalties or sanctions. The level or frequency of funding is not currently tied to judgements of the extent to which the regions are successful in meeting their population’s health needs. Indeed, unlike Saskatchewan’s needs-based funding formula for passing revenue to its district health boards,14 a region’s budget is largely determined by historical flows into that community and is not related yet to any formal assessments of the level of need in the region.

The regions, therefore, have no inherent incentive other than the new ability (but not requirement) to move funds across previously impermeable categories. One potentially important characteristic is that a region can retain any surplus that it generates for use on its self-defined priorities. Regions must, however, also absorb any deficits. This process is aggravated by the broader fiscal restraint policies in the province, which have actually reduced the funds available to the regions.

“Who is being paid?” The creation of the regional authorities is, perhaps, the most significant element of the financial incentive. Inherent in this move was a signal that the old separation of ”silos” was being challenged, and the regions were being encouraged to develop new alliances and innovative services. For example, because the independent boards were abolished and replaced in their governance roles by the regional board, in theory this placed small social-service programs, home-care programs and the like on an equal footing with the hospitals.

Nevertheless, the regional authorities as organizations are more than the board members and their immediate administrative support staff. They also encompass the employees who are delivering and administering all the services and programs in the region. Viewed in this way, it is possible to see that the new formal element of the organization - the board and administrative support staff - have been largely grafted on to the historical “informal organization” of human-service providers and managers in the region. The block-funding incentive is, therefore, principally directed at the board and their administrative support, whose task is then to reconfigure their resources (largely employees) in innovative ways.

It is not surprising, therefore, to see that the “members” of the organiza-

BLOCK-FUNDING I N PEI 589

tion, the employees, are potentially unwilling participants in the new game. As one union official said, “A system of regional boards could pit region against region in a scramble for dollars. Even within a region, hospitals, clin- ics, and prevention programs will all be looking for their share.” This union official obviously saw the creation of the regional boards with the freedom of block-funding as more of a threat than as the opportunity envisioned by the policy makers.

Communication of the block-funding financial incentive signal

The regions began to hire staff in the fall of 1993. In the first few months of 1994, citizens were appointed to the regional boards. The new staff and board members received considerable information about the philosophical underpinnings of the reform (e.g., community empowerment, integration and coordination, new service-delivery models). The potential offered by block-funding for innovative reallocations was just one of these messages.

There were no clearly established health outcomes that the regions could achieve. The agency document on core services was merely an inventory of services that were already being delivered. The Health Policy Council outlined draft health goals in December 1994,’5 and, in June 1995, the agency unveiled actual goals.I6 However, none of the goals articulated actual health outcomes that could be achieved. Rather, they included recommendations for a series of structures and processes, many of which were already underway.

In these initial stages, the agency kas been cautious in ceding or signalling too muck discretion to the regions until it is reassured that regions will conduct themselves responsibly (i.e., in line with overall provincial objectives)

The situation was further exacerbated by the simultaneous creation of two new central organizations (the Health Policy Council and the Health and Community Services Agency) and a new role for the Ministry of Health and Social Services. The roles for the organizations were somewhat blurred. Each wanted to assert its own role, and each gave different emphases to the various expectations of the regions. Table 1 lists the five core expectations, according to the policy-making organization, and demonstrates the extent to which the emphases on these varied.

Regional officials sifting through the reform documents and listening to comments from policy makers had to decide how to deal with these often- competing expectations. They were also listening to their communities, which had expectations of their own. They did this either informally


Table 1. Different emphases of policy maker’s expectations

Ministry of Health/Provincial 1. ‘You decide things in the regions

2. ”Improve effectiveness and efficiency.” 3. ”Do community development.” 4. “Improve integration and coordination

5. “Improve health by addressing broad

Government with reduced budgets.“

Health and Community Services Agency

and reduce duplication.”

social determinants.” Health Policy Council

through ”consultation” or formally through ”need assessments.” Some in the community knew little about the nuances of reform and expressed concern over expected closures (e.g., manor (nursing) homes or hospital beds). They were often more interested in retaining the services they knew than in designing or supporting new allocations. Nevertheless, many of the formal needs assessments reveal that community members do see one of the best assurances of health as having a job, and they are, therefore, supportive of job-creation and economic development activities by the regional boards.

Finally, the staff and board members in the regions were receiving some solicited and much unsolicited advice from affected interests. These included physicians, hospitals, service agencies and the unionized workers who (with the exception of physicians) were now the region‘s employees. The expectations of these groups also had to be accommodated, but their interests were often in opposition to the planned directions of the reforms.

Under these circumstances, it is not difficult to see that the signal inherent to block-funding - that innovative reallocations could be made across historically insulated budget categories to address the broad determinants of health - was fuzzy and lost in a melee of other signals and expectations.

When the policy makers were questioned about the purpose of the reform during our interviews, most of them included the block-funding as one, if not fhe, major enabling component. However, they were more likely to see block-funding as enabling integration and coordination rather than the development of new programs or major cross-sectoral reallocations. As one stated, “Integration and coordination of services really are the essence of the reform, and this is achieved through the block-funding mechanism.” Four themes emerged to explain the relatively fuzzy and muted communication of the signal:

1. Lack of champions. There were no champions of cross-sectoral reallocations, or those that were initial champions had moved on to other tasks by the time the reform was being implemented. This contrasts with the signals for integration and coordination or for community empowerment or individual responsibility or fiscal restraint, for which both central policy maker and other champions existed.

BLOCK-FUNDING IN PEI 59 1

2. Agency caution. The agency, through its program development and core services role, can greatly influence the degree of discretion the regions have for budgetary allocation. In these initial stages, the agency has been cautious in ceding or signalling too much discretion to the regions until it is reassured that regions will conduct themselves responsibly (i.e., in line with overall provincial objectives). Even within the agency, however, current estimates of the discretionary portion of the regions’ budgets varies between zero and thirty per cent.

3. The imperative offiscal restraint. The intention of the reforms was both to signal and allow for the broader determinants of health to be addressed by integrating the budgets of the different ministries. However, the reforms were overtaken by fiscal restraint as an imperative. As one of the policy makers said, ”When we put this plan together we didn‘t have the panic we have now with a shrinking budget, and we expected things to move faster.”

4. Hiiman resoiirce transitions. Arranging for the transition of numerous unionized workers to employee status with the boards was a fractious and time-consuming task. This dampened any central signals in favour of cross-sectoral allocation and made the process more logistically difficult in the regions: “One of the main obsta- cles [to implementation] has been reconciling union jurisdictions so that it even becomes possible that employees can be transferred from one service to another.”

In summary, there are at least three general explanations for the fuzzy nature of the signal’s communication. First, the potential of block-funding was but one of a number of expectations signalled to the regions; it was embedded in a large package of reforms. Second, the regions faced many pressing demands associated with the creation of a new organization during a time of fiscal retrenchment. This further blurred the signals associated with the implementation of block-funding. Third, the very fact that block- funding was potentially such a powerful reallocation tool led some central policy makers to be cautious about signalling its potential until they ”trusted” the regions.

The interpretation of the signal by the regions

Officials in the regions acknowledged that the signal’s interpretation was hampered by its fuzziness. As one regional official stated, “The policy makers haven’t suggested emphasizing one priority over others. ... In terms of transferring funds from one service to another, it is much easier to do than before, but the government is neither encouraging nor discouraging it.”

Nevertheless, a fairly consistent interpretation that matches the desired signal still emerged from our interviews with boards members and administrative support staff in the regions. As one said, ”Block-funding is funda- mentally a good idea, because by putting all the relevant agencies under one umbrella we are able to provide a more comprehensive and holistic approach to health care.”

This, however, is in contrast to the employee ”members” of the new


regional organization, many of whom interpret the changes cynically. One of the union representatives described the changes to the press in 1993 as “a smokescreen for achieving government‘s deficit-reduction objective.” Simi- lar comments emerged from our own interviews with union and association representatives. However, it should be noted that many (but not all) of these “stakeholders” went on to comment that they generally agreed with the stated (non-fiscal) thrust of the reforms.

[T]he employees or “members” of the organization ... overwhelmingly interpreted block-ftlnding of the regions as a way for government to reduce expenditures zoithout having to take the political heat for service reductions

In contrast, the boards and administrators of the regional authorities generally saw block-funding as both an opportunity to address the determinants of health via reallocations and a way of facilitating much-needed integration and coordination for a ”seamless system of service delivery.” The determinants of health interpretation resonated well with the excite- ment of a new challenge felt by the regional boards. The philosophical shift is also congruent with the wide-ranging mission statements the regions had adopted.I7 The possibility of cross-sectoral reallocation gave the boards and their senior administrators a vision for their new organizations. Further- more, the interpretation that “integration and coordination” were needed (and that block-funding could facilitate it) reinforced the requirement for administrative skills - precisely the skills that senior staff brought to the job. For the “core” of the organization, therefore, the signal from block-funding resonated strongly with their predilections, their task and their skills.

Not so for the employees or ”members” of the organization. They overwhelmingly interpreted block-funding of the regions as a way for government to reduce expenditures without having to take the political heat for service reductions.” Some of them also saw the signal as a shift from institutional to community-based care, and they interpreted this positively, if employed in community-based care, and ”cautiously,” if employed in institutional care. For instance, one said that ”it is happening too fast, and old programs are being trashed before new ones are put in place in the community.” Given that expenditure reduction in a labour-intensive area such as human services means either lay-offs or reduced incomes for employees, i t is hardly surprising that most signals were interpreted through green- back-coloured glasses. The coincidence of marked fiscal restraint with block-funding inevitably leads to difficulties in trying to get any signal communicated other than “spend less.” Cynical employees who are sharing the (fiscal) pain find it difficult to focus on health gain.


Despite this wet fiscal blanket, there was still some energy left for other, more positive interpretations. And those in community-based services and in historically more marginal areas, such as mental health, saw the signal as providing new opportunities for them. ”Primary care” feels more highly valued. Acute institutional care feels that both its relative status and its finances are under siege. Hence, hospitals and their employees (under regional authorities’ governance) and physicians (not under regional authorities’ governance) tended to interpret the signals most cynically; other service providers were somewhat more optimistic, interpreting block-funding as a chance to redress some historical imbalances.

Response of regions to the reallocation potential of block-funding

Despite the ambiguity of the signal from the central agencies, the regional boards and their administrative staff understood that the move to block- funding could facilitate broad cross-sectoral reallocations to support the social determinants of health. Nevertheless, we found few examples of cre- ative reallocations in line with broader determinants of health, although we must reiterate that our assessments were less than two years after implementation.

We had a concrete opportunity to look for reallocations, because the strength of the PEI economy during 1995 (partly because of the construction work on the fixed link to the mainland) resulted in reduced welfare costs. Both the regions in the case study, therefore, had surpluses in their welfare budgets. One of the two regions apportioned this surplus to the acute-care sector, saying that “over the past decade, spending on the acute-care sector has grown exponentially, and it will take time before that is curbed.” One official in this region also noted that ”there has been considerable employee movement across services, such as from community care to corrections.” This reallocation, from welfare to acute care or community-based to institutional care, was clearly in the opposite direction to that implied by knowl- edge of the social determinants of health.

The second of our case-study regions, however, committed a large portion of the welfare surplus to job creation: “Where welfare was once sacred ground, we were able to funnel money away from that into the job-creation determinant of health.” This region also “faced a bit of a crisis [of community and political concern], when we wished to convert the majority of beds in an acute care facility into long-term care beds.”

However, in general, interviewees from both regions agreed that their responses to the block-funding signal have fallen well short of the potential. For instance, one admitted that ”for the most part, there still exists three distinct financial systems: the hospitals, government services [e.g., social services, housing, welfare], and the young offenders and corrections system.


While we manually merge the three together in terms of financial statements, operationally they are still very separate.”

There was, however, general agreement that they had made greater progress on the more administratively oriented integration and coordination potential afforded by block-funding. For instance, one region has “combined social workers who were traditionally in either corrections or addictions, so they can better deal with troubled kids in the province.” The other region has “taken laundry services, which used to be done separately at four different institutions, and made it so that they are all done at one hospital now.” This region has also “instituted regional management for a number of things like housekeeping for hospitals and long-term care institutions.”

[Tlhe region ... must not only incorporate the views of its own (employee) members but also retain reasonable relationships zoith external parties such as the physicians, the politicians who created (and who can abolish) it, and the citizens whom it “serves”

Regional officials explained that public opinion limited their ability to take advantage of the potential afforded by block-funding. The interviewees claimed that widespread understanding and support did not yet exist for the desired changes among the citizens of the region, some of the providers, and even some of the politicians: ”The community still thinks that the hospital is the be-all and end-all of health care. ... It is looking in terms of narrow services instead of illness-prevention in general.”

The recent problems encountered by one regional board in its attempt to rationalize hospital services illustrate these challenge^.'^ The West Prince Region covers the far west of the island and is mainly rural, with two small acute-care hospitals, a half-hour drive from each other. The board proposed rationalizing hospital services by moving acute care to one hospital and leaving the other with long-term care services. The decision as to which hospital should adopt which role consumed the board, as the two communities were pitted against each other, and doctors and opposition politicians casti- gated the board and the provincial government. The board resigned in frus- tration in November 1995 and placed the controversy in the hands of the central bodies. A decision by the central agency to close one of the hospitals as an acute-care site was subjected to a court challenge that maintained only the region had authority to make such a decision.*’ By mid-1996, the situation was resolved, and the court case was avoided when an appointed phy- sician mediator’s decision to recommend that both sites should remain open with acute-care services was accepted. The agency made it clear, however, that no increase in the budget would be provided, and, hence, funds from


other services in the region would need to be redirected to keep both hospitals operating. The province has yet to decide what to do about replacing the West Prince Region board appointees.

As a result of these political challenges, most of the regions appear to be moving cautiously, trying not to get too far ahead of the members of their community nor into too much conflict with physicians and other providers. As one regional leader said, "We must be wise and not rock the boat too much." This comment is a testimony to the region as an organization that must not only incorporate the views of its own (employee) members but also retain reasonable relationships with external parties such as the physicians, the politicians who created (and who can abolish) it, and the citizens whom it "serves."

The two main arguments used to prevent major reallocations by those opposed can be paraphrased as follows: 1) you must invest extra start-up funds in order to innovate, and 2) (particularly from the physicians) you must have evidence for the effectiveness of these alternate investments before pro- ceeding. For instance, one stakeholder we interviewed said, "A system can only be overhauled successfully with an initial infusion of money." On the effectiveness point, the press recently reported that the outgoing president of the Medical Society of PEI said, "We are not objecting to changes [in health care]. We are, however, objecting to changes without evidence."21

Faced with these constraints, the regions are adopting short- versus long- term responses: investing in educating citizens of the region about broader approaches to health, building alliances and consultation mechanisms to get around the opposition of providers, and exploiting the freedom of block- funding to integrate and coordinate some services under the imperative of fiscal restraint. Their interpretations of and responses to the nature of the desired change from block-funding is therefore heavily skewed towards the administrative efficiency and effectiveness goals.

In the longer term, however, the regions hope to reap the harvest of this investment by being able to reallocate in more radical ways, congruent with the social determinants of health. Evidence for this longer-term objective also comes from the work of the PEI System Evaluation Project, which has worked with each region to define objectives for the reforms.22 These are objectives against which each region wishes to be evaluated over the next five years. Of twelve priority evaluation questions, three will require the regions to make significant use of the reallocation potential in block-funding for success.

This longer-term goal will be reinforced if the policy makers in the agency live up to their stated intent to create core outcomes, rather than core services, and if other policy makers assist the regional boards and support staff in building a corporate identity among their members he., regional employees), centred on the social determinants of health.


Discussion The “new public management” philosophy focuses on providing more autonomy and discretion at the local level of service deli~ery.’~ The provision of block-funding for human services to PEI’s regional boards is consistent with this new philosophy. The extent to which the boards have been able to exploit the potential of the block-funding financial incentive for cross-sectoral reallocations is a measure of the success of this new philosophy.

Although our assessment may be somewhat premature, given the initial stage of implementation in PEI, the regions do not yet appear to be exploiting anything like the full potential of the incentive. Their experience with block-funding of human services illustrates that the capacity of an organization (in this case, a regional authority) to exploit a financial incentive is related to far more than the traditional fiscal sticks-and-carrots view. Attempts to move funds across previously sacred program boundaries raise issues of public and service-provider resistance that can more than counteract the apparent attraction of the financial incentive. The first lesson that we would draw from the PEI analysis is that if block-funding is to become a policy tool for innovative programming, rather than another way of obscuring expenditure reductions, other initiatives besides the provision of a single budget are required.

Embedding the call for cross-sectoral reallocation in a policy of fiscal restraint creates potentially insurmountable problems. Provincial policy makers in PEI were trying to communicate both a negative message about economic shortfalls and a positive message about the potential for innovative new program development. This resulted in a muted and sometimes confusing communication of the block-funding signal. It also gave rise to extensive cynicism among those whose cooperation was needed for the allocational innovations (i.e., communities who would lose acute-care services, as well as employees receiving reduced incomes and job security in the health- and human-services sector). It may be impossible for the public to accept change as positive if the process is accompanied by budget cuts. While it would by no means “solve” this problem, it would certainly be ameliorated if the task of communicating budgetary reductions was left solely to finance and treasury officials and if the health and human services policy makers were released to concentrate their communication on the innovative potential of block-funding.

Insofar as the previously ”independent” sectors incorporated into a block- fund are not of equal political and public influence, measures may be needed to create a level political playing field to facilitate desired reallocations. These measures may be broadly educational or specifically regulatory.

All the regional authorities in PEI expressed concern about the lack of readiness of their citizens and of their health-care providers to support moving resources from the downstream cure services to the upstream prevention


approaches. It is probably expecting too much for these regional authorities to take on the needed provider and public awareness and education task alone. This is a task best undertaken by the central policy makers on a juris- diction-wide basis. The traditional education tools of public hearings, task forces and published materials must, however, be supplemented with more "social marketing" elements, if the contents are going to attain the same res- onance with the public as is now achieved by traditional service proponents claiming alleviation of identifiable victims' suffering with identifiable cures.

Regulatory approaches may also be needed. The fact that one of our case- study regions reallocated significant resources away from community services and welfare and towards corrections and acute institutional care seemed to contradict not only the central policy makers' objectives but also the regions' own self-declared philosophy. This contrary reallocation was largely justified on the grounds that it was needed to keep disgruntled and historically advantaged providers happy. This suggests that the regions may, in some cases, need to be "saved from themselves" by being able to point to a central policy-maker regulation that prevents them from reallocating resources in a direction that is contrary to the "new vision." This has been done in Saskatchewan where resources cannot be moved into acute institutional programs, only out of them. (Of course, in times of budget reductions the effectiveness of this valve can be counteracted by merely reducing institutional budgets less than other budgets!) This policy requires serious con- sideration, given the concern expressed in many provinces and voiced by one PEI interviewee: 'The traditional health-care delivery arm will never lose in a head-to-head choice situation."

[Tlhe human resource transition issues of cross-sectoral reallocation cannot be ignored

Equally important may be clearer communication, both of the objectives of providing the allocational freedom of block-funds and of what can feasibly be achieved with such reallocations.

All parties in PEI agreed that the communication of the objective of cross- sectoral reallocation was fuzzy, embedded as it was with many other messages. At minimum, a distinction should have been made between the objectives of integration and coordination for administrative efficiency and of cross-sectoral reallocations to address the broader determinants of health. Block-funding for a pool of human services not only facilitates transfers of resources betrueen sectors (e.g., hospital care to public housing) but also the combination of resources within a sector (e.g., hospitals to home care or insti- tution-specific laundry services to regional laundry services). The information-needs and justifications for these two separate uses of the block-

598 JONATHAN LOMAS A N D MlCHAEL M. RACHLIS

funding tool are quite different and can justifiably be separated in both their communication and conduct. Intrasector reallocations are justified by administrative efficiencies and reorientation of the system towards serving client rather than provider needs. Information-needs and the measures to counter opposition are relatively accessible. Intersector reallocations, however, involve changes in values and beliefs about the delivery of human services (i.e., “upstream prevention” rather than “downstream rescue”). This is a more difficult process and requires a longer and more comprehensive strategy. The information-needs are greater, the imperative for broad-based education is striking and the measures to counter opposition, extensive.

The failure to clearly distinguish between these separate objectives of block-funding in PEI led some in both the policy maker and the regional organizations to either underestimate the size of the task or to entirely sub- stitute integration and coordination for the (more challenging) goal of cross- sectoral reallocation.

Similarly, clearer communication is needed about what can feasibly be achieved using the scope of services inside the block-fund. As Putnam has pointed out with regard to Italy’s regional governments, ”While our evaluation of government must measure actions, not just words, we must be care- ful not to give governments credit (or blame) for matters beyond their control. In the language of policy analysis, we want to measure ”outputs” rather than ”outcomes” - health care rather than mortality rates ... [Slocial outcomes are influenced by many things besides g~vernment .”~~

In PEI, the rhetoric of the reform documents preceding and accompanying implementation encouraged regions to think beyond the boundaries of their block-fund. This made their task potentially frustrating and unattainable (e.g., regions do not control province-wide taxation policy for cigarettes or job-creation strategies for industrial policy). The lack of clear direction from the agency or council on achievable health goals exacerbated this problem. In the face of calls for such overwhelming initiatives, small regions, such as those in PEI, cannot be blamed for finding comfort in the more manageable area of intrasector rationalization. Other provinces may need to recognize the importance of giving more directive assistance to their devolved authorities as these local boards search for ways to creatively address the broader determinants of health within the often-limited scope of publicly funded services under their control.

Finally, the human resource transition issues of cross-sectoral reallocation cannot be ignored. As one PEI regional official noted, it was very difficult to focus on reallocating human resources across sectors when union jurisdictions, pension portability, job security and other human-resource issues were unresolved. One of our case-study regions attempted to allay these fears by not laying anyone off, despite the budget reductions, and by offer- ing early retirement incentive packages to its employees. British Columbia

BLOCK-FUNDING I N PEI 599

has anecdotally reported some success with a policy addressing these issues negotiated with their health-care unions prior to the start of their regional- ization. Without such prior reassurances, employees of the various sectors are likely to express their anxiety consequent to uncertainty as opposition and resistance to change.

The challenge for devolved authority organizations is as much to get their employee members singing from the same songbook as it is to get their local citizens educated. The resignation of the West Prince regional board in PEI, when faced with an inability to gain consensus around which of two hospitals to convert away from acute-care, implies that devolved authorities as organizations still have a long way to go in being able to fully exploit block- funding for human services. Incorporation of some of the lessons outlined in this discussion may lead devolved authorities operating under block- funding to the necessary and sufficient conditions for effective exploitation of the financial incentive and the realization of some of the theoretical prom- ise of the new public management.

Postscript In November 1996, the Liberal government was defeated by the Progressive Conservatives, led by Patrick Binns, in an election that highlighted health issues. The new government immediately returned Corrections to the Justice portfolio and announced that the Health and Community Services Agency Board would be dissolved, with the employees moving to the Ministry of Health. New minister of health Mildred Dover has also said that the regional structure is under review and that some regions may be eliminated.

Notes I Health and Community Services Act, P.E.I.A. 1993, c. 30. 2 Prince Edward Island, Health Task Force, Health Reform - A Vision for Change (Charlotte-

town: Island lnformation Services, 1992). 3 Prince Edward Island, Health Transition Team, Report: Partnerships for Better Health (Char-

lottetown: Island Information Services, 1993). 4 Sharmila L. Mhatre and Raisa 8. Deber, ”From equal access to health care to equitable access

to health: a review of Canadian provincial health commissions and reports,” International lournal ofHealth Services 22, no. 4 (1992), pp. 645-68; J. Hurley, J . Lomas and V. Bhatia, “When tinkering is not enough provincial reforms to manage health care resources,” CANADIAN

5 R. Evans, M. Barer and T. Marmor, eds., W h y are Some People Hedthy and Others Not? (New York Aldine de Gruyter, 1994); Michael Drummond and Greg Stoddart, “Assessment of health producing measures across different sectors,” Health Policy 33, no. 3 (September

6 J. Lomas, J. Woods and G. Veenstra, “Devolving authority for health in Canada‘s provinces I. Overview and introduction to the issues,” Canadian Medical Association journal, forthcoming (1996); J. Lomas, “Devolving authority for health in Canada’s provinces IV. Emerging issues and future prospects,” Canadian Medical Association lournal, forthcoming (1996).

7 M. Giacomini, J. Hurley, J. Lomas, V. Bhatia and L. Goldsmith, ”The many meanings of

PUBLIC ADMINISTR.4TION 37, no. 3 (Fall 1994), pp. 490-514.

1995), pp. 219-31.


money: a health policy analysis framework for understanding financial incentives,” McMas- ter University Centre for Health Economics and Policy Analysis Working Paper Series No. 9 6 4 (1996).

8 R. Yin, Case study research: design and methods (London: Sage Publications, 1989). 9 J. Lomas, M. Rachlis and S. Kumar, Block-fundingfor human services in Prince Edward Island: a

case study of an incentive for cross-sectoral reallocations. Report to Health Policy Division (Ottawa: Health Canada, 1996).

10 Health Task Force, Health Reform; Health and Community Services Act, P.E.I.A. 1993, c. 30; Health Transition Team, Report; Prince Edward Island, Health and Community Services Agency, Core Services for Prince Edward Island’s Health and Community Services (Charlotte- town: Agency, 1994); Prince Edward Island, Health and Community Services Agency, Over- view of the Health and Community Services System (Charlottetown: Agency, 1994); Prince Edward Island, Ministry of Health and Social Services, Health and community Services Pro- vincial Plan (Charlottetown: Ministry, 1995).

11 N. Robb, ”Some physicians remain sceptical as metamorphosis of health care continues in PEI,” Canadian Medical Association Iournal 153, no. 8 (15 October 1995), pp. 1155-59.

12 Ministry of Health and Social Services, Health and Community Services Provincial Plan, p. 4. 13 Health and Community Services Agency, Core Services for Prince Edward Island’s Health and

Community Services. 14 S. Birch and S. Chambers, “To each according to their needs: A community-based approach

to resource allocation in health care,” Canadian Medical Association Iournal 149, no. 5 (1 Sep- tember 1993)’ pp. 607-12.

15 Prince Edward Island, Health Policy Council, Draft Health Goalsfor Prince Edward Islanders: “Partnershipsfor Better Health”: Health - A Resourcefor Everyday Life (Charlottetown: Council, 1995).

16 Prince Edward Island, Health and Community Services Agency, Health and Community SPY- vices System: Provincial Plan, (Charlottetown: Agency, 1995).

17 For example, the Queens Region mission statement said, in part, “to strengthen the health and well-being of the people of the region through effective and efficient use of available resources, while encouraging and promoting self reliance.”

18 P. Nerson, Dismantling the roelfare state: Reagan, Thutcher and the politics of retrenchment (Lon- don: Cambridge University Press, 1994).

19 Richard Wightman, “Health board tenders resignation,” The Guardian (Charlottetown) 1 November 1995, p. A3.

20 D. Ekazley, “Case tests health reform,” The Province (Charlottetown) 20 February 1996. 21 ”Report on PEI Medical Society Annual Meeting,” The Medical Post 4 July 1995, p. 19. 22 P. Chaulk, J. Lomas, J. Eyles et al., ”Linking evaluation with health policy development and

implementation: the PEI system evaluation project.” Paper presented to annual meeting of the Canadian Public Health Association, Vancouver, B.C., July 1996.

23 Paul Hoggett, “New modes of control in public service,” Public Administration 74, no. 1 (Spring 1996), pp. 9-32.

24 R. Putnarn, Making Democracy Work (Princeton, N.J.: Princeton University Press, 1993).

Documents

PEI 1997 Lomas and Rachlis