Design of price incentives for adjunct policy goals in formula funding for hospitals and health services

BACKGROUND: Hospital policy involves multiple objectives: efficiency of service delivery, pursuit of high quality care, promoting access. Funding policy based on hospital casemix has traditionally been considered to be only about promoting efficiency. DISCUSSION: Formula-based funding policy can be (and has been) used to pursue a range of policy objectives, not only efficiency. These are termed 'adjunct' goals. Strategies to incorporate adjunct goals into funding design must, implicitly or explicitly, address key decision choices outlined in this paper. SUMMARY: Policy must be clear and explicit about the behaviour to be rewarded; incentives must be designed so that all facilities with an opportunity to improve have an opportunity to benefit; the reward structure is stable and meaningful; and the funder monitors performance and gaming.