The Alternative Funding Agreement for emergency services in Ontario: a new compensation method for rural emergency departments


Alan J. Drummond, MD;* Robert Drummond, MD**

*Medical Director, Emergency Department, Perth and Smiths Falls District Hospital, Perth, Ont.; Lecturer, Department of Family Medicine, University of Ottawa, Ottawa, Ont., and Queen's University, Kingston, Ont.

**Staff Physician, Emergency Department, St. Mary's Hospital, Montreal, Que.; Lecturer, Department of Family Medicine, McGill University, Montreal

CJEM 2000;2(4):232-236


En 1999, le gouvernement de l'Ontario a introduit un nouveau mécanisme de financement pour les départements d'urgence des petites villes/campagnes appelé Alternative Funding Agreement (AFA) (Entente sur la rémunération mixte). Sa mise en place terminée, l'AFA modifiera fondamentalement le mécanisme de rémunération des urgentologues et aura un effet à long terme sur l'administration des soins d'urgence. Le présent article discute de l'historique de l'établissement de l'AFA, des avantages et inconvénients de la « rémunération de remplacement » et des implications plus larges pour la médecine d'urgence.

In 1999, the Government of Ontario introduced a new funding mechanism for small/rural emergency departments called the Alternative Funding Agreement (AFA). When fully implemented, the AFA will fundamentally change the payment mechanism for emergency physicians and will have a lasting effect on emergency care delivery.

Emergency physician shortages in Ontario

Ontario has approximately 186 emergency departments (EDs), including 85 small or rural departments with less than 35,000 patient visits per annum. During the past decade, because of an absolute shortage of full-time equivalent (FTE) emergency physicians, these departments in have faced significant physician staffing difficulties.

In 1994, Ontario EDs handled six million patients. Assuming the need for 1 FTE emergency physician per 5000 patient visits,1 the province would have required approximately 1200 FTE emergency physicians. In 1997, the Ontario Medical Association's Section on Emergency Medicine had 2000 members, of whom 430 designated emergency medicine as their primary area of practice and presumably could be considered to be FTEs.

More specifically, there is a shortage of certified emergency physicians. In January 1999, there were 299 FRCPC and 828 CCFP(EM) emergency physicians in Canada. Of these, 119 and 353, respectively, practise in Ontario (Josée Lavergne, membership section, Royal College of Physicians and Surgeons of Canada: personal communication, 2000).2 Given that provincial training programs currently produce insufficient numbers of certified emergency physicians to fully staff Ontario's EDs, it is likely that the status quo will be maintained, and that family physicians (FPs) will be expected to provide the bulk of emergency care for many years to come. This expectation may be unrealistic.

Rural ED staffing crisis

Across Canada, there is an increasing trend for FPs to withdraw from hospital-based activity, and this is particularly true in the emergency department. The reasons for physician withdrawal from ED service are complex but include inadequate preparation for independent practice in rural communities, lack of specialty back-up, lifestyle considerations and relatively poor compensation for ED service, particularly during low-volume night shifts. But money is not the sole concern, and solutions that focus strictly on financial factors are destined for failure.

Nowhere is the threat of ED service withdrawal more acutely felt than in the rural ED. Rural EDs serve more than 30% of Ontario's population. The hospital is typically the epicentre of the rural community's health care system, and the ED is its most vital and visible component. In a rural community, ED closure is often synonymous with hospital closure, and it is a singularly disastrous event. Recent reports suggest that more such doomsday scenarios loom in the future.

In a 1991 survey of small hospital medical services in Ontario, 44% of hospitals reported a shortage of local FPs willing to staff their EDs and 71% predicted a shortage within the next 5 years.2 A 1994 Ontario Hospital Association (OHA) survey reported that 54 of 169 hospitals surveyed were having difficulty operating their EDs. Of these, 46 were under threat of service withdrawal and 16 had reduced emergency services.3 A 1999 OHA survey revealed that 35% of Region 2 hospitals had difficulty ensuring ED coverage, that 29% used hospital operating funds to compensate emergency physicians and that 9% purchased the services of physician replacement agencies to provide emergency coverage.4 The result is that, in attempting to maintain continuous coverage for all small EDs in the province, hospitals compete with each other for a limited number of emergency physicians. Clearly some departments will succeed in securing adequate staffing and some will fail.

Responding to the crisis

To address the threat of physician shortages and ED closures, an innovative approach was required, and the Alternative Funding Agreement (AFA) came into being. To put this new payment plan in perspective, it is important to understand its predecessors.

Fee-for-service payment
Fee-for-service (FFS) remains the most common payment method for physicians providing ED coverage, and in the 1996 CAEP Manpower Survey, 70% of emergency physicians identified FFS as their payment method of choice.5 This same survey showed that the overall average pay rate was $88/h, but 1997 OMA data for self-employed emergency physicians suggests an average gross billing rate of $102/h, and Revenue Canada data for the same year indicate that specialist emergency physicians bill an average of $120/h.

Unfortunately, FFS is problematic, particularly in rural ED practice. FFS funding does not reward nonclinical activities like teaching, research and regional emergency health system development (physicians are expected to provide these services gratis). In addition, FFS funding does not allow the development of a wellness package to assist in the retention of experienced emergency physicians. From a service delivery perspective, FFS funding does not compensate rural physicians for providing on-call ED coverage -- a particular problem with respect to night shifts, when patient volumes are low, sleep is disrupted, and the physician's effectiveness the following day is compromised. The fact is, physicians providing off-hours coverage in rural EDs usually do so at a personal economic loss.

Scott sessional payments
The Scott Report on small/rural hospital ED physician service was released in March of 1995.6 Scott acknowledged the difficulties associated with the provision of rural emergency services and suggested a comprehensive solution. Though not perfect, the report contained many innovative ideas.

Regarding payment mechanisms, Scott suggested a 5% augmentation of rural physicians' gross FFS billings. He also proposed a sessional fee of $70/h (in lieu of FFS) for ED night call and weekend or holiday day service. As incentive, Scott suggested that physicians could choose the greater of the sessional or the FFS value for any given shift. Scott also recommended a benefit package, including 1 month of expense-paid CME, mandated paid vacations, financial supplements for managerial responsibilities (e.g., head of emergency services) and a maximum on-call frequency of 1 in 5.

The government focused on the $70/h sessional fee for ED services during unsociable hours. Subsequently, 71 of 78 eligible hospitals participated in the program, which was not without its problems.7 From a financial perspective, the principal difficulty was that the hourly compensation rate was not competitive and failed to address payment inequities related to volume. For example, a physician working in a 25,000 patient volume ED was paid the same as one working in a 5,000 patient ED. Within a short time, many hospitals were forced to "top-up" physicians' hourly rates in order to ensure coverage. Sadly, most of Scott's valuable recommendations were ignored, diminishing the likelihood that this plan will lead to physician retention and rural ED stabilization.

PCCCAR Report (blended payment)8
The Provincial Co-ordinating Committee on Community and Academic Health Science Centre Relations (PCCCAR) report #3, "A New Approach to Rural Emergency Medical Care," was an excellent document that outlined a new paradigm for rural emergency care delivery. It emphasized a systems approach, the need for regionalization of emergency services within a rural health district, the necessity for enhanced communications links within a system, and the recognition of key role players to ensure adequate system development. PCCCAR also supported a blended payment mechanism. As defined by the College of Family Physicians of Canada, blended payment incorporates a base salary, overhead costs, incentives for providing needed services (including ED coverage) and a payment based on the amount of work done.

With respect to rural ED coverage, blended payment is usually perceived to represent a blend of FFS payment during busy day shifts and sessional funding during low-volume evening and night shifts. The PCCCAR report was never implemented.

Alternative Funding Agreement9,10,11

Phase 1 AFAs
In the Spring of 1999, 27 rural hospitals faced severe reductions or complete withdrawal of emergency services. In response to this crisis, a working group, reporting to the Physician Services Committee of the OMA/MOH, was asked to develop an alternate payment plan (AFA) to help stabilize physician ED coverage. Given the threat of imminent service withdrawals, the time line for prototype (Phase 1) AFA development was short -- only 2 months.

The prototype funding agreement for the 27 crisis hospitals was an interim measure to provide immediate stabilization through enhanced funding -- in essence, a sessional funding mechanism based on ED patient volumes (Table 1). Funding for each hospital was based on a formula that considered primarily workload (number of unscheduled patient visits); however, future plans will also incorporate patient acuity, as determined by the Canadian Triage and Acuity Scale. Of note, Phase 1 AFAs have no provision for "second on-call."

Physicians who wish to enter into an alternative funding contract must form a group that has governance. The physician group must collectively sign a legally binding contract of one year's duration, guaranteeing the continuous provision of service, but group members are free to decide how the global funding for the department will be apportioned for the various shifts. Within the global funding for each eligible location is a sum of $45,000 to provide a stipend to the medical director for increased administrative duties and to cover the costs associated with reporting requirements and contract administration. While not directly stipulated, an average of $25,000 of the $45,000 has been suggested for medical direction of the ED.

Table 1. Suggested compensation packages for Phase 1 alternative funding agreements (AFAs)
Emergency department volume (patients/yr) Compensation($, per hour)
<10,000 100
10–15,000 110
15–20,000 120
20–25,000 130
25–30,000 140
30–35,000 150
Data source: Physicians Services Committee, Ontario Ministry of Health


Phase 2 AFAs
In December 1999, following the implementation of Phase 1 AFAs at the 27 "crisis" hospitals, the Ministry of Health announced that Phase 2 AFAs were to be extended to 58 additional hospitals with ED volumes of less than 35,000 patients per annum, thereby including all rural EDs in the new stabilization program. By definition, these larger hospitals are not in a crisis mode, but historically, they have experienced staffing difficulties, and many fell under the umbrella of the Scott sessional system. Phase 2 AFAs are also based on a global funding package rather than a defined hourly rate. Under this scheme, global funding is linked to annual ED patient volume, and second on-call physicians have defined limits within the fee for service pool (Table 2). However, despite the greater time available for their development, Phase 2 AFAs failed to consider the "wellness package" felt to be so important for physician retention.


Table 2. Suggested compensation packages for Phase 2 AFAs
Hospital level Emergency department volume, (patients/yr) Global funding amount, ($) Average rate, ($/hr) Second on-call global fee for service billing limit, ($)
A <5,000 659,880 70 5,000
B 5,000–7,500 747,720 80 7,500
1 7,500–10,000 922,400 100 10,000
2 10,000–15,000 1,011,240 110 15,000
3 15,000–20,000 1,099,080 120 20,000
4 20,000–25,000 1,186,920 130 25,000
5 25,000–30,000 1,274,760 140 30,000
6 30,000–35,000 1,361,600 150 35,000
Data source: Physicians Services Committee, Ontario Ministry of Health


Phase 3 AFAs
By the end of Phase 2, in the fall/winter of 2000, approximately half of Ontario's EDs will have been offered an AFA, and there are already plans to expand this program to hospitals with more than 35,000 patient visits per annum.


Benefits of AFAs
An alternative funding mechanism aimed at rural and emergency service is an important initiative, and an idea whose time has come. If developed with care, consultation, and consideration for the well-being of emergency care providers, AFAs will be seen as a landmark development in the stabilization of emergency health services in the province of Ontario.

Other payment mechanisms have major drawbacks in terms of emergency system development, care delivery, physician recruitment and retention. AFAs offer stability to emergency physician groups, to hospitals, and to the communities and health regions they serve. In addition, they facilitate the long-term development of an emergency health system without the threat of service withdrawals from rural hospitals. AFAs offer practitioners reasonable compensation -- particularly those who work in low volume EDs -- and they establish a generous benchmark for the value of "on-call" time. For example, in EDs with less than 5,000 visits per annum, the proposed hourly rate ($70­$80) essentially represents payment for being "on-call."

For the specialty of Emergency Medicine, AFAs form a foundation for the global funding mechanism that is supported by the OMA Section on Emergency Medicine as the payment method of choice. To meet their full potential, however, AFAs must evolve to include initiatives aimed at physician wellness, stress reduction, "burnout" prevention and career development.

Shortfalls of AFAs
To date, AFAs have received a mixed response, and in the authors' opinion, this is deserved. While AFAs have great potential, some critics view them as "a new incentive plan for rural doctors to move to Toronto."12

The generalized withdrawal of rural physicians is a complex issue. Compensation is only one facet of the problem, and enhanced compensation alone will not solve the rural ED crisis. To be successful, any stabilization plan must address factors such as pre-licensure emergency medicine training, more CCFP(EM) residency positions, and a wellness package to assist in physician retention. Further, the proposed level of compensation may not be competitive. In low volume EDs (<10,000 visits per annum) AFA hourly rates probably exceed those expected with FFS, and they are certainly an improvement over the Scott sessional payments. Hence, ED groups in small hospitals will likely greet AFAs with enthusiasm. However, in higher-volume EDs (20 to 35,000 visits per annum), where the AFA rate is comparable to the average FFS rate, physician response will be lukewarm.

A common criticism of AFAs is that the suggested compensation limits for "second on-call" coverage are inadequate. Using accepted formulae for the hours of double coverage required in rural health systems,13,14 it appears that the proposed maximum compensation level is approximately half what it should be. This may lead to gaps in service, particularly with regard to patient transfers to tertiary centres.

Most importantly, the process of developing the AFA is unacceptable. The development of new compensation mechanisms will profoundly influence the future of rural and emergency medicine. This initiative is too important to be left in the hands of a small group that is not broadly representative of the rural and emergency medicine constituencies. In-camera discussions, ad-hoc decision-making and the binding of committee members to secrecy may be appropriate while in "crisis mode," but this approach is unacceptable when it will spawn fundamental reform that radically alters physician compensation and the provision of emergency care. Furthermore, it is clear that some decisions are being made on the basis of inadequate data. If data is required, then studies should be commissioned and research initiatives supported. There is no rush, so let's do it right the first time.

Finally, Ontario AFAs have implications for urban and academic EDs, and for emergency physicians across Canada. The writing is on the wall for Ontario EDs, and the ink will certainly spill over to the rest of the country.

The future is now, and Emergency Medicine must prepare itself. What is an appropriate workload? What are we worth? What are the essential elements for career development? What do we need to prevent stress and burnout? How do we attract more women into the specialty?

The Ontario AFA process has an important lesson for all of us: If Emergency Medicine doesn't provide the answers, bureaucrats will.


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