In 2010, after a regional needs assessment for medical imaging, the Pembroke Regional Hospital was approved by its Local Health Integration Network (LHIN) to purchase a new MRI scanner. This new machine will allow the city and neighbouring region’s residents to be scanned locally, instead of having to drive as much as 3 hours each way to have the MRI performed in Ottawa.

While approval from the LHIN means that the day-to-day operating costs of the new MRI scanner will be covered by the government, the Ministry of Health and Long Term Care requires hospitals to pay for the entire purchase and installation costs of MRI scanners themselves. For Pembroke, this means that the community has to raise 4.5 million dollars to purchase the scanner.

Five years later, despite continuous fundraising efforts, the Pembroke Hospital Foundation is still working to raise the money needed for the MRI, while local residents who require MRI imaging continue to travel to Ottawa.

Is it fair that hospitals in small and relatively poor communities in Ontario must raise the same proportion of funding for capital projects as their counterparts in larger, wealthier regions? And is it sustainable to rely so heavily on philanthropy to finance capital projects?

Health care capital

In the context of hospitals, “capital” refers to physical infrastructure such as building a new hospital wing, to purchasing an MRI scanner, to the replacement of elevators within an existing hospital.

In 2011, nearly $10 billion was spent on health care capital expenditures in Canada. This accounted for approximately 5% of all health spending.

Investment in health care infrastructure is important to maintain a safe physical environment and to allow clinicians and patients access to new and effective technologies.

Different hospitals do not share the same infrastructural needs. Institutions that provide complex medical services, such as organ transplantation, have larger requirements for diagnostic imaging, intensive care beds and surgical services than hospitals that do not provide these services.

The size of the patient population serviced by a hospital can also influence its capital needs. Specialized care is often regionalized within Ontario – that is, a hospital can develop expertise in a certain medical procedure and provide care for the entire region. For example, Ontario has five children’s hospitals that together provide highly specialized pediatric care for the entire province. There is similar regionalization for many cancer services in Ontario. Given their large catchment areas and specialized services, these hospitals will often have greater capital needs than other large urban hospitals.

Financing health care capital in Ontario

Capital projects are funded differently than a hospital’s operating costs, which are the costs needed to operate the hospital such as providing medical care, medications or operating medical technology. Unlike operating costs, which are almost entirely financed through government payments, capital costs are funded from a mixture of sources.

In Ontario, health care institutions need approval from their LHIN and the Ministry of Health and Long Term Care before any major capital expenditures can be made. Approval of a project is based on an assessment of the community’s need and the local health care infrastructure already in place. In the case of MRIs, approval comes with a commitment to provide the operating funds to run the equipment, but not for the equipment itself; the purchase cost, maintenance and replacement of MRIs are solely the responsibility of the hospital.

Not all medical equipment is treated the same. For example, the cost of radiation therapy equipment for cancer is fully funded by the Ontario government. And construction costs are treated differently again – hospitals are now responsible for 10% of the costs of major construction projects, with the government providing the remaining 90%.

Hospitals rely on a variety of methods (such as parking fees or renting out available space) to generate the funds needed to pay for equipment and their share of construction costs.  But the bulk of this responsibility typically falls to a hospital’s foundation, which works within their community to raise the necessary funds through individual and corporate donations.

Role of philanthropy in funding capital

Philanthropic donations are becoming an increasingly important source of funding for hospitals.

Health care is the second largest recipient of donations in Canada (behind religious organizations) and makes up approximately 13% of all donations received from Canadians. A recently released Statistics Canada publication reported that health organizations received $1.7 billion in donations in 2013, an increase of a hundred and ten million dollars from 2010.

Obviously, not every hospital has the same fundraising needs. As Randy Penney, CEO of Renfrew Hospital points out, hospitals’ fundraising targets are dependent on the scope of projects they undertake. Therefore, for more complex projects in more specialized centres or programs that serve larger patient populations, the hospitals’ 10 percent share of capital costs may represent a substantial absolute dollar amount.

In the end, hospitals raise varying amounts of funds, from half a million dollars a year in a smaller rural hospital like Pembroke Regional Hospital to $34 million in a large suburban hospital like Trillium Health Partners in Mississauga. A handful of hospitals, such as Toronto’s Hospital for Sick Children, have fundraising targets over $100 million per year.

Communities face unique challenges in raising philanthropic funds

But, just as hospitals have different fundraising needs, they have different abilities to raise funds. As one hospital CEO relates, all hospitals, regardless of their size, work very hard with their community to raise charitable dollars, but each community faces a unique set of pressures that impacts its fundraising capacity.

Large philanthropic donations, from individuals or corporations, are becoming increasingly important sources of donations. In fact, Statistic Canada found that in 2013, the 25 percent of donors who donated the most accounted for 84% all charitable donations. Communities without local industry or ties to wealthy philanthropists may not benefit from these large donations to their local charities.

At the same time, in both urban and rural communities, donor fatigue is becoming a real concern. As residents continue to be asked to contribute to charitable organizations, there comes a point at which their willingness or ability to donate is exhausted. This is of particular concern in large urban areas like the GTA, where there is fierce competition for donor dollars, according to Anthony Dale, CEO of the Ontario Hospital Association.

There has been very little research done looking at the giving patterns of Canadians in different communities. However, work done by the Canadian Centre for Philanthropy in 2004 suggests rural communities may face some unique challenges. They found that while residents in rural Ontario were slightly more likely than their urban counterparts to provide monetary charitable donations, the amount they donated per annum was marginally less. Further, their report suggested that “rural residents are donating to large health charities (e.g., Arthritis Society) and specialized hospitals (e.g., Hospital for Sick Children), which are located in urban areas,” more than to their local hospitals.

Despite the challenges they face, Penney states that these communities often rise to the challenge and donate significant funds to their local charities, including hospitals. But, at the end of the day, for large health care investments, the time required to raise the money needed to fund these projects can be many years. During this time, patients in these communities may face barriers to access that those in larger, wealthier communities do not.

Is Ontario’s system fair and sustainable?

Hospitals who struggle to raise their portion of the funds needed for capital projects can experience delays in purchasing equipment or building projects, says Penney. As a result, their patients can face longer local wait times and may need to travel outside of their communities in order to access the health care they need.

Delays in capital development can also impact hospitals’ day to day operations. Many hospitals are old, and need upgrades to meet modern energy inefficient and infection control standards, says Dale.

In addition, Ontario’ current reliance on health care philanthropy to finance capital developments can result in inequities in access to certain types of health care, says David Klein, lead author of the Canadian Foundation for Health Care Improvement report on Capital Spending in Healthcare. This is because some programs are easier to fundraise for than others. One example is in cancer care, where some of the most lethal forms of cancer receive a surprisingly small share of philanthropic funds.

But perhaps most worrying is that hospitals may not be able to sustain their current fundraising numbers in the future. Philanthropy in Canada is highly dependent on oil and gold prices, says Klein. Looking back within Canada’s philanthropic history, Klein and colleagues found that a year after a recession there was a significant decrease in fundraising contributions. And with Canada’s health care system becoming increasingly dependent on philanthropy, its capital planning may become increasingly vulnerable to fluctuations in Canada’s resource economy. As a result, hospital foundations committed to large capital campaigns may be facing some lean years.

Philanthropy is essential to the wellbeing of the health care system, allowing hospitals to improve and develop their infrastructure and conduct innovative medical research.  But as we enter the era of plunging oil prices and economic uncertainty, hospital foundations are likely to face harder times fundraising, and this may make any disparities in access to capital projects among communities worse.

Meanwhile, the Pembroke Regional Hospitals’ MRI campaign continues. With about $4 million dollars raised since 2010, locals hope this will be the year they finally reach their goal.