Canadian hospitals have been traditionally funded through annual lump-sum payments – global budgets – meant to pay for all care each institution delivers. The good thing about global budgets is that they are predictable, stable and administratively simple. The problem with global budgets, critics argue, is they lack incentives to boost efficiency, are not transparent and funding is not targeted to priority areas.Enter activity-based funding (ABF). Under ABF, hospitals receive a pre-determined fee for each episode of care, intended to fund the bundle of services provided to each patient with a particular diagnosis, regardless of the actual costs for any particular patient. The fee is expected to account for the anticipated complexity, type, volume and intensity of care ordinarily provided to clinically similar patients.