We review and evaluate the international literature on activity-based funding of health services, focussing especially on experience in Australia (Victoria), Denmark, Norway and Sweden. In evaluating this literature we summarise the differences and pros and cons of three different funding arrangements, namely cost-based reimbursement, global budgeting and activity-based financing. The institutional structures of the four jurisdictions that are the main focus of the review are described, and an outline is provided about how activity-based funding has been introduced in each. We then turn to the mechanics of activity-based funding and discuss in detail how patients are classified, how prices are set and how other services are funded. Although concentrating on the four jurisdictions, we draw on wider international experience to inform this discussion. We review evidence of the impact of activity-based funding in the four jurisdictions on efficiency, activity rates, waiting times, quality and overall expenditure. Finally we conclude with a brief commentary of some of the challenges that would have to be faced if implementing activity-based funding
