Digital Transformation as a Catalyst for Activity-Based Funding Implementation

A Comparative Case Study of Healthcare Financing Reforms in Saudi Arabia

Abstract

Activity-Based Funding (ABF) has gained traction globally to enhance hospital reimbursement by linking payments to volume and complexity of care via Diagnosis-Related Groups (DRGs). Empirical evidence on ABF’s effectiveness remains mixed and context dependent. Notably, the Middle East and North Africa (MENA) region lacks rigorous analyses of ABF implementation due to lack of understanding of advanced digital health technologies. This study investigated the role of digital transformation in ABF implementation within Saudi Arabia’s healthcare system considering institutional, organizational, and technological factors. A comparative qualitative case study was employed, analyzing policy documents, implementation reports, and stakeholder interviews. The study applied the framework of the principal-agent theory to interpret incentive structures and utilized a digital maturity lens to assess the integration of health information systems supporting ABF. Findings revealed that ABF reforms were initiated and aligned with national development agendas. Saudi Arabia’s relatively advanced digital health ecosystem has facilitated more effective cost accounting, data integration, and transparency, enabling smoother ABF rollout. This Saudi context underscores the necessity of aligning stakeholder incentives and building organizational capabilities for data-driven decision-making to realize ABF’s efficiency and quality improvement goals. In conclusion, this study contributed to the research dialogue by demonstrating that successful ABF implementation in emerging economies surpasses financial restructuring per se, to leverage digital transformation to overcome systemic barriers. Policymakers are advised to prioritize investments in digital health infrastructure and governance frameworks to support sustainable, value-based healthcare financing reforms in the MENA region.