Principles and Theory of Resource Allocation
Q: How much funding is distributed through the NRAC Formula?
A: The NRAC Formula covers funding for Hospital and Community Health Services, and GP Prescribing. This amounts to around 70% of the total healthcare budget in 2007/08. Other formulae are used to distribute some other funding streams such as General Medical Services and capital allocations.
Q: The NRAC Formula does not provide us with sufficient resources to cover the healthcare needs of our population, yet it is supposed to be needs-based. Why is this?
A: The NRAC Formula does not determine the total amount of resources required to meet all the needs of a Health Board. The total funds available to NHSScotland are determined during the Spending Review process. The formula allocates this set amount on a basis that is fair and equitable, and reflects the relative need of each Health Board. It is then up to Boards to decide how to spend their allocation in a way that best meets the needs of their resident population.
Q: What is the underlying principle of the allocation formula?
A: The main objective of the formulae is to provide equity of access to healthcare. Resources are distributed among Health Boards on the basis of relative need for healthcare services within that population group, where use of services has been used as a proxy for need. Scotland uses an indirect approach to measure healthcare needs. This indirect approach relies on health service utilisation data to measure those needs based on (i) the demographic profile of the population, taking into account the national average costs of providing services based on age and sex, and (ii) relative levels of morbidity and mortality, and the estimated relationship on the use of services for each type of service. In addition to these two factors, the relative need for resources in each Board is also influenced by the unavoidable excess costs of service delivery.
Q: How much private provision of healthcare is there in Scotland and does it affect the NHS provision?
A: No information is routinely collected by the Scottish Government on private health sector provision or usage. Sources of data that identify Scotland separately from the rest of the UK are difficult to obtain.
Private health care usage is not accounted for in the formula in any way and, hence, the implicit assumption is that the use of NHS and non-NHS services is through patient choice and not design. In other words, the current configuration and provision of NHS services means that those who need to access an NHS service can do so and those who use a private service do so through choice.
Implementation
Q: What has happened with Board allocations for 2008-09?
A : All heath boards have received a standard increase of 3.15% in 2008-09. In addition, the Scottish Government has provided additional resources to those boards who are below both their current formula and NHSScotland Resource Allocation Committee (NRAC) target allocations in 2008-09 in advance of NRAC”s implementation in 2009-10. These boards are NHS Lothian, NHS Fife, NHS Forth Valley, NHS Grampian, NHS Lanarkshire and NHS Orkney. The average increase is 3.3%.
Q : What will happen regarding allocations for 2009-10?
A: The new formula is being calculated and will be used to inform allocations for future years, starting with 2009/10. The exact amounts received by each health board will depend on the overall funding available and their changing relative position when the formula is calculated. Uplift levels, including parity uplifts, will be considered and announced each financial year in line with the parliamentary process and taking into account funding earmarked for Scottish health priorities within the overall Scottish Government financial settlement. This reflects the practice established under the previous SHARE and Arbuthnott formulae. It means that each health board will receive a standard uplift each year to meet inflationary pressures whilst those boards whose actual funding remains below their target level, as indicated by the NRAC formula, would receive an additional parity uplift from within the remaining resources available.
Q: Why is the formula not being implemented fully more quickly? Those Boards which ought to gain under NRAC are losing out?
A : It is critical for all Boards that to avoid turbulence in their finances. Therefore the decision was taken that no board would receive less funding than it had been previously, and changes flowing from the NRAC recommendations would be phased in over a number of years. This has been the practice under both the SHARE and Arbuthnott formulae in the past.
How the formula works
Q: How does the NRAC Formula work?
A: The formula assesses each Health Board’s relative need for funding, using information about its population size, characteristics that influence the need for healthcare, and costs of delivery, in terms of hospital services, community services and GP Prescribing. The main drivers of the formula are:
- share of the Scottish population living in the Board area;
- age structure of the population and relative number of males and females;
- morbidity and life circumstances; and
- unavoidable excess costs of delivering healthcare in different geographical areas.
Q: How do you weight the different components of the formula ?
A: The NRAC Formula has the following basic structure:
Population * Age-Sex * Morbidity and Life Circumstances (MLC) * Excess Costs
The aim of the modelling is to arrive at the current overall need for resources of each Health Board, in terms of a percentage share.
An index is calculated for each element of the formula for each care programme in such a way that it compares each Board’s position with the national average. For example, if the level of morbidity and mortality in a Board is higher than the national average its index will be greater than 1 to reflect that its population will need more healthcare resources. By calculating each index in this way, the values can then be multiplied by the population share to determine how much more (or less) resource each Board requires compared with its basic population share due to age-sex, MLC and unavoidable excess costs.
The way each of the indices is calculated means that there is no need to set weights for the impact of age-sex, MLC or excess costs – the strength of the impact comes through from the analysis.
In order to determine the overall adjustment for each Board, each of the care programme formulae are weighted together by the national average expenditure on those care programmes.
Q: Why do the relative shares as calculated by the NRAC Formula differ from the actual shares that Boards receive of the final allocations?
A: This issue relates to the movement towards parity. The Scottish Executive Health Department (SEHD) phased in the Arbuthnott Formula by way of ‘differential growth’ whereby all Boards would continue to enjoy real-terms growth in their allocations year-on-year, with those above parity (i.e. above their target share) receiving less growth than those below parity until the new distribution was achieved. This is still ongoing as not all Boards have reached their “parity” positions (i.e. their target share).
The implementation of the NRAC Formula was not within NRAC’s remit and decisions on whether the parity movements will continue will be taken by the Scottish Government.
Q: How often will the NRAC Formula be updated?
A: The formula will be run to produce Health Board target allocation shares every year. Certain elements of the formula are updated annually (e.g. population, age-sex cost weights, care programme weights). However, not all elements of the formula need to be updated every year (e.g. urban-rural categories of Health Boards, data and coefficients from the Morbidity and Life Circumstances (MLC) adjustment) some elements will not change a great deal from year to year and updating them on a rolling programme every three years is sufficient.
Q: My Health Board provides healthcare services for 10% of the Scottish population, yet only receives 9% of the funding share. Why is this?
A: A Health Board’s share of population forms the basis of its allocation. However, this is then adjusted for factors that affect relative need for healthcare resources (age-sex, Morbidity and Life Circumstances (MLC) and excess costs).
For example, elderly people tend to make more use of healthcare services. Therefore, a Board with a more elderly population will require more healthcare resources than one with a relatively younger population. Deprived people, generally, have a greater need for certain healthcare services than relatively affluent people. Similarly, areas with high levels of illness and premature death (morbidity and mortality) have a greater need for healthcare resources than areas with lower levels of morbidity and mortality. There are also differing excess costs in providing services in different areas. The impact of these factors are combined to create an overall index for each Board, and this will determine the level of funding that a Board receives.
Q: The formula does not give enough emphasis to deprivation or remoteness?
A: The different elements in the formula are based on the best available evidence at the time of the NRAC review, depending on how each factor influences the needs, or costs, for healthcare. No weights are chosen, but the strength of the effect is based on empirical analysis.
It should be noted that the influences of the various factors on the shares of resources for each Board are influenced by the magnitude of the index for each factor, and the amount of variation in each factor between Boards. Most Boards contain a mix of remote/urban areas and affluent/deprived areas, which tends to reduce the effects of the factors when the results are presented at Board level.
Q: How does the NRAC Formula take account of cross-boundary flows?
A: The formula allocates resources on the basis of Health Board of Residence and not by Health Board of Treatment. It is up to individual Boards to recover costs for patients treated from other Boards, this is done through Service Level Agreements (SLAs) and the National Tariff.