Feature / Fair shares?

A review of the way NHS funding is allocated in England is under way, offering an opportunity for radical change, according to the King’s Fund. Seamus Ward reports

With its esoteric mix of medico economics, demography, politics and advanced mathematics, NHS resource allocation has a reputation for being the purview of a small cohort of brilliant minds. Few in the NHS understand it completely, never mind the general public. But, according to the King’s Fund, this will change as the budget squeeze puts increasing pressure on services, leading commissioners and their populations to challenge the levels of funding allocated to their local health services.

The think-tank’s warning, delivered in its April report Improving the allocation of health resources in England, comes at a time of major change in resource allocation. Under the government’s reforms, from 2013/14 there are now separate allocations for the NHS and public health, while NHS England rather than health ministers will take the lead role in decisions on NHS allocations.

Formula development

Resource allocation briefly caught the news headlines – in the NHS at least – at the end of last year, when NHS England announced it would not use a new formula developed by the Advisory Committee on Resource Allocation (ACRA) to inform clinical commissioning group allocations in 2013/14.

In order to facilitate the development of GP-led commissioning and to address concerns that the existing allocation formula does not distinguish between need and demand for care, a new formula was developed using a methodology called person-based resource allocation (PBRA).

PBRA is based on the expected use of healthcare and is estimated using anonymised patient records. This would allow funding to be calculated for each general practice, based on the patients registered on their lists.

NHS England said it believed PBRA accurately predicted future requirements for spending based on need, but was concerned the formula would redistribute funding to areas that already had the best patient outcomes. It said this appeared inconsistent with its aim of reducing health inequalities and improving outcomes, so it will conduct an ‘urgent, fundamental review’ to inform the 2014/15 allocations.

David Buck, a King’s Fund senior fellow and co-author of the briefing, says changes in responsibilities could reduce transparency around decisions, while increasing the complexity of the allocation method. But he believes the NHS England review offers an opportunity to look again at how funding is allocated.

‘Over time, resource allocation gets more complex. We are asking about the materiality of the complexity – how does it add value? Other countries tend to have a much simpler system than us and, as money gets tighter and there are more stakeholders – particularly with the new roles for local authorities – resource allocation will no longer be the domain of a select few finance officers. It will become a bigger issue; a local democratic issue.’

Up to now, resource allocation has caused few ripples on the NHS pond. Dissent is most often associated with pace of change policy.

To explain this one must go back to first principles. The target allocation for each commissioning body is calculated according to the existing formula developed by ACRA. This is based largely on population (about 90%), and may be adjusted for a number of factors, including inequalities and local cost differences (market forces factor).

Generally, the amount given to each body will be the funds they received in the previous year – which may be above or below their target allocation – plus an uplift.

In times of plenty, governments have allocated a greater percentage increase to commissioners whose previous year’s funding was less than their target allocation. Those above target would receive a lower uplift, though still above inflation. When overall NHS funding slowed, so too would the differential uplift. This is known as pace of change policy, which aims to minimise financial disruption.

The Department of Health was able to give differential levels of growth with minimal disruption in the early years of this century, as resources were pouring into the NHS as a whole. When funding tightens, an across-the-board uplift can be made, as it has been recently. However, while ministers of all persuasions decided on the pace of change, there were fears that political considerations – not wishing to move funds away from a marginal constituency, for example – were having a key influence.

New era of transparency

Now that NHS England is in charge, Mr Buck hopes that there will be a new transparency and independence about decision-making. And he urges the national commissioning body to ensure its ‘fundamental review’ does not mean just a refresh of the methodology – it should be a holistic review.

‘Resource allocation has to be more transparent and there has to be more consultation. And there must be a greater review than in the past – it should be long term, rather than just informing the 2014/15 CCG allocations,’ he says.

Mr Buck, who worked on resource allocation at the Department under the last Labour government, says the review must look at how need is captured by the funding formula. In 2003/04, Tony Blair’s administration introduced an inequalities weighting that accounted for 15% of the formula in that government’s last year.

The King's Fund report says that, on taking power, the coalition government cut it to 10%, making a big difference to target allocations. In 35 of the 151 primary care trusts, it changed target allocations by more than 5%, shifting funds from the north of England and inner London to the south and east of the country. However, inertia on pace of change has meant it has yet to make a difference to actual allocations.

Mr Buck acknowledges the reduction in inequalities weighting is consistent with the thrust of the Health and Social Care Act 2012, which refocused the NHS on ensuring better outcomes and improved access to care.

But he adds: ‘If we are going to spend 10% of our GDP on health, we will want to know how that impacts on the wider determinants of health. Under the last government, there was an inequalities adjustment to the formula, which was another tool to send money to deprived areas. That government saw the NHS as a prevention rather than a sickness service.

‘For the NHS, it is important to treat inequalities primarily through services and medium-term prevention. But believing the rest will be addressed through local authorities via the public health allocation is quite naïve. We have got to make sure the money is transferred correctly, but we don't think that work has been done.’

The NHS England review must also examine pace of change, he says. Mr Buck describes pace of change as critical, arguing that resource allocation has failed to incentivise the reconfiguration of services because of the slow pace of change and the reliance on utilisation as a proxy for need. The latter institutionalised existing supply patterns, while slow pace of change gives commissioners in over-target areas less incentive to tackle difficult disinvestment decisions or to support more efficient delivery models.

He thinks NHS England has an opportunity to be more radical and use resource allocation policy to help push through reconfiguration – speeding up pace of change at a time of low growth will ensure local health economies make difficult decisions to reconfigure services, while those under target will have more funds to invest in much-needed services.

‘Giving the decision to NHS England takes some of the national politics out of it,’ he continues. ‘Maybe it allows NHS England to let the pace of change move more quickly than in the past.’

Alignment issues

There is a dissonance between the policy that divides the funds between NHS commissioners and the outcomes they are expected to produce, adds Mr Buck. He believes resource allocation policy should be aligned with outcomes targets. ‘If you are going to be judged on outcomes, then shouldn't that be reflected in how the money is delivered?’ he says. ‘The allocation formula could be more explicit. We need to change the covert assumption that the resource allocation process is not a policy tool.’

Be it a policy tool or a neutral method of allocating funds equitably, if the King’s Fund is right, we will be hearing more about resource allocation in the near future.