3. Q: What are the care programmes and diagnostic groups used in the new Formula?

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Felix Freeman
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1 Frequently Asked Questions This document provides background information on the basic principles applied to Resource Allocation in Scotland plus additional detail on the methodology adopted for the new Resource Allocation formula which was implemented for the calculation of the 2009/10 allocations. 1. Q: How does the new Resource Allocation Formula work? 2. Q: What is the underlying principle of the new Resource Allocation Formula? 3. Q: What are the care programmes and diagnostic groups used in the new Formula? 4. Q: My NHS Board provides healthcare services for 10% of the Scottish population, yet may only have a target share of 9% why is this? 5. Q: How do you estimate the population? 6. Q: Why is population calculated differently for hospital services and GP prescribing? 7. Q: Why is it important to take into account the age/sex profile of the population? 8. Q: Why doesn t GP prescribing have an adjustment for unavoidable excess costs? 9. Q: Does the Formula give enough emphasis to additional needs or unavoidable excess costs? 10. Q: How do you weight the different components of the Formula? 11. Q: How does the Resource Allocation Formula take account of cross-boundary flows? 12. Q: Are community hospitals covered in the hospitals section or the community services section? 13. Q: How are temporary residents dealt with in the Formula? 14. Q: Why do the relative ( target ) shares as calculated by the Formula differ from the actual shares that NHS Boards receive in the final allocations? 15. Q: The Resource Allocation 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? 1

2 1. Q: How does the new Resource Allocation Formula work? A: The Formula assesses each NHS Board s relative need for funding, using information about its population size and characteristics that influence the need for healthcare in terms of hospital services, community services and GP prescribing. The main drivers of the Formula are: (i) the share of the Scottish population living in the NHS Board area; (ii) the age structure of the population and relative number of males and females; (iii) the additional needs due to morbidity and life circumstances; and (iv) the unavoidable excess costs of delivering healthcare in different geographical areas. 2. Q: What is the underlying principle of the new Resource Allocation Formula? A: The main objective of the Resource Allocation Formula is to ensure equity among those receiving funds and provide a logical framework for decision making. Target shares are calculated for NHS Boards on the basis of relative need for health care 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. The indirect approach relies on health service utilisation data to measure those needs based on (i) the demographic profile of the populations, taking into account the national average costs of providing services based on age and sex, and (ii) relative levels of needs, and its estimated relationship on the greater use of services within each care programme. In addition to these two factors, the relative need for resources in each NHS Boards is also influenced by the unavoidable additional costs of providing services in different geographical areas. Also refer to Question Q: What are the care programmes and diagnostic groups used in the new Formula? A: The table below sets out the care programmes and diagnostic groups that are utilised in the new Resource Allocation formula. Care Programme Acute Services Care of the Elderly Mental Health & Learning Disabilities Maternity Community 1 GP Prescribing 2 Diagnostic Group(s) Circulatory Cancer Respiratory Digestive system Injuries & poisoning Other Cardiovascular Gastro-intestinal Infections Central Nervous System Musculoskeletal Other Prescribing 1. Practice Team Information data (PTI) and data from other sources are used as a proxy for 11 community services (there are 21 community services in total). 2. Prescribing programme was disaggregated into the top five British National Formulary (BNF) chapters 2

3 4. Q: My NHS Board provides healthcare services for 10% of the Scottish population, yet may only have a target share of 9% why is this? A: Each NHS Board s share of the population forms the basis of its allocation. However, this is then adjusted for factors that affect relative need for healthcare resources (age/sex, additional needs and unavoidable excess costs of delivering healthcare in different geographical areas). For example, elderly people tend to make more use of health care services and are more costly to treat. Therefore, a Board with a greater elderly population will require more health care resources than one with a relatively younger population base. Similarly, deprived people are recognised to have a greater need for healthcare than relatively affluent people and it is recognised that there are additional costs in providing services in remote and rural areas and so Boards with a larger deprived or rural population will require more healthcare resources than an affluent urban Board. The impact of these factors is combined to create an overall index of need for each NHS Board, and this will determine the level of funding that a Board receives. 5. Q: How do you estimate the population? A: For hospital and community health services (HCHS), the Formula uses re-based population projections. These are simple adjustments made to the General Register Office for Scotland (GROS Health Board level population projections by updating them using population mid-year estimates (MYEs) that have been published since the Health Board level projections were published. It is a development of the method used in the formulae for allocating Local Authority Grant Aided Expenditure (GAE) in Scotland. For GP prescribing the population source is the Community Health Index (CHI) which contains every person registered with a GP in Scotland (deflated to the same total population as the HCHS re-based projections). 6. Q: Why is population calculated differently for hospital services and GP prescribing? A: For hospital services the population is based on the NHS Board of Residence, however, for GP prescribing the population base is NHS Board of Management. So for GP prescribing the relevant population is the number of patients on the lists of GP practices managed by each NHS Board. 7. Q: Why is it important to take into account the age/sex profile of the population? A: The Resource Allocation Formula uses this information to take account of the use of different specialities by each age/sex group (e.g. for maternity services), and also in calculating the costs of treating patients of different ages. It makes the Formula more sensitive to the healthcare requirements of the different population groups. 8. Q: Why doesn t GP prescribing have an adjustment for unavoidable excess costs? A: The GP prescribing element of the Formula covers the cost of prescribed drugs which are reimbursed at nationally fixed prices. Therefore, there is no need to build in a remoteness adjustment. 9. Q: Does the Formula give enough emphasis to additional needs or unavoidable excess costs? A: The weights attached to different elements in the Formula are based on the best available evidence at the time, depending on how each factor influences the need for healthcare. The weights were not chosen, but based on empirical analysis. The adjustment for morbidity and life circumstances therefore takes account of the need for services within diagnostic groups over and above the affect of the age and sex profile of the population. The adjustment for the unavoidable excess costs of supply then takes account of the additional costs of delivering services to meet the needs that are predicted by the age & sex and morbidity and life circumstances adjustments. It should be remembered that the target shares for each Board are influenced not only by the different adjustments within the Formula but also by the profile of Boards. Most Boards are very variable, containing a mix of remote/urban areas and affluent/deprived areas, and this is taken account of when the results are presented at Board level. 3

4 10. Q: How do you weight the different components of the Formula? A: The Formula has the following basic structure: Population x age/sex x additional needs (MLC) x unavoidable excess costs The aim of the modelling is to explain the current overall need for resources of each NHS Board in terms of a percentage share. An index is calculated for each element of the Formula and for each care programme in such a way that it compares each Board s position with the national average. For example, if the levels of additional needs (MLC) in a Board are higher than the national average its index will be more 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, additional needs and unavoidable excess costs. 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. 11. Q: How does the Resource Allocation Formula take account of cross-boundary flows? A: The Formula allocates resources on the basis of NHS Board of Residence and not by NHS Board of Treatment. It is up to individual Boards to recover costs for patients treated from other NHS Boards, and this has traditionally been done through Service Level Agreements (SLAs). 12. Q: Are community hospitals covered in the hospitals section or the community services section? A: The costs of community hospitals are included under the appropriate care programme of the Formula e.g. acute, care of elderly, maternity etc. depending on the activities that are carried out, rather than the location. They will not be included in the community section of the Formula as this only covers activity outside of hospital e.g. in the patients home. 13. Q: How are temporary residents dealt with in the Formula? A: There are two aspects to healthcare provision for temporary residents hospital admissions, and prescribing. (i) Hospital Admissions - NHS Boards are able to claim back the costs of treating non-resident populations through the finance mechanisms that are in place. This applies to either residents in other Scottish NHS Boards, or visitors from other countries the latter is achieved through UNPAC (unplanned activity) provisions. (ii) Prescribing - there is no capacity in the financial system to claim back the time spent with, or prescription costs of, visitors. Inter-board costs (or cross-border flows as they are known in Prescribing) are dealt with as part of the conversion of a Gross Ingredient Cost based formula modelled on NHS Board of Management to a Net Ingredient Cost based allocation on NHS Board of Residence in the finance system. For visitors, we therefore need to make an adjustment to the Formula starting with the population base. 4

5 14. Q: Why do the relative ( target ) shares as calculated by the Formula differ from the actual shares that NHS Boards receive in the final allocations? A: This issue relates to the movement towards parity. The policy of the Scottish Government Health Directorate is to phase in the target shares calculated by the Resource Allocation Formula by way of differential growth. Under this methodology, all Boards 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 is achieved over time. In this way no Board receives a reduction in funding. This process is still ongoing. 15. Q: The Resource Allocation 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 Resource Allocation Formula does not determine the total amount of resources required to meet all the needs of a NHS Board. The funds available to Scotland s 14 territorial NHS Boards are determined by Ministers during the Spending Review process. The Formula suggests how to allocate this amount on a basis that is fair and equitable, and reflects the relative need of each NHS Board. NHS Boards to decide how to spend their allocation in a way that best meets the needs of its resident population. 5

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