NHS FINANCE BUILDING BLOCKS

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NHS FINANCE BUILDING BLOCKS

• Bob Dredge
• Director of Finance
• Birmingham Childrens Hospital NHS Trust

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• FUNDING THE NHS
• FUTURE PROSPECTS
• CURRENT ISSUES

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FUNDING PRINCIPALS

• Since 1976 equity
• Access based on need
• Need measured in
• Allocate based on need

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SINCE 1976

• Slow progress
• Different measurement
• Different definition of need
• FHS excluded until 1998
• GMS excluded until 2002

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BASICS OF ALLOCATION

• Weighted Capitation Target
• What PCT (DHA) should have
• Recurrent Baseline
• What it has
• Distance from Target
• Target less baseline
• Pace of Change
• How quickly target met

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WEIGHTING FACTORS

• Age structure (cost weights)

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AGE/COST/CURVE
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DEMOGRAPHIC IMPACT
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WEIGHTING FACTORS

• Age structure
• Needs
• Long Standing Illness
• Morbidity (SMR)
• Unemployment rate
• 65 living alone
• GMS - age related access
• - Jarmen Index
• Market Forces
• 117 pay zones
• Averaging between neighbours

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PCT TARGET

• PCT Weighted Population x available
• England Weighted Population

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FUNDED BY

• 98 Public Funds
• 2 changes
• Constant for 10 years

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HOW MUCH (2002/03)
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WITHIN ALLOCATIONS
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2002/03 HEADLINES

• Average cash increase 9.88
• Range of increase 9.31 - 11.68
• Assumed GDP 2.6
• Real inflation around 6
• Minimum cash increase to PCTs 5.6

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2002/03 HEADLINES

• Some earmarked developments
• Real CIP risks 0.2 - 6.3 in BBC 40m needed
• Duty to break even
• Health economy issue

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FUTURE PROSPECTS

• Wanless
• Government response
• Is NHS failing?

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WANLESS

• It should be noted that in all other countries
  examined, there are relatively high levels of
  dissatisfaction with health service whatever
  the (spend).

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TORs

• Estimate resources needed in 20 years time
• Not how financed but publicly funded,
  comprehensive and high quality

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FUNDING MECHANISMS

• Taxation direct and indirect
• Social Insurance - earnings related
• - employer tax
• Out-of-Pocket - public and private
• Private Insurance

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PRINCIPLES

• Efficiency - lowest cost
• - minimum disruption to economy
• Equity - access based on clinical need
  (NICE)
• - contributions related to ability to
  pay
• Choice - meeting expectation

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PUBLIC OR PRIVATE

• OECD suggest greater share of public spending
  associated with better health outcomes

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OUT OF POCKET

• UK - limited to primary care
• - progressive many exceptions
• France/Sweden all pay same
• USA 55 private

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TAXATION

• Efficient to finance/collect
• Cost containment
• Forces prioritisation (nationally)
• Vulnerable to economic cycle ?
• Ensures universal access not based on ability to
  pay (risk too large)
• Progressive in economic terms
• Limited personal choice

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SOCIAL INSURANCE

• Payroll tax managed by Fund
• No incentive to contain costs
• Relatively high admin costs
• Germany/France revisions
• Narrow payer base
• Vulnerable to economic cycle
• Little individual choice

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OUT OF POCKET

• All or part payment
• Limit work/maximise choice
• Selection mitigates prevention!
• High cost to run
• Regressive
• Increase inequalities (Sweden)

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PRIVATE INSURANCE

• Very variable between countries
• Poor cost control
• Fragmented commissioning
• High admin costs
• Individual risk rating not universal
  even based on affordability
• Freedom of choice

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CONCLUSION

• Taxation best
• - cost control
• - prioritisation
• Separation of paying and costing
• Public spend best
• OOP bad!
• So stay as we are!
• fair and efficient

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GOVERNMENT RESPONSE

• March 2002 Budget
• Milburn speech May
• Throw money at problem
• Increase tax

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FUTURE FUNDING
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A BIG CHANGE?
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BUT CAPITAL!
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PAYMENT BY RESULTS

• Elective activity beyond base in 2003/04
• - cost per case
• - HRG Reference Cost
• - Non Recurrent?
• Medium Term all activity
• Social service penalty for delayed discharge

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USE OF PRIVATE SECTOR

• Surgical Teams
• Expect Work
• Whole Service (Kaiser) Model?
• LIFT

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WILL IT WORK
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HEALTH GAINS

• Spend increase 1997- 2002
• Health 37
• Education 36
• Law Order 36
• Transport nil
• Environment 28
• Housing 38

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FINANCIAL DUTIES

• Break-Even each year
• Capital Cash (6) absorption
• Manage EFL
• Meet Resource Limit
• Public Sector Payment