Resource allocation: a forgotten element of health policy

In austere times, the importance of resource allocation in the NHS should be clear for everyone − not just policy nerds − says David Buck

The health reforms and the debate that ensued have been dominated by politics and an overwhelming focus on the merits or otherwise of competition and perceived privatisation of the NHS. This has crowded out consideration of another important, but less high profile, aspect of health policy: how the money should get to different parts of the NHS, and now local government.

As we argue in a new report published today, how resources are allocated will increasingly frame the debate about the health and care system as funding constraints really bite.

‘Despite a myriad of reviews and impressive technical updates, the resource allocation approach is unchanged since the mid-1970s’

In times of plenty, everyone gets a slice of a growing pie year-on-year, so discussion about resource allocation remains below the waterline, a dry and dusty subject for academics and policy nerds. That all changes in times of austerity, when it becomes more crucial to ensure every pound gets to the place where it is needed most, if both efficiency and equity are to be achieved.

We need a much more informed debate about the allocation of health resources in light of the health reforms and the financial context for the NHS. The fundamental review of NHS resource allocation announced by NHS England in December provides an opportunity for such a debate, and to engage people beyond the technocrats buried in the bowels of the Department of Health and the commissioning board.

Symbolic gestures

The fundamental review should be just that. It needs to look again at the objectives of health resource allocation and make sure it is fit for purpose.

Despite a myriad of reviews and impressive technical updates, the approach is unchanged since the mid-1970s when the resource allocation working party produced its seminal report on NHS resource allocation.

This argued that London and the Thames regions had been systematically overfunded by about 20 per cent compared to other regions in England, and recommended that a capitation formula weighted for relative population need should be introduced to correct this over time.

‘The splitting of the NHS and public health budgets introduces a fundamental change to the way the money flows’

The “over time” part is important − the formula’s results were given time to bed down, through a “pace of change” adjustment decided by ministers, ensuring that areas would not be destabilised by big swings in funding. We still use a very similar formula, based on the relative use of health services and pace of change to determine how much of the NHS budget is allocated to individual clinical commissioning groups, and previously primary care trusts.

The coalition’s first step in government was to reduce the inequalities weighting in the formula from 15 per cent to 10 per cent. This sent an important signal about its view on the purpose of the NHS and therefore how resources should be allocated. It essentially prioritised the NHS’s role in meeting care needs (hence giving more weight to age), rather than prevention and tackling the causes of inequalities in health.

This was reinforced by the shift in responsibility for public health from the NHS to local government. So far, however, this change has been more symbolic than real, as the changes have been cancelled out by the pace of change grinding to a halt because of the squeeze on overall NHS funding.

More transparent decisions

One potential benefit of NHS England being given the responsibility for decisions about resource allocation, guided by its mandate, is that it can look beyond short-term political considerations. There have been suggestions, particularly in the mid-1990s, that pace of change has been used to prevent some electorally important areas from losing out. Working at arm’s length from government, the board can ensure these decisions are not politicised.

The splitting of the NHS and public health budgets introduces another fundamental change to the way the money flows. This undoubtedly increases the risk of fragmentation, at a time when the emerging policy consensus is that integrated care is required to meet the needs of an ageing population and more complex case mix. The increases won the ground, where local partners will need to ”reintegrate” funding streams. It remains to be seen whether health and wellbeing boards will have the skills and capability to do this.

In the short term, there are some immediate improvements that could be made to the current process. First, the formula has become overly complex. This complexity adds little to the process but makes it opaque to those not intimately involved in it. NHS England should seriously consider simplifying the formula.

Second, greater transparency is needed, especially as funding tightens. The increasing number of local partners with a stake in healthcare, not least health and wellbeing boards, will demand it.

‘The fundamental review needs to live up to its name by re-examining how resource allocation can best support the new system’

Third, how the formula measures need and deals with inequalities needs to be improved. Like its predecessors, the current formula relies on estimating need based on the use of services. It is well known that people’s use of services is related to supply as well as need; that is, people in areas with more services tend to use them more often. Although the formula tries to correct for this, concerns remain over how successful this has been. Wales has responded to this problem by moving to a system where need is directly assessed through epidemiological surveys. The review should examine this issue, so we can be confident the best estimates of need are being used to distribute NHS resources.

Focus on the future

More broadly, the review needs to focus on the future of the NHS, not its past. There are a number of possible directions the health system could take: it may adopt a more clinically-led model; one that is focused on outcomes; one in which integrated providers have a much greater role; where benefits and services are more explicitly defined; or a model that is more closely integrated with other public services under a single budget.

All of these scenarios are possible, and could all be pursued to varying degrees, but they would imply different approaches to resource allocation. NHS England, therefore, needs to be explicit about the model it wishes to pursue and how the allocation of resources will support this.

To sum up, the fundamental review needs to live up to the fundamental part of its name by re-examining how resource allocation can best support the new system it sits in. Otherwise it is unlikely to stand up to the much greater scrutiny it will come under as austerity bites harder.

David Buck is a senior fellow, public health and inequalities at the King’s Fund