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The Allocation of Health Service Resources
Alasdair Munro, Scottish Executive
Summary
Total expenditure on the NHS in Scotland is £4,934 million, almost £1,000 per head of population, and one of the key issues to be addressed is how this money should be shared out between the 15 Health Boards that are responsible for providing healthcare to their populations. These Health Boards range in size from Greater Glasgow, a densely populated urban area with a population of a little over 900,000, to Orkney, an isolated island Health Board with a population of just under 20,000.
This article describes the methods used by Sir John Arbuthnott's Steering Group to assess the most equitable method of allocating resources between Health Boards in Scotland and the conclusions reached in their Report.
Introduction
The current method of distributing health service resources between Health Boards is based on the SHARE formula which was developed over 20 years ago. This formula took into account the effects on healthcare needs of differences in the age and sex structure of each Health Board's population. It also sought to take account of differences in the underlying morbidity of each Health Board's population, though for this purpose it relied largely on a single indicator of morbidity, the mortality rate among people under 65. It also made an adjustment for the additional costs incurred in delivering community nursing services in remote and rural areas, though no adjustment was made for the additional costs of providing other health services in these areas. These adjustments were based largely on a set of judgements rather than on evidence, and concerns have been expressed about the extent to which they adequately reflect the relative healthcare needs of different Health Boards.
Towards the end of 1997, the then Secretary of State for Scotland asked Sir John Arbuthnott, the Principal and Vice-Chancellor of the University of Strathclyde to carry out a review of the method of allocating resources between Health Boards. This is the first major review of the formula for over 20 years, and the terms of reference set for the review were:
"To advise the Secretary of State for Scotland on methods for allocating the resources available to the National Health Service in Scotland, including both primary care and secondary care, which are as objective and needs-based as available data and techniques permit, with the aim of promoting equitable access to healthcare; and to bring forward recommendations to Ministers by June 1999."
It is worth emphasising that this Review was concerned only with how the resources made available by the Scottish Executive are shared out between Health Boards. Decisions about the overall size of those resources was outwith the remit of the Review. It is also worth noting that the formula is concerned only with the distribution of resources between Health Boards. It remains the responsibility of each Board to determine how these resources should be used to meet the healthcare needs of their population.
Sir John Arbuthnott submitted his report, Fair Shares for All, to Scottish Executive Ministers in June 1999, and the report was issued for consultation in July. The consultation period ended on 14 November, and the Scottish Executive Health Department is now considering the responses to the consultation.
This article describes the methods used by Sir John Arbuthnott's Steering Group to assess the most equitable method of allocating resources between Health Boards in Scotland and the conclusions reach in their Report. The areas of expenditure covered by the review include acute hospital services, mental illness services, care of the elderly, maternity services, specialist services for people with learning disabilities, community health services, GP prescribing, and general medical services. These services account for almost 80% of total expenditure on the NHS in Scotland. The resources not covered in this review include expenditure on services provided centrally rather than by individual Health Boards (for example, the blood transfusion service), the additional NHS costs of teaching hospitals, capital expenditure, and general dental and general ophthalmic services.
Aims of a Resource Allocation Formula
The simplest method of distributing health service resources would be to distribute them according to each Health Board's share of the total population. However, this would not take account of a number of other factors that influence relative needs for healthcare resources. Three factors are important.
The basic objective of any resource allocation formula is to ensure that people have equal access to healthcare, whether they live in urban or in remote and rural areas, and whether they are affluent or deprived. If this objective is to be met, a resource allocation formula has to find a means of taking these factors into account in determining the distribution of health service resources.
Population
The starting point for a resource allocation formula is the measurement of each Health Board's population share. There are two alternative methods of measuring population shares: the Population Projections produced by the General Register Office for Scotland (GROS); and the Mid Year Population estimates (MYEs) also produced by GROS10. The current SHARE formula relies on the Population Projections. However, on the basis of advice provided by GROS, the Arbuthnott Report recommends that the MYEs should be used in future. The MYEs lag some 2 years behind the year to which they will be applied - for instance, the MYEs for 1998 are the latest estimates that could be used for determining revenue allocations in 2000-01. However, MYEs provide a more reliable and stable basis for determining revenue allocations between Health Boards than the Population Projections. In practice, the choice between the MYEs and the Population Projections has a relatively minor effect on the allocation of resources between Health Boards.
Population Age and Sex Structure
The use made of health services varies across different population age and sex groups
Expenditure per head is relatively high among children under 5 but falls to less than £300 a year for males and females in the age ranges 5-44. From the age of 45 onwards, expenditure per head rises sharply in both men and women.
The main difference between Health Boards' population structure is the proportion of people over the age of 65. This varies from a low of 12.9 per cent in Shetland to a high of 18.8 per cent in Borders. Health Boards with a higher than average proportion of older people in their population will require more resources per head of population than the national average. The expenditure per head data - for each care programme - have therefore been used to weight each Health Board's population share. This weighting produces significant differences in the relative needs of Health Boards. For example: Borders with a high proportion of elderly people requires 10.7 per cent more resources per head of population than the national average for hospital and community services and GP prescribing; in contrast, Lanarkshire with a low proportion of older people requires 5.9 per cent less resources per head of population than the national average.
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Chart B.1 Expenditure per Head of Population by Age and Sex in 1996-97 for Hospital and Community Health Services |
Note: these figures exclude maternity services
Source: "Fair Shares for All", Table 3.2
Morbidity and Life Circumstances
There are also significant differences between Health Boards in the morbidity of their populations, and these differences are closely linked with deprivation. For example, the prevalence of coronary heart disease is much higher in some Boards in the West of Scotland than in other areas of Scotland. The unequal distribution of deprivation, and the close link between deprivation, morbidity and mortality raise important issues for a resource allocation formula that seeks to ensure that all populations within Scotland have equal opportunity of access to healthcare.
The current SHARE formula relies mainly on the Standardised Mortality Rate among people under 65 (SMR0-64) as an indicator of underlying levels of morbidity in the population - that is, standardised for differences in the age and sex structure of the population. The Steering Group recognised that the mortality rate among people under 65 is a useful indicator of relative morbidity in a population and is linked with deprivation. They were, however, concerned that reliance on this indicator alone had a number of limitations. In particular:
The approach adopted by the Arbuthnott Steering Group was to consider a wide range of possible indicators of morbidity and life circumstances, to identify through statistical methods the relationship between these indicators and the use made of different health services, and to base an adjustment for morbidity and life circumstances on this evidence. The indicators considered include:
Multiple regression techniques based on data at postcode sector level were used to identify the statistical relationships between these indicators and the use made of health services. These relationships take into account the extent to which the use made of services may also be influenced by the supply of services.
The results of this analysis showed that:
These results were used to estimate the relative need of each Health Board's population for healthcare as a result of differences in their underlying levels of morbidity and life circumstances. There are significant differences across Health Boards. For example, Greater Glasgow's relative need for resources is almost 15 per cent above the national average because of its high levels of morbidity and deprivation. Borders Health Board's relative needs are 11.3 per cent below the national average because it has relatively low levels of morbidity and deprivation.
Remoteness
The final influence on healthcare needs that was addressed by the Arbuthnott Steering Group is remoteness. A significant proportion of the Scottish population live in remote and rural areas, and it was important to consider how this might affect the costs of delivering healthcare. The SHARE formula takes into account the extra costs of providing community nursing services in remote and rural areas, but does not include any adjustment for other services.
The Steering Group examined the effects of remoteness on hospital costs, community services, and General Medical Services. The average size of hospitals in remote and rural areas is significantly smaller than the average size of hospitals in more densely populated urban areas, and the analysis showed that there are significant economies of scale in most areas of hospital care. As a result the average cost of providing hospital care tends to be higher in Health Boards that have a relatively high proportion of their populations living in remote and rural areas. This factor is especially important in the island Health Boards where the costs of providing hospital care are almost 30 per cent above the national average. The analysis of community services and General Medical Services showed that the costs of delivering these services are also much higher in remote and rural areas.
Overall Results
Table B1 shows the estimated relative needs of each Health Board across the three elements of the formula, the combined influence of these factors, and the changes in allocations compared with the current SHARE formula.
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Table B1: Relative Needs for Healthcare Resources (Hospital and Community Health Services and GP Prescribing) |
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Relative needs compared to the National Average due to: |
Impact on Current Allocations |
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Age/Sex Weights % |
Morbidity and Life Circumstances % |
Remoteness % |
Total % |
Changes in allocations compared with current position % |
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Argyll & Clyde |
0.3 |
2.4 |
0.5 |
3.2 |
-0.6 |
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Ayrshire & Arran |
2.5 |
-0.2 |
-0.2 |
2.1 |
1.2 |
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Borders |
10.7 |
-11.3 |
6.1 |
4.2 |
-0.6 |
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Dumfries & Galloway |
8.0 |
-3.6 |
7.5 |
12.0 |
3.9 |
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Fife |
1.1 |
-4.3 |
-1.3 |
-4.4 |
0.3 |
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Forth Valley |
-0.6 |
-3.2 |
-0.2 |
-4.0 |
-0.8 |
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Grampian |
-2.6 |
-9.2 |
2.7 |
-9.1 |
0.8 |
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Greater Glasgow |
-0.8 |
14.7 |
-4.4 |
8.8 |
1.7 |
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Highland |
1.7 |
-4.4 |
9.6 |
6.4 |
3.9 |
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Lanarkshire |
-5.9 |
3.6 |
-1.5 |
-4.0 |
0.2 |
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Lothian |
-1.4 |
-6.6 |
-2.8 |
-10.5 |
-4.5 |
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Orkney |
3.3 |
-6.0 |
23.8 |
20.2 |
6.9 |
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Shetland |
-3.7 |
-8.4 |
24.7 |
9.9 |
-6.4 |
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Tayside |
5.8 |
-2.2 |
1.6 |
5.2 |
-1.6 |
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Western Isles |
9.5 |
8.1 |
25.0 |
48.0 |
7.2 |
Source: "Fair Shares for All", Table 16.2.
The overall estimate of the relative need of each Health Board for resources reflects the combined influence of several factors, which often work in different directions. For example, while Borders Health Board has a relative high need for resources because the proportion of older people in its population is well above the national average, this is offset by its low need for resources because of the low levels of morbidity and deprivation in the population.
The final column of Table 1 shows the changes in allocations that would result from the proposed formula compared with the current allocations. Overall, the swings are relatively modest, though for some Health Boards the changes are significant. In general, the effect of the proposed formula is to shift resources towards areas with relatively high levels of deprivation (especially Greater Glasgow) and towards Health Boards in remote and rural areas.
Health Inequalities
The method of analysis used to take account of morbidity and life circumstances relies on statistical evidence of the relationship between the use made of health services and a range of indicators of health needs. A difficulty with this approach is that the relative use made of services, especially by affluent and deprived communities, may not reflect their relative needs. It has often been argued that people with ill health living in deprived areas may be less likely to make use of services than people living in more affluent areas. The Report, Fair Shares for All, examined some evidence about this issue and concluded that there was sufficient evidence to suggest that there are inequalities in the use of health services and that further consideration should be given to this issue.
Since the Report was issued for consultation in mid July, further analysis has been carried out into the inequalities in the use of health services, and several options have been identified for making an adjustment to take account of this in a resource allocation formula. These proposals will also be issued for consultation.
Implementation
A number of issues have been raised during the consultation exercise and further work will now be done to address these issues. At this stage, it is difficult to determine a timetable for implementation of the formula since this will depend on the additional work that is being done. However, it is recognised that progress towards the recommended shares of resources for Health Boards would need to be phased over a period of years to avoid disruption to services. Moreover, the Minister for Health and Community Care has given a commitment that all Health Boards will experience some real growth in resources during the lifetime of this Parliament. Progress towards the new allocations will therefore be achieved through a process of "levelling up" -i.e. those Boards that require an increase in their share of health service resources will receive higher real growth than other Boards.
Conclusions
This is the first major review that has been carried out of the formula for allocating health service resources in Scotland for over 20 years. The methods of analysis used in the Review represent a substantial improvement on the current SHARE formula, and will provide a much sounder evidence base for distributing resources. The proposed formula takes explicit account of the influence of deprivation on the need for healthcare across a wide range of services. It also takes into account the influence of remote and rural areas on the costs of delivering healthcare.
The Review has made use of a wide range of data - for example, data on the use of health services and indicators of morbidity and deprivation. While the quality of much of the data available is very good, it was recognised that some of the data, especially the data on Community Health Services and General Medical Services is less satisfactory and that further work needs to be done to improve the range and quality of data available on these services.
The Minister for Health and Community Care has asked Professor Sir John Arbuthnott to re-convene his Steering Group to consider the issues that have been raised during the consultation exercise, to carry out any further work needed to address these issues, and to produce revised recommendations by the end of March 2000.
References
Scottish Executive Health Department: Fair Shares for All, Report of the National Review of Resource Allocation for the NHS in Scotland, Edinburgh 1999.
Scottish Executive Health Department: Fair Shares for All, Technical Report, Edinburgh 1999.
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