NRAC Resource Allocation Formula: Purpose and Methods Acute MLC sub-group: 4 th February 2014.

NRAC Resource Allocation Formula: Purpose and Methods

Acute MLC sub-group: 4th February 2014

Outline:

• Role of the formula• Basic overview of the issues• Structure, data and methods• Formula outputs

Purpose: to inform the distribution of around 70% of the health budget to 14 territorial boards ...

• Through the calculation of target shares• Using estimates of predicted need• On an objective basis• To ensure equitable access to healthcare• Taking account of relative morbidity• And the relative (unit) costs of service

Basic overview: relative need

Health board A

Health board B

Basic overview: relative need

Health board A

Health board B

Basic overview: relative need

• Cost of fracture = £1,000

• Cost of maternity services = £2,000

Basic overview: relative need

Health board A: Cost = £4,000

Health board B: Cost = £5,000

Basic overview: relative need

Health board A: £4,000Health board B: £5,000

Total £9,000

Target share: 44% Target share: 56%

Basic overview: predicted needBudget allocated ex ante

But how many will require health care services …

?? ??

Basic overview: predicted need

• Formula attributes health service use in the recent data to age, sex and socio-economic conditions – national average relationships

• Need predicted by applying these national average relationships to local population characteristics and local socio-economic conditions

Structure:• Uses a weighted capitation approach• Fundamental starting point is (resident) population share• Weighted to reflect need for, and cost of, health services• Relative need: age and sex; Morbidity and Life

Circumstances; • Relative cost: Unavoidable Excess Costs• Product of components generates target shares

PopulationShare

%

ExcessCostIndex

XTarget Share

%=

Age & sex index

XMorbidity & Life Cs

indexX

Need

Data:• Built up using small area information• Basic geographical unit is the data zone (or IG)

Health Boards:

Data:• Resident population characteristics and socio-economic

environment• NRS population projections – rebased• Need is modelled using healthcare utilisation (volume

and cost)• SMR activity and Costs Book costs by speciality

Method:• Costing methodology• Episodes not spells• By care programme and diagnostic group

Method: age and sex effect

• estimated national average cost by age for males and females

Method: Morbidity and Life Circumstances

• Morbidity and Life Circumstances effect captures the variation in utilisation relative to the age and sex effect

• Measured by the cost ratio for the data zone• (Actual cost)/(Expected cost)• Scotland average = 1• Variation above or below Scotland average related to

socio-economic indicators of need; • Analysis undertaken by diagnostic group

x xx x x

x x x x x x x xx x x x

x x x x x

x

Method: estimating the MLC effect

Change in need

Change in utilisation

Age & Sex Adjusted Utilisation

Socio-economic conditions

1

x

x xx x xx

x xxx

x xx

x x x

Method: estimating the MLC effect

Utilisation

Socio-economic conditions

x xx x x

x x x x x x x xx x x x x x x

x x x x xx

Method: estimating the MLC effect

Utilisation

Socio-economic conditions

x xx x x

x x x x x x x xx x x x x x x

x x x x xx

Method: estimating the MLC effect

Utilisation

Socio-economic conditions

Method: variation in (unit) cost …

‘Unavoidable Excess Cost Adjustment’ • Ratio of local unit costs relative to national unit costs• DZ ratio averaged of across urban-rural geographies• Objective geographical classification - control for

variation in efficiency

Outputs: Published Target Shares

Health Board Population

Share1 Age-sex

share Age-sex and MLC share

Overall share

Ayrshire & Arran 6.91% 7.29% 7.36% 7.36%Borders 2.15% 2.32% 2.07% 2.10%Fife 6.99% 7.13% 6.94% 6.90%Greater Glasgow & Clyde 22.91% 22.10% 24.35% 24.01%Highland 5.93% 6.35% 5.94% 6.36%Lanarkshire 10.64% 10.46% 10.98% 10.88%Grampian 10.66% 10.55% 9.67% 9.68%Orkney 0.38% 0.41% 0.37% 0.43%Lothian 16.34% 15.58% 15.03% 14.86%Tayside 7.74% 8.11% 7.86% 7.84%Forth Valley 5.64% 5.59% 5.54% 5.51%Western Isles 0.49% 0.55% 0.53% 0.62%Dumfries & Galloway 2.79% 3.14% 2.95% 3.00%Shetland 0.43% 0.43% 0.39% 0.46%

Outputs: magnitude of variation in weights …

Age & sex index

Morbidity & Life Cs

index

ExcessCostindex

Overallindex

0.52 0.71 0.97 0.412.07 1.85 1.38 2.18Data Zone

Health Board0.96 0.90 0.98 0.911.12 1.10 1.20 1.29

NRAC Resource Allocation Formula: Purpose and Methods

Acute MLC sub-group: 4th February 2014