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NHS FINANCE
“BUILDING BLOCKS”
Bob Dredge
Director of Finance
Birmingham Children’s
Hospital NHS Trust

FUNDING THE NHS

FUTURE PROSPECTS

CURRENT ISSUES
FUNDING PRINCIPALS




Since 1976 – equity
Access based on need
Need measured in £
Allocate £ based on need
SINCE 1976





Slow progress
Different measurement
Different definition of need
FHS excluded until 1998
GMS excluded until 2002
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
WEIGHTING FACTORS

Age structure (cost weights)
AGE/COST/CURVE
2500
2000
1500
1000
500
0
All
Births
Age 515
Age
45-64
Age
75-84
DEMOGRAPHIC IMPACT
3.00
2.50
2.00
1.50
1.00
0.50
83
/8
86 4
/8
89 7
/9
92 0
/9
95 3
/9
98 6
20 /9
01 9
20 /0
04 2
/0
5
0.00
Whole
population
Male
Female
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
PCT TARGET

PCT Weighted Population x £ available
England Weighted Population
FUNDED BY


98% Public Funds
2% changes
Constant % for 10 years
HOW MUCH (2002/03)
£M

Current expenditure

Capital charges

Allocated to DHAs
Central
Funds/Initiatives

46,168
1,697
47,865
41,468
6,397
47,865
WITHIN ALLOCATIONS

Mental Health
IM & T
Capacity Building
Primary Care Access

Central Shared Services
£M
230
76
60
75
56
425
84
26

StBO
100






Performance fund
Cancer
CHD
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%
2002/03 HEADLINES




Some earmarked developments
Real CIP risks – 0.2% - 6.3% in BBC
£40m needed
Duty to break even
Health economy issue
FUTURE PROSPECTS

Wanless

Government response

Is NHS failing?
WANLESS

It should be noted that in all other
countries examined, there are
relatively high levels of
dissatisfaction with health service…
whatever the (spend).
TORs


Estimate resources needed in 20 years
time
Not how financed …but publicly funded,
comprehensive and high quality
FUNDING MECHANISMS
Taxation – direct and indirect
 Social Insurance
- earnings related
- employer tax
 Out-of-Pocket
- public and private
 Private Insurance

PRINCIPLES

Efficiency
 Equity
-
 Choice
-
lowest cost
minimum disruption
to economy
access based on
clinical need (NICE)
contributions related
to ability to pay
meeting expectation
PUBLIC OR PRIVATE

OECD suggest greater share of public
spending associated with better health
outcomes
OUT OF POCKET
UK - limited to primary care
- progressive – many exceptions
 France/Sweden – all pay same
 USA – 55% private

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
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
OUT OF POCKET






All or part payment
Limit work/maximise choice
Selection mitigates prevention!
High cost to run
Regressive
Increase inequalities (Sweden)
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
CONCLUSION






Taxation best
cost control
prioritisation
Separation of paying and costing
Public spend best
OOP bad!
So stay as we are!
“fair and efficient”
GOVERNMENT RESPONSE




March 2002 Budget
Milburn speech – May
Throw money at problem
Increase tax
FUTURE FUNDING
2003/04
2004/05
2005/06
2006/07
2007/08
* Inflation at 2.5%
Cash
%
10.2
9.9
9.9
9.9
10.1
Real *
7.9
7.4
7.4
7.4
7.8
20
20
20
20
19
19
19
19
19
19
19
19
19
06
/
04
/
02
/
00
/
98
/
96
/
94
/
92
/
89
/
87
/
85
/
83
/
81
/
07
05
03
01
99
97
95
93
90
88
86
84
82
A BIG CHANGE?
12.0
10.0
8.0
6.0
4.0
2.0
0.0
BUT – CAPITAL!
Revenue
Capital
2003/04
6.6
24
2004/05
6.9
17
2005/06
6.7
26
2006/07
6.8
15
2007/08
7.0
16
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
USE OF PRIVATE SECTOR




Surgical Teams
Expect Work
Whole Service (Kaiser) Model?
LIFT
WILL IT WORK
114
112
110
108
106
104
102
100
98
96
94
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
Line 1
HEALTH GAINS

Spend increase






Health
Education
Law & Order
Transport
Environment
Housing
1997- 2002
+37%
+36%
+36%
nil
+28%
+38%
FINANCIAL DUTIES





Break-Even each year
Capital Cash (6%) absorption
Manage EFL
Meet Resource Limit
Public Sector Payment