Comment / A friend in need?

Stephen Morris describes some of the recent changes to the NHS weighted capitation formula

In December 2008 the Advisory Committee on Resource Allocation (ACRA) published its long-awaited report on the weighted capitation formula. The recommendations will affect revenue allocations to PCTs from April 2009/10. They focus on four areas: 

• Population base for calculating allocations
• The needs formula
• Health inequalities
• Market forces factor.

The most important element of the weighted capitation formula is the PCT population base, calculated with a complex formula based on the numbers of patients registered to practices and on unregistered populations. From 2009/10, and as before, the mainstay is patients registered to practices forming part of the PCT (rather than where the patient lives). As before, these will be calculated using ONS population projections rather than GP registrations. Changes have been introduced to the counts of unregistered populations included in the population base.

For the hospital and community health services (HCHS) component, all prisoners are counted in the population base of the PCT in which the prison is located, rather than only those serving six months or more of a custodial sentence. Asylum seekers will be included as a separate count in the population base.

PCTs with prison populations and asylum seekers will gain under these changes. But changes have also been made to how unregistered populations are weighted. Prisoners, armed forces and asylum seekers will receive a national average needs weighting, rather than that of their host PCT. This will have a negative effect on allocations to PCTs with unregistered populations. So the effect of the changes is ambiguous.

Changes will also be made to the needs formula. These are based on the Combining age related and additional needs report (CARAN), produced by Brunel University and the universities of York, London and Aberdeen. They concern the HCHS and prescribing elements (see diagram).

Arguably the biggest change is to the acute formula. Previously this had an age component and an additional needs component that measured needs over and above those relating to age and gender. The two components were quantified using separate indices and multiplied together. Because this ‘two stage approach’ is multiplicative, the effect of the additional needs drivers (such as morbidity) is proportional – meaning the absolute effect of morbidity on needs is higher in areas with higher age-related needs, and vice versa.

The new formula uses a ‘stratified one stage approach’, which means separate need models are estimated for every age group and the effect of the additional need drivers is allowed to vary by age. This approach is more flexible than the two-stage approach and ought to produce better estimates of total need because age-related and additional needs are allowed to interact in a less restrictive way.

Other changes to the needs formula are as follows:

• There will be separate formulae for acute and maternity activity (previously these were combined)
• These formulae will be based on admitted patient and outpatient data activity (previously they were based on admitted patient activity only)
• The maternity formula will account for PCT variations in cost per birth and there will be a new need formula (using a two-stage approach) for prescribing.

A major change is the introduction of a health inequalities adjustment. This was introduced because ACRA felt that other elements of the formula were unlikely to contribute to the reduction in avoidable health inequalities, which is one of the objectives of NHS resource allocation. ACRA recommended an adjustment based on disability free life expectancy (DFLE), defined as expected years of life free from limiting long-standing illness or disability. DFLE is measured for every PCT using a ‘difference from best’ approach, computed by comparing every PCT to the local authority with the current highest DFLE in England. Based on ministerial decision, for 2009/10 and 2010/11 PCT allocations the health inequalities adjustment will be applied to 15% of allocations, excluding mental health and HIV/AIDS.

What will be the impact of all these changes? Early evidence suggests that unlike some previous reviews the new formula will redistribute resources. As with every change in the funding formula there will be gainers and losers, and the losers will be more vocal.

But how will the new formula affect access to healthcare? How will it affect health inequalities? This remains to be seen. There has been little effort in the past to investigate the impact of the funding formula on its stated goals. But this is essential if we want to improve the allocation of financial resources to NHS organisations and ought not be overlooked.