NHS FINANCE “BUILDING BLOCKS”

Bob DredgeDirector 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

0

500

1000

1500

2000

2500

AllBirths

Age 5-15

Age45-64

Age75-84

DEMOGRAPHIC IMPACT

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Wholepopulation 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 £

availableEngland Weighted Population

FUNDED BY 98% Public Funds 2% changes

Constant % for 10 years

HOW MUCH (2002/03)

£M

Current expenditure 46,168

Capital charges 1,697 47,865

Allocated to DHAs 41,468

Central Funds/Initiatives

6,397 47,865

WITHIN ALLOCATIONS£M

Performance fund 230 Cancer 76 CHD 60 Mental Health 75 IM & T 56 Capacity Building 425 Primary Care Access 84 Central Shared Services 26 StBO 100

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 - lowest cost

- minimum disruption to economy

Equity - access based on clinical need (NICE)- contributions related to ability to pay

Choice - 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

Cash %

Real *

2003/04 10.2 7.9

2004/05 9.9 7.4

2005/06 9.9 7.4

2006/07 9.9 7.4

2007/08 10.1 7.8

* Inflation at 2.5%

A BIG CHANGE?

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1981

/ 82

1983

/ 84

1985

/ 86

1987

/ 88

1989

/ 90

1992

/ 93

1994

/ 95

1996

/ 97

1998

/ 99

2000

/ 01

2002

/ 03

2004

/ 05

2006

/ 07

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

949698

100102104106108110112114

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Line 1

HEALTH GAINS Spend increase 1997- 2002

Health +37% Education +36% Law & Order +36% Transport nil Environment +28% Housing +38%

FINANCIAL DUTIES Break-Even each year Capital Cash (6%) absorption Manage EFL Meet Resource Limit Public Sector Payment