Life’s too short to understand the PCT funding formula
Nigel Williams, 2 August 2011
Following the announcement of new funding formulae for NHS primary care trusts, accusations have begun about political bias. Manchester, says a report by Public Health Manchester, would lose £42m. Tower Hamlets would lose £19m, whereas Surrey and Hampshire would gain £113m between them.
In any such reallocation, beneficiaries are likely to conclude that the new version is fairer, whereas anyone losing out will prefer the old version. The Yorkshire Evening Post quotes Maureen Idle of Leeds Hospital Alert as saying “If the money has been given in the first place then there’s clearly an acknowledgement that it’s needed.”
The precise change causing the fuss is a reduction in the “Health Inequalities Weight” from 15 per cent to 10 per cent. Labour North online have made a full table available, although I couldn’t find Tower Hamlets in it when I looked this morning. It shows 11 PCTs, all in the North of England, due to receive a smaller allocation than if the weight used by the last Labour government were continued. The remaining PCTs in the table receive an increase. This reduction in weight to two-thirds of its previous value means that however much areas decry the reduction in the reallocation, twice as much is still being taken from the “wealthier” areas to fund the “poorer”. The reports are only talking about one aspect of the overall funding. By reducing the health inequalities share from 15 per cent to 10 per cent, the share devoted to everything else rises from 85 per cent to 90 per cent. By concentrating on a single aspect, some PCTs can be persuaded that their overall allocations have been cut when they are in fact rising. Most overall changes are considerably smaller than any change to a single aspect, since “pace of change policy” is designed to keep any overall change within constraints.
In this case, much of the problem lies in the over-complexity of the funding formula. The justification is on the basis of need rather than ability to pay. Reallocation, a 10 per cent weighting to redress health inequalities, is not because areas are poorer but because they are supposedly less healthy. The difference is important. The National Health Service is there to treat people freely at the point of delivery. Short of recourse to private medicine, there is no option for the wealthier to contribute more to their own treatment. Differences in per-person funding may be justified on grounds of need but not on grounds of income.
This note is too short for a comprehensive analysis of how the formula operates. An interested reader may refer to the Department of Health description and a spreadsheet setting out the calculations. The particular part of the formula currently at issue concerns Disability-Free Life Expectancy (DFLE). That part of the funding is based on estimates of the years less than seventy that people may expect to live without disability. Seventy was an apparently arbitrary choice. Had it been 69, 75, 80 or 100, the allocations would have been different again. ACRA, the committee that devised this version of the formula, felt that the pre-2008 version
“did not adequately address the objective of contributing to the reduction in avoidable health inequalities.” (Resource Allocation: Weighted Capitation Formula, page 10.)
Rather than address the oddities and over-complications in their existing formula, they added this extra component. Already the formula considered income deprivation, standardized mortality ratios, limiting long-term illness rates, which might be thought to relate closely to DFLE, but these cannot have produced the desired effect. A detailed delve into the calculation spreadsheet will also reveal rates of low-birth-weight, proportions with no qualifications, numbers of armed forces, prisoners and asylum seekers, house prices, ethnic minority proportions, fertility rates and diabetes prevalence. The result is not an allocation that people can tell to be right but only one that they cannot tell to be wrong.
Professor Mervyn Stone, a previous Civitas author on this very subject, advocates a survey of health needs rather than dependence on a plethora of variables that are assumed to be good for predicting them. The current system has been designed to include political levers, of which adjusting the “health inequalities weight” is an example. If we do not want political influence on the funding, the answers are to simplify the formula to the point where anyone can understand it and include only directly relevant information, such as population and measurable health need. To anyone worried that their allocation is being diverted somewhere richer, I offer the consolations that the smoothing arrangements will prevent the cut reaching them, they still receive twice as much in diversions from areas with a longer disability-free life expectancy, and what they lose by DFLE they should pick up by mortality ratios or income deprivation. I cannot offer the consolation that they are guaranteed an equitable share of PCT funding. Even if I could define fair, I would not use a formula like this to apply it.