Risk adjustment in a centralised public health care system: The case of England’s NHS

1. Risk adjustment in a centralised public health care system:The case of England’s NHS Adam Oliver LSE Health and Social Care London School of Economics and Political Science

2. Introduction • Most health care systems are characterised by purchasers and providers • When purchasers bear financial risk  incentives for cream skimming • Risk adjustment often used to mitigate these incentives • Important in competitive health insurance markets (e.g. Belgium, the Netherlands, Germany, Israel, Switzerland)

3. Centralised public systems? (e.g. the UK countries, Italy, NZ, NSW, Alberta) • Purchasers (e.g. health authorities) are non-competitive • System is usually financed out of general taxation • Management of the system usually organised on a geographical basis • Does risk-adjustment have a role?

4. Yes (if geographical equity is important) • Each purchaser is responsible for a different local population • Each local population will have different health care ‘needs’ • Equity principle: equal access according to health care needs • Adjust resource allocations for these needs (and differential costs in accessing care)

5. Is geographical equity important? • In many centralised public systems, yes Objectives of capitated allocations • NSW: “To monitor progress towards the achievement of fairness in health funding” • Italy: “To overcome territorial inequalities in social and health conditions” • NZ: “To divide funding equitably between the four regions” • England: “To secure equal opportunity of access to those at equal risk”

6. Summary • Competitive health insurance market: risk adjustment is a response to inappropriate incentives • Centralised public systems: risk adjustment is a plan to promote geographical equity

7. The case of England’s NHS • Slightly different rules for England, Scotland, Wales and Northern Ireland • England: purchasers - used to be 100 health authorities • Now 250 primary care trusts (PCTs) • England (1976): Resource allocation working party (RAWP) - promote equal access for equal need

8. Current adjustment factors • Age, costs (e.g. between London and the rest of the country) and needs • Needs factors differ a bit between acute, psychiatric and community mental and non-mental health sectors • But generally include indicators of mortality, morbidity, unemployment, elderly living alone, ethnicity and socio-economic status

9. To finish: some problems • The adjustment factors are estimated on the basis of hospital utilisation – does utilisation reflect need? • Many of the factors are chosen because of availability of data • Even if allocation does comply with equal access for equal need, does provision? • Is equal access for equal need an appropriate policy goal? (reducing avoidable inequalities)