A BRIEF GUIDE TO THE HISTORY OF THE ARBUTHNOTT/NRAC FORMULA

1. A BRIEF GUIDE TO THE HISTORY OF THE ARBUTHNOTT/NRAC FORMULA A presentation to the 1st meeting of TAGRA – 19 August 2008 Keith MacKenzie - Analytical Services

2. FIVE KEY POINTS • Guiding principle = people should have equal access to services according to need • We can’t predict people’s health needs for the coming year, so utilisation of services is used a proxy • Weighted capitation – allocating by population would be inequitable, so the formula takes account of ‘needs’ (age, gender, morbidity, etc) and (unavoidable excess) ‘costs’ of supplying services (e.g. due to sparsity, remoteness) • The formula gives us percentage shares for each Health Board – the amount (£s) to be shared out is set by the Spending Review • The formula provides ‘target’ shares for Health Boards. The ‘actual’ allocations are determined via the parity process  differential growth  all Board receive a minimum uplift, those below target receive an additional ‘parity adjustment.

3. POLICY CONTEXT • Fair and equitable distribution of resources – Better Health Better Care emphasises the importance of tackling health inequalities and the need for resources to be used efficiently and effectively • Preventative care and tackling long term conditions – NRAC sought to make the formula adaptable to changing healthcare needs and policy priorities • Health inequalities – NRAC reviewed and updated the needs element of the Arbuthnott Formula and has also proposed an adjustment for unmet need in acute services for circulatory diseases

4. HISTORY OF RESOURCE ALLOCATION (1) • 1977 SHARE Formula introduced • 1997-2000 National Review of Resource Allocation • Sep 2000 ‘Arbuthnott’ Formula introduced • 2001-03 Standing Committee on Resource Allocation: • Additional Cost of Teaching • Family Health Services • Unmet Need

5. HISTORY OF RESOURCE ALLOCATION (2) • NHSScotland Resource Allocation Committee (NRAC) established in 2005 with a remit to “improve and refine” the Arbuthnott Formula • NRAC met Health Boards  commissioned research  consulted on proposals  undertook further work  produced final proposals  Final Report presented to Cabinet Secretary in September 2007 • Cabinet Secretary invited views from Health Boards and Health and Sport Committee • February 2008 – changes to formula accepted along with proposal for new ongoing review group  TAGRA

6. ARBUTHNOTT FORMULA • Used to calculate the relative shares of the HCHS and GP prescribing budget amongst Health Boards • A weighted capitation formula – based on the size of the population in each Health Board • Adjusted to take account of the needs of the population (age and sex, morbidity and life circumstances) • And any additional costs associated with the supply of services in the Health Board area

7. Age-Sex Cost Weights Additional needs Unavoidable Excess Costs of Supply Population Health Board population % Relative need due to age and sex profile Relative need due to morbidity and life circumstan-ces Relative cost of providing services in different areas Arbuthnott/NRAC Weighted Share % × × × ═ ARBUTHNOTT/NRAC FORMULA Needs

8. POPULATION Why is this an improvement? • better reflects the changes in population • most robust in terms of accuracy and stability What is the impact? • Relatively little change in population shares between Arbuthnott and NRAC - no HB’s share changes by more than 0.9%

9. AGE SEX Why is this an improvement? • Takes account of the higher relative need of the very old and very young • Uses more up to date data What is the impact? • Relatively little change in the indices – no index moves by more than 0.02

10. MLC (1)

11. MLC(2) Why is this an improvement? • Data sources have been updated to ensure they are relevant to health needs to day • The MLC index now incorporates an unmet need adjustment relating to the under use of circulatory health services in deprived areas • The new index uses intermediate datazones. This gives greater precision in predicting needs and greater flexibility in using the index below Health Board level (e.g. for CHPs) What is the impact? • Index is lower for eight Health Boards and higher for six Health Boards. Significant falls for two Health Boards • Changes are mainly due to removal of unemployment rate from the Index

12. EXCESS COSTS (1)

13. EXCESS COSTS (2) Why is this an improvement? • Hospital adjustment is based on more rigorous evidence • Hospital adjustment addresses double counting by addressing the costs difference over and above the needs adjustment • Hospital adjustment reflects all unavoidable excess costs, not just rurality • Community travel adjustment takes better account of travel times and has had assumptions checked by service representatives • Clinic adjustment updated for first time since Arbuthnott • Based on datazones – can be used for sub-HB geography What is the impact? • Index is lower for eight Health Boards and higher for six Health Boards. • The increases are mainly in the more ‘urban’ Health Boards

15. SUMMARY OF IMPACT OF CHANGES • Redistribution of £81.9m (1.2%) of total HCHS budget • But significant changes in the target shares of some Health Boards (from +5% to -13.2%) • The range of “£s per head” figures between the 14 Health Boards is narrower under NRAC’s proposals than under Arbuthnott

16. OVERALL IMPACT

17. SUMMARY OF IMPROVEMENTS • Formula constructed from smaller, more meaningful geographic units  better precision in predicting needs, more flexible outputs • Better at keeping pace with changing population • More accurate account taken of higher relative needs of the very old and very young • Bring up to date the data sources feeding into the Formula • More accurately reflect the need for healthcare services due to MLC • Compensate for unmet need in circulatory services • More rigorous evidence base for Hospital services cost adjustment • Seeks to take account of the costs of delivering services on the Islands • Improve and update Community travel based services adjustment • Propose formulae for allocating resources for PCS