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Capitation funding in the public sector

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  • Peter C. Smith
  • Nigel Rice
  • Roy Carr‐Hill

Abstract

A fundamental requirement of government at all levels—national and local—is to distribute the limited funds that it wishes to spend on particular public services between geographical areas or institutions, which are effectively competitors for such funds. Increasing use is now being made of capitation methods for such purposes, in which a standard estimate of expected expenditure is attached to a citizen with given characteristics. Statistical methods are playing an important role in determining such capitations, but they give rise to profound methodological problems. This paper examines the rationale for capitation and discusses the associated methodological issues. It illustrates the issues raised with two examples taken from the UK public sector: in personal social services and hospital care. Severe limitations of the data mean that small area data are used as the unit of observation, giving rise to considerable complexity in the model to be estimated. As a result, a range of methodologies including two‐stage least squares and multilevel modelling methods are deployed. The paper concludes with a suggestion for an approach which would represent an improvement on current capitation methods, but which would require data on individuals rather than on small areas.

Suggested Citation

  • Peter C. Smith & Nigel Rice & Roy Carr‐Hill, 2001. "Capitation funding in the public sector," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 164(2), pages 217-257.
    • Handle: RePEc:bla:jorssa:v:164:y:2001:i:2:p:217-257
    DOI: 10.1111/1467-985X.00200
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    1. P. McGregor & P. McKee & C. O’Neill, 2008. "The role of non-need factors in individual GP utilisation analysis and their implications for the pursuance of equity: a cross-country comparison," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 9(2), pages 147-156, May.
    2. Jeremiah Hurley & Neil Buckley & Katherine Cuff & Mita Giacomini & David Cameron, 2011. "Judgments regarding the fair division of goods: the impact of verbal versus quantitative descriptions of alternative divisions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 37(2), pages 341-372, July.
    3. William Lim & Gaurav Khemka & David Pitt & Bridget Browne, 2019. "A method for calculating the implied no-recovery three-state transition matrix using observable population mortality incidence and disability prevalence rates among the elderly," Journal of Population Research, Springer, vol. 36(3), pages 245-282, September.
    4. Derek Bond and Prof. Denis Conniffe, 2002. "Cross-Regional Equity in Health Care Funding," NIRSA Working Paper Series 3, National Institute for Regional and Spatial Analysis (NIRSA), NUI Maynooth, Ireland..
    5. Hugh Gravelle & Matthew Sutton & Stephen Morris & Frank Windmeijer & Alastair Leyland & Chris Dibben & Mike Muirhead, 2003. "Modelling supply and demand influences on the use of health care: implications for deriving a needs‐based capitation formula," Health Economics, John Wiley & Sons, Ltd., vol. 12(12), pages 985-1004, December.
    6. O'Loughlin, Rosalyn & Kelly, Alan, 2004. "Equity in resource allocation in the Irish health service: A policy Delphi study," Health Policy, Elsevier, vol. 67(3), pages 271-280, March.
    7. Tuukka Holster & Shaoxiong Ji & Pekka Marttinen, 2024. "Risk adjustment for regional healthcare funding allocations with ensemble methods: an empirical study and interpretation," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 25(7), pages 1117-1131, September.
    8. Bond, Derek & Conniffe, Denis, 2003. "Allocating Funding across Health Boards - Is Equity Easy?," Papers HRBWP05, Economic and Social Research Institute (ESRI).
    9. Hugh Gravelle & Mark Dusheiko & Steve Martin & Pete Smith & Nigel Rice & Jennifer Dixon, 2011. "Modelling Individual Patient Hospital Expenditure for General Practice Budgets," Working Papers 073cherp, Centre for Health Economics, University of York.
    10. Somi Shin, 2021. "Healthcare provider response to payment system reform: evidence from New Zealand," SN Business & Economics, Springer, vol. 1(11), pages 1-29, November.
    11. Katharina Hauck & Rebecca Shaw & Peter C. Smith, 2002. "Reducing avoidable inequalities in health: a new criterion for setting health care capitation payments," Health Economics, John Wiley & Sons, Ltd., vol. 11(8), pages 667-677, December.
    12. Martin, Stephen & Rice, Nigel & Smith, Peter C., 2008. "Does health care spending improve health outcomes? Evidence from English programme budgeting data," Journal of Health Economics, Elsevier, vol. 27(4), pages 826-842, July.
    13. Adam Oliver, 2005. "The English National Health Service: 1979‐2005," Health Economics, John Wiley & Sons, Ltd., vol. 14(S1), pages 75-99, September.
    14. van Noort, Olivier & Schotanus, Fredo & van de Klundert, Joris & Telgen, Jan, 2018. "Explaining regional variation in home care use by demand and supply variables," Health Policy, Elsevier, vol. 122(2), pages 140-146.
    15. Nagy, Balázs, 2010. "Egy hiányzó láncszem?. Forráselosztás a magyar egészségügyben [Resource allocation in Hungarian health care - is there a missing link?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 337-353.
    16. Stephen Martin & Nigel Rice & Peter C Smith, 2007. "The Link Between Health Care Spending and Health Outcomes: Evidence from English Programme Budgeting Data," Working Papers 024cherp, Centre for Health Economics, University of York.
    17. Stephen Martin & Nigel Rice & Peter C Smith, 2008. "The link between health care spending and health outcomes for the new English Primary Care Trusts," Working Papers 042cherp, Centre for Health Economics, University of York.
    18. Jay Pan & Gordon G. Liu, 2012. "The Determinants Of Chinese Provincial Government Health Expenditures: Evidence From 2002–2006 Data," Health Economics, John Wiley & Sons, Ltd., vol. 21(7), pages 757-777, July.
    19. Robert Elliott & Ada Ma & Matt Sutton & Diane Skatun & Nigel Rice & Stephen Morris & Alex McConnachie, 2010. "The role of the staff MFF in distributing NHS funding: taking account of differences in local labour market conditions," Health Economics, John Wiley & Sons, Ltd., vol. 19(5), pages 532-548, May.
    20. Jeremiah Hurley & G. Emmanuel Guindon & Vicki Rynard & Steve Morgan, 2008. "Publicly funded medical savings accounts: expenditure and distributional impacts in Ontario, Canada," Health Economics, John Wiley & Sons, Ltd., vol. 17(10), pages 1129-1151, October.
    21. Jones, A.M, 2010. "Models For Health Care," Health, Econometrics and Data Group (HEDG) Working Papers 10/01, HEDG, c/o Department of Economics, University of York.
    22. Waitzberg, Ruth & Schmidt, Andrea E. & Blümel, Miriam & Penneau, Anne & Farmakas, Antonis & Ljungvall, Åsa & Barbabella, Francesco & Augusto, Gonçalo Figueiredo & Marchildon, Gregory P. & Saunes, Ingr, 2020. "Mapping variability in allocation of Long-Term Care funds across payer agencies in OECD countries," Health Policy, Elsevier, vol. 124(5), pages 491-500.
    23. Peter C. Smith & Andrew Street, 2005. "Measuring the efficiency of public services: the limits of analysis," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 168(2), pages 401-417, March.
    24. Vallejo-Torres, Laura & Morris, Stephen & Carr-Hill, Roy & Dixon, Paul & Law, Malcom & Rice, Nigel & Sutton, Matthew, 2009. "Can regional resource shares be based only on prevalence data? An empirical investigation of the proportionality assumption," Social Science & Medicine, Elsevier, vol. 69(11), pages 1634-1642, December.
    25. Stephen Martin & Nigel Rice & Peter C. Smith, 2012. "Comparing costs and outcomes across programmes of health care," Health Economics, John Wiley & Sons, Ltd., vol. 21(3), pages 316-337, March.

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