The resource allocation consequences of the new NHS needs formula

The NHS Executive has recently implemented modifications to the weighted capitation formula for distributing Hospital and Community Health Service funds to health authorities in England. A major contribution to the changes was an analysis of the relative needs of geographical areas undertaken by a team of researchers from the University of York. That work investigated the link between social and economic circumstances and the use of NHS inpatient facilities, and resulted in the development of separate needs indices for acute and psychiatric inpatient services. This report first documents the resource allocation consequences of each of these indices, and finds that the acute index is slightly more redistributive than the previous formula, and that the psychiatric index is very much more redistributive, in particular redirecting resources into the inner cities. In implementing the work, the Department of Health had to make a judgement about which needs index to use for distributing funds not relating to inpatient use, In the event, they have chosen to allocate 64% of the total budget according to the acute index, 12% according to the psychiatric index, and 24% according to no needs index. The report notes that the use of no needs weighting for such a large block of services, which includes community and mental handicap services, can be challenged. It illustrates the importance of the issue by comparing the Department’s preferred formula with an alternative, in which the 24% is allocated using the York acute index. It is found that this option would redirect amounts of up to 5% away from the home counties towards the inner cities. While not necessarily advocating this change, the report argues that the large sums involved highlight the urgent necessity for research on the relative need for health care in non-inpatient services.