1. NHS FINANCE “BUILDING BLOCKS” Bob Dredge Director of Finance Birmingham Children’s Hospital NHS Trust

2. FUNDING THE NHS FUTURE PROSPECTS CURRENT ISSUES

3. FUNDING PRINCIPALS Since 1976 – equity Access based on need Need measured in £ Allocate £ based on need

4. SINCE 1976 Slow progress Different measurement Different definition of need FHS excluded until 1998 GMS excluded until 2002

5. BASICS OF ALLOCATION Weighted Capitation Target What PCT (DHA) should have Recurrent Baseline What it has Distance from Target Target less baseline Pace of Change How quickly target met

6. WEIGHTING FACTORS Age structure (cost weights)

7. AGE/COST/CURVE

8. DEMOGRAPHIC IMPACT

9. WEIGHTING FACTORS Age structure Needs Long Standing Illness Morbidity (SMR) Unemployment rate 65+ living alone GMS- age related access - Jarmen Index Market Forces 117 pay zones Averaging between neighbours

10. PCT TARGET PCT Weighted Population x £ available England Weighted Population

11. FUNDED BY 98% Public Funds 2% changes Constant % for 10 years

12. HOW MUCH (2002/03) £M Current expenditure46,168 Capital charges 1,69747,865 Allocated to DHAs41,468 Central Funds/Initiatives 6,39747,865

13. WITHIN ALLOCATIONS £M Performance fund230 Cancer76 CHD60 Mental Health75 IM & T56 Capacity Building425 Primary Care Access84 Central Shared Services26 StBO100

14. 2002/03 HEADLINES Average cash increase 9.88% Range of increase 9.31% - 11.68% Assumed GDP – 2.6% Real inflation around 6% Minimum cash increase to PCTs – 5.6%

15. 2002/03 HEADLINES Some earmarked developments Real CIP risks – 0.2% - 6.3% in BBC £40m needed Duty to break even Health economy issue

16. FUTURE PROSPECTS Wanless Government response Is NHS failing?

17. WANLESS  It should be noted that in all other countries examined, there are relatively high levels of dissatisfaction with health service… whatever the (spend).

18. TORs Estimate resources needed in 20 years time Not how financed …but publicly funded, comprehensive and high quality

19. FUNDING MECHANISMS Taxation – direct and indirect Social Insurance - earnings related - employer tax  Out-of-Pocket - public and private  Private Insurance

20. PRINCIPLES Efficiency -lowest cost -minimum disruption to economy  Equity - access based on clinical need (NICE) -contributions related to ability to pay  Choice -meeting expectation

21. PUBLIC OR PRIVATE OECD suggest greater share of public spending associated with better health outcomes

22. OUT OF POCKET UK- limited to primary care - progressive – many exceptions  France/Sweden – all pay same  USA – 55% private

23. TAXATION Efficient to finance/collect Cost containment Forces prioritisation (nationally) Vulnerable to economic cycle ? Ensures universal access not based on ability to pay (risk too large) Progressive in economic terms Limited personal choice

24. SOCIAL INSURANCE Payroll tax managed by Fund No incentive to contain costs Relatively high admin costs Germany/France revisions Narrow payer base Vulnerable to economic cycle Little individual choice

25. OUT OF POCKET All or part payment Limit work/maximise choice Selection mitigates prevention! High cost to run Regressive Increase inequalities (Sweden)

26. PRIVATE INSURANCE Very variable between countries Poor cost control Fragmented commissioning High admin costs Individual risk rating – not universal even based on affordability Freedom of choice

27. CONCLUSION Taxation best -cost control -prioritisation  Separation of paying and costing  Public spend best  OOP bad!  So stay as we are!  “fair and efficient”

28. GOVERNMENT RESPONSE March 2002 Budget Milburn speech – May Throw money at problem Increase tax

29. FUTURE FUNDING Cash % Real * 2003/0410.27.9 2004/059.97.4 2005/069.97.4 2006/079.97.4 2007/0810.17.8 * Inflation at 2.5%

30. A BIG CHANGE?

31. BUT – CAPITAL! RevenueCapital 2003/046.624 2004/056.917 2005/066.726 2006/076.815 2007/087.016

32. PAYMENT BY RESULTS Elective activity beyond base in 2003/04 - cost per case - HRG Reference Cost - Non Recurrent? Medium Term – all activity Social service penalty for delayed discharge

33. USE OF PRIVATE SECTOR Surgical Teams Expect Work Whole Service (Kaiser) Model? LIFT

34. WILL IT WORK

35. HEALTH GAINS Spend increase1997- 2002 Health +37% Education +36% Law & Order +36% Transport nil Environment +28% Housing+38%

36. FINANCIAL DUTIES Break-Even each year Capital Cash (6%) absorption Manage EFL Meet Resource Limit Public Sector Payment