Examination of Witnesses (Questions 938
- 939)
WEDNESDAY 29 APRIL 2009
Mr David Fillingham, Ms Rhona MacDonald, Mr Keith
Derbyshire and Dr Stephen Lorrimer
Q938 Chairman:
Could I start by thanking you very much for coming. You know what
this Committee is about, you know our mandate and we are very
grateful that you are here to help us. Could I just deal with
one or two housekeeping matters first? This is a public hearing.
The public will be admitted to it, if any of them turn up! If
they do not, it does not matter. The evidence sessions are broadcast
live on the Internet. A full transcript will obviously be taken
and you will have an opportunity to look at the transcript. We
will send it to you very soon after you give evidence. If you
want to correct some of it, that is fine. I think on the Hansard
basis you can correct grammar but you cannot actually correct
the substance. I think that is all I have got on housekeeping.
Can I start by asking you in effect to make an opening statement?
It would help us, I think, to hear from you how you do it, how
it works and what the effect of it is, please.
Mr Fillingham: Okay. Good afternoon everybody.
My name is David Fillingham. In my day job I am Chief Executive
of the Royal Bolton Hospital, but I have also been Chair of ACRA,
advising the committee on resource allocations since 2006. Perhaps
my colleagues could introduce themselves as well, my Lord Chairman,
and I will make an opening statement.
Ms MacDonald: I am Rhona MacDonald. I am Chief
Executive of the Bath and North East Somerset PCT, but I am also
the Chair of the Technical Advisory Group to ACRA and a Member
of ACRA.
Mr Derbyshire: I am Keith Derbyshire, Senior
Economic Adviser in the Department of Health and Deputy Director
of Finance, and I sit on ACRA and TAG as well.
Dr Lorrimer: May name is Stephen Lorrimer. I
am also a Deputy Director of Finance and I lead the team which
is responsible for the operationalisation of the resource allocation
process and also provide secretariat support to TAG and ACRA.
Mr Fillingham: If I could try and briefly explain
who ACRA is and how we work—and apologies for the acronyms,
the NHS does like its acronyms, being one itself—ACRA is
the Advisory Committee on Resource Allocation. I will say a little
about the funding formula and how the funding formula works. ACRA
is an independent expert committee which overseas the development
of the formula which is used to allocate resources to Primary
Care Trusts in England. The Department of Health has actually
used a funding formula for quite some considerable time. It was
one of the first health systems to use a formula in this way and
it has used it since 1977 to allocate resources to PCTs or to
their predecessors. ACRA itself was established in 1997, so it
has already got quite a pedigree, and it is made up of 27 members,
and that is a combination of expert academics, namely statisticians,
economists and geographers, and general practitioners, NHS managers
(of whom Rhona and myself are two), Department of Health officials
and experts, and then representatives from other government departments
as well. Our role is to oversee the development of the formula
and make recommendations to ministers. So, to be clear, although
we are an independent advisory committee, ultimately it is for
ministers to make decisions about funding levels and about pace
of change, and I will say more about that in a moment. We have
two objectives which have been set for us by the Secretary of
State for Health in carrying out this work. The first is to make
sure the funding formula ensures equal opportunity of access to
healthcare for people who are at equal risk, and that is our definition
of fairness or equity, I guess, and then secondly to contribute
to the reduction in avoidable health inequalities. We try, through
the funding formula and the allocation process, to achieve both
of those objectives. The funding formula covers hospital and community
health services, the drugs bill and primary medical services and
by far the largest part of that, the biggest single component,
is hospital and community services. ACRA, as I have said, has
27 members but we are supported by a technical advisory group,
which actually Rhona MacDonald chairs, and that has a stronger
make-up of expert academics, particularly statisticians and economists.
Our work programme follows the Department of Health's allocation
of resources to the NHS and since 2003/4 typically we have moved
to see two or three year allocations of resources rather than
single years, which means our work programme tends to span a two
to three year period. Then following each allocation round we
make recommendations to the Secretary of State based on his commission
to us, and that involves us carrying out our own analytical work
and research, particularly drawing on analysts within the Department
of Health, but we also commission extensive external research
from experts in the field. I said I would mention the pace of
change, because I think it is important to say that ACRA does
not determine the funding for any given PCT in any particular
year, and that is because what we do is develop a formula which
determines the target allocation for each PCT. The funding which
a PCT gets is then a measure of the distance that PCT is from
its target allocation. So PCTs have a historic position. We set
a target and the pace of change policy is then determined by ministers
and the way in which that worked in the last allocations round,
for example, was that all PCTs got a reasonable uplift, a good
settlement, but those which were further from their targets got
a higher settlement and those which were some distance from their
targets a slightly lower settlement. My colleagues from the Department
of Health could explain that in more detail if you wish. Just
to turn to the formula itself, there are four main stages to the
way in which we develop the allocations formula. The first is
the population count, so the starting point for the funding formula
is the population for which the PCT is responsible. That is made
up of those people in that area who are registered with general
practitioners, who are on GP lists, together with people who live
in the area but who are not actually registered with a GP, so
that would include, for example, prisoners, the Armed Forces and
asylum seekers, and the populations are based on ONS (Office of
National Statistics) estimates of the sub-national population
projections. That is the first thing we have to do, to count the
population as accurately as we can, and I guess I was a little
surprised, coming on to ACRA, at how difficult it is just to count
the number of people and to do that accurately. Secondly, we then
weight that population for the needs of that population and that
is potentially a contentious process. Not all individuals have
the same needs for healthcare. Need varies with gender, age and
social circumstances. The very young or the very elderly in particular
make greater use of the NHS. Even after age has been taken into
account need is not uniform, so we do make a range of additional
adjustments. That is something which has developed and evolved
over the years I have described before into what is now quite
a sophisticated approach based on research commissioned by ACRA,
which examines the relationship between the utilisation of health
services on the one hand and the socioeconomic characteristics
of the population on the other. So we weight the population count
to reflect the predicted demand for healthcare which we believe
that population will need. The third thing we then add is a separate
health inequalities formula. Because our weighting of the population
is based on what has happened in the past, based on existing utilisation,
there is the risk that it does not account of un-met needs. There
are the groups of the population who do not access health services
early or do not access them at all, so we have developed a health
inequalities formula to meet that second objective of reducing
avoidable health inequalities. That is actually based on disability-free
life expectancy, looking at a measure not only of how long people
are expected to live but on how healthy they are during their
lifetime. That formula was used for the first time in the last
allocations round. We are quite unusual as a system in having
a health inequalities component in our allocation formula for
health services and in fact as part of our next work programme
we have commissioned research to see how that can be developed
further. The fourth and final element is an adjustment for the
costs of providing healthcare, so the first three have been trying
to estimate the demand from the population, the needs the population
is going to have, but there is a final adjustment known as the
"market forces factor" and that recognises that the
costs of providing healthcare are different in different parts
of the country. There is a number of elements to that—staff
costs, London weighting and estates and land costs—but by
far the biggest element is staff costs, even though the National
Health Service has a national pay deal and national pay rates,
the costs of recruiting and retaining staff are higher in higher
cost (labour costs) parts of the country. In central London, for
example, it is difficult to recruit staff and hospitals pay more
in agency and overtime rates and the so pay costs are higher and
the market forces factor has to reflect that. So based on those
four elements our recommendations for the content of the capitation
formula go to the Secretary of State for consideration. In 2009-10
allocations round our recommendations were accepted in full and
have now been implemented for the financial years 2009-10 and
2010-2011. That is a very general introduction to who ACRA is,
what we do and the way in which the funding formula is developed,
and then where that is given effect to actually give allocations
out to PCTs. We would be very happy to answer any questions on
any aspect of that from the Committee.
Q939 Lord Forsyth of Drumlean:
Having read the paper and listening to you, how do you avoid the
problem of very efficient and good health authorities being punished
for delivering? Perhaps they have more emphasis on preventative
or other aspects, it could be anything. How do you avoid more
money going to those people who do less well not as a result of
what is inherent in their area but perhaps because of their own
performance?
Mr Fillingham: I think that is exactly one of
the problems which the weighted capitation formula is intended
to address. If we go back before 1977 when the NHS had incremental
budgets handed out to it, there was a risk that the people who
used the money most efficiently would suffer. The idea of the
weighted capitation formula is that it allocates money to a given
population on the basis of that population's need, regardless
of how that money is then used by the Primary Care Trust and the
hospital within that area. So clearly for those health services
which can get the best use out of that money, being the most efficient,
they are going to get more healthcare per pound of taxpayers'
money spent than a health system which is less efficient.
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