Elsevier

Social Science & Medicine

Volume 69, Issue 11, December 2009, Pages 1634-1642
Social Science & Medicine

Can regional resource shares be based only on prevalence data? An empirical investigation of the proportionality assumption

https://doi.org/10.1016/j.socscimed.2009.09.020Get rights and content

Abstract

The needs component of the current formulae for allocating resources for hospital services and prescribing in England is based on a utilisation approach. This assumes that expenditure on NHS activity in different geographical areas reflects relative needs and supply conditions, and that these can be disentangled by regression models to yield an estimate of relative need. These assumptions have been challenged on the grounds that the needs of some groups may be systematically ‘unmet’. Critics have suggested an alternative based on variations in the prevalence of health conditions, called the ‘epidemiological approach’.

The epidemiological approach uses direct measures of morbidity to allocate health care resources. It divides the total national budget into disease programmes based on primary diagnosis, computes the proportion of total cases for each programme in each geographical area, and then allocates budgets to geographical areas proportional to their share of total cases. The main obstacle to the epidemiological approach has been seen as its very demanding data requirements. But it also faces methodological challenges. These centre on the assumption of proportionality which, at the area level to which resources will be allocated, requires that the average level of need for ‘cases’ within each disease programme is the same in every area.

We illustrate the epidemiological approach, and test the proportionality assumption underpinning it, using data from the 2002–2004 rounds of the Health Survey for England. We find regional variation in disease severity for major diseases, which suggests that health care needs for some conditions vary by area. Further analysis suggests that the epidemiological approach might systematically underallocate resources to rural areas, areas with younger populations, and deprived areas. Since the proportionality assumption underpinning the epidemiological approach does not hold, its adoption would fail to take account of variations in severity. This casts some doubt on the utility of the approach for resource allocation at the present time.

Introduction

Resources for regional organisations to provide health care in the National Health Service (NHS) in England are determined by a weighted capitation formula. This formula contains both a needs element, which attempts to allocate resources according to the health care needs of local populations, and a cost element, which considers geographical variation in unavoidable costs of delivering health care services (Department of Health, 2008). The needs element contains four separate components covering hospital and community health services (HCHS), prescribing, primary care services and HIV/AIDS. The cost element applies to HCHS, primary care services and HIV/AIDS.

The needs element of the formula for HCHS and prescribing was derived using a utilisation approach applied to small areas (Gravelle et al., 2003, Smith et al., 2001, Sutton et al., 2002). Underpinning the utilisation approach is the proposition that the provision of health care in different areas contains information on relative needs, and that while needs are not observed directly they may be derived from utilisation data using appropriate regression techniques. The utilisation of services is determined by needs and supply factors. Needs cannot be observed directly but are assumed to be an aggregate of decisions made by health care professionals best placed to assess relative needs subject to resource constraints. Needs depend on socioeconomic factors and morbidity. By examining the relationship between utilisation and socioeconomic status and morbidity after controlling for the effects of supply, the variables that determine needs can be identified and the strength of their effects on the needs for health care can be estimated. If the levels of the needs variables in different areas are known, it is then possible to use the results from the regression model to estimate relative needs in each area and to inform the allocation of resources accordingly.

There have been a number of criticisms of this element of the formula (see, e.g., Asthana and Gibson, 2006, Asthana and Gibson, 2008, Asthana et al., 2004, Stone and Galbraith, 2006), which essentially fall into one of two categories. The first is a series of criticisms concerning the broad approach, mainly concerning whether or not historical patterns of uptake of health services are appropriate for assessing health care needs (Asthana et al., 2004). The second is a more general concern about how the financial situations of NHS organisations relate to the current funding formulae, specifically whether or not organisations serving rural areas were disadvantaged compared to those serving urban areas. Doubts about the validity of this second set of criticisms have been raised in recent work conducted by the Chief Economist at the Department of Health, which suggests that the existing pattern of deficits was unlikely to have been caused by the current needs formulae (Department of Health, 2007).

In the light of these criticisms there has been a growing interest in alternative approaches to the utilisation approach and one which has received attention in recent years is often referred to as the epidemiological approach.1 This involves the direct use of morbidity data to allocate health care resources. It has been used to allocate health care resources in Wales (National Assembly for Wales Health and Social Services Committee, 2001) and has been assessed in the context of allocating resources for coronary heart disease (CHD) in England (Asthana et al., 2004). It is also currently being investigated in other research projects in the English NHS (Asthana et al., 2007, Asthana et al., 2008). In this paper we investigate the epidemiological approach in greater detail, focusing on a key assumption underpinning the approach, namely proportionality.

Our paper provides a comparison of two approaches to resource allocation in health care. A full review of different resource allocation schemes is beyond the scope of the paper, but further details about other options can be found in Rice and Smith, 1999, Rice and Smith, 2001. Risk adjustment models based on individual utilisation data are reviewed for five European countries by Chernichovsky and van de Ven (2003). Further comparisons are given by Parkin and McLeod (2001).

Our paper is structured as follows. In the next section we describe the epidemiological approach, highlighting the data requirements and assumptions underpinning the approach. We focus in particular on the assumption of proportionality. After that we provide an illustrative example of the approach using crude prevalence data from the Health Survey for England. In the following section we investigate whether or not the proportionality assumption holds using health survey data to test for regional variations in disease severity for a number of longstanding illnesses. In the final section we discuss the implications of our findings for calculating regional resource shares in health care.

Section snippets

The epidemiological approach

The epidemiological approach involves the direct use of morbidity data to allocate health care resources. The general approach is to:

  • 1.

    Divide the total national health care budget into disease programmes based on primary diagnosis.

  • 2.

    Estimate the proportion of total national cases of disease for each programme that are resident in each geographical area.

  • 3.

    Allocate budgets to geographical areas according to their share of total cases.

For example, if a country spends £X on coronary heart diseases (CHD),

An illustrative example

In this section we present an illustration of how the epidemiological approach might be applied using crude prevalence data from the HSE. We use the simple approach adopted in Wales to illustrate the method, acknowledging that more sophisticated methods may produce different results. We use the example to highlight the assumptions involved in using the approach more generally.

First, we computed indicative allocations using the utilisation approach. We employ the same method currently used by

Testing the proportionality assumption

In this section, we investigate the assumption of proportionality underpinning the epidemiological approach. As stated above, this assumes that the mean level of needs for every diagnosis is the same in every area. To investigate the plausibility of this assumption we examine whether or not the mean health care needs for each longstanding illness in the HSE is the same in every StHA.

Health care needs are not directly observable; we therefore proxy them by measures of disease severity in the

Discussion

In this paper we have investigated the epidemiological approach to resource allocation in health care. We provided a simple example of the method using crude prevalence counts obtained from health survey data and found some evidence that the epidemiological approach would allocate more funds to elderly areas, to rural areas, and to affluent areas, than the utilisation approach.

We assessed the materiality of regional variations in severity by investigating whether or not severity is correlated

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    This research was commissioned by the Advisory Committee on Resource Allocation of the Department of Health as part of its work on the needs components of the resource allocation formulae for hospital and community health services and prescribing activity in England. The views expressed are those of the authors and not necessarily those of the Advisory Committee on Resource Allocation or the Department of Health.

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