Annex A > Chapter 6 - Funding and Resources > The allocation of resources to the Regional Health Authority > The distribution of healthcare funds to the regional health authorities

The distribution of healthcare funds to the regional health authorities

8 Revenue allocations to health authorities began with funds that were `top-sliced' from the general budget, and earmarked for particular projects or costs. The most important of these, for the purposes of the Inquiry, were the funds for supra regional services (from the 1984/85 financial year) and the SIFT funds, for costs associated with the training of undergraduates in medicine and dentistry. The remaining sums formed the main allocation available for health authorities. The RAWP methodology was then used to calculate the allocations of sums by way of revenue and capital to each of the regional authorities.

`Top-sliced' funding

9 Further details of the allocation of `top-sliced' funds in respect of the costs of training clinical undergraduate students, and the difficulties in estimating the true size of such costs, can be found in the paper from Mr Bevan. [6] The purpose of top-slicing funding for certain specialised, supra regional services was to protect and develop such services by funding agreed volumes at agreed costs. [7] Such protected funding was introduced for neonatal and infant cardiac surgery (NICS) for the first time in the financial year 1985/86, [8] and removed with effect from the financial year 1994/95, after this service was `de-designated'. From the 1994/95 financial year, the funding of NICS changed, with costs being apportioned between regions on the basis of past usage measured by inpatient days. [9]

10 Mr Bevan wrote:

`This policy of funding supra-regional services at actual costs developed outside national policies on resource allocation and was justified by objectives other than seeking an equitable distribution of resources. For Neonatal and Infant Cardiac Surgery, these are indicated by a paper prepared by the Department, which explained the advantages of concentration in a few centres to achieve high standards of diagnosis and treatment: as established centres had lower than average mortality.' [10]

Revenue allocation

11 Mr Bevan wrote:

`For each RHA the Department derived target allocations for revenue: its estimated fair share of the total for England. This was based upon its catchment population: the numbers and estimated relative needs of its resident population, with adjustments for cross-boundary flows. ... [11]

`The Department's policy was, over time, to move each RHA's main revenue allocation towards its target, at a manageable pace of change (to avoid extra resources being squandered, and disruption to services from having to make reductions too quickly). "Ceilings" and "floors" were set on rates of change in allocations to each RHA dependent on the growth monies available each year. RHAs were ranked according to how their actual allocations compared with their targets. There was an important distinction between "above-target" RHAs and "below-target" RHAs (with revenue spend higher and lower than their targets). The Department's policy was broadly one of "levelling up": to direct growth money at "below-target" RHAs, which meant that "above-target" RHAs received little or no growth money. For a "below-target" RHA, the greater the distance of its allocation from its target, the greater would be the share of "growth" money allocated to that RHA.

`The introduction of the "internal market" from 1991 changed the structure of the capitation formulae for revenue allocations so that these applied to resident (not catchment) populations ...' [12]

12 Between 1978 and 1985 the South Western RHA (SWRHA) was consistently below `target' and therefore received slightly more growth money than the national average. [13] The allocations to the SWRHA are discussed further at para 16.

13 Throughout the period of the Inquiry's Terms of Reference, resource allocation was subject to financial constraints. One such constraint was the need to fund `real' growth from `efficiency savings'. Such `efficiency savings', announced by the Secretary of State in December 1982, were set at 0.5% of actual allocations.
In 1984/85, this approach was replaced by a requirement to submit to the Department of Health a programme of `cost improvements' of 2% of the allocation. Health authorities were allowed to retain any savings which were generated, unlike the previous reductions for `efficiency savings' that had been redistributed nationally and regionally using the RAWP equalisation principles. [14]

Capital allocations and capital charges

14 SWRHA's capital allocations varied from between 6% and 8% of the total capital allocations for all RHAs, and from between 6% to 8% of its main revenue allocation. [15]

15 The methodology of capital allocation by the DoH to the regions is discussed by Mr Bevan at paragraphs 56-61 of his paper. [16] Between 1983/84 and 1990/91, capital was allocated on the basis of three criteria: the population target share; a capital stock equalisation element; and `ceilings' and `floors' on rates of change. The aim was to achieve an equitable distribution of capital throughout the regions. [17] The methods available to the NHS to assess the need for capital were, however, inadequate or crude. [18] After 1990/91 and with the introduction of the `internal market', a system of capital charging was introduced: this is discussed further at para 54 below.

The pattern of funding in England

16 Mr Bevan advised the Inquiry:

`To estimate changes over time, it is essential to remove the effect of inflation and estimate expenditure in "real" terms (i.e. constant prices). There are two price indices that are used to do this: one is based on changes in pay and prices in the general economy (the GDP deflator), the other on pay and prices of staff and consumables in the NHS (the HCHS [19] deflator). There is a general tendency for pay to increase faster than general inflation, and most of HCHS expenditure is on pay.

`Figure 1 shows changes in the allocations of HCHS resources for England in "real" terms over the period 1982 to 1995. The sources of these data are official publications by the Department. [20] Thus Figure 1 shows that, using the GDP deflator, there were increases in NHS expenditure each year over this period, and in contrast, using the HCHS deflator, shows that expenditure to have been at a standstill between 1984 and 1988. After the publication of `Working for Patients' [21] in 1989, Figure 1 shows substantial increases in `real' terms in the total HCHS allocated to the NHS. Hence the resource position was transformed in terms of spend on the NHS. [22], [23]

Figure 1: Real spend HCHS England

Allocations to the South Western Regional Health Authority

17 The South Western RHA was an RHA that was `below-target'. Between 1979/80 and 1988/89, the Region moved from having an allocation that was about 96% of its target to one of about 98.5% of its target. Whilst there are complications in measuring its position in 1990/91, [24] thereafter the Region remained just a little below 100% of its target allocation. Mr Bevan wrote:

`Although South Western RHA benefited in terms of higher-than-average revenue allocations, before 1988-89, this was within a stringent regime of little or no "real" growth in the total. Figure 3 shows a bleak picture for 1984-85 to 1988-89 of limited growth in its main allocation followed by reductions so that, in "real" terms, the allocation for 1988-89 was marginally lower than for 1984-85. After that there was "real" growth each year.' [25]

Figure 3: Changes in SWRHA's revenue allocation

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Footnotes

[6] INQ 0047 0029 - 0030 ; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'. See Annex B

[7] See the recommendations of the SRSAG October 1983; WIT 0482 0345 - 0362 Dr Moore

[8] NICS having been designated as a supra regional service during 1984/85

[9] INQ 0047 0024; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'. See Annex B

[10] INQ 0047 0031. Criticisms of the system, from the perspective of the policy aim of achieving equitable rates of access and use, are to be found at INQ 0047 0035; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'. See Annex B

[11] Further details of the process whereby targets were derived, and the changes or adjustments made over the period of the Inquiry's Terms of Reference can be found at INQ 0047 0024 - 0027 ; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol' (emphasis in original). See Annex B

[12] INQ 0047 0015; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol' (emphasis in original). See Annex B

[13] UBHT 0339 0058; after taking into account the further growth monies of 1.6% (£8.8million) which were provided for 1984/85, the South Western Region remained 4.4% below target

[14] UBHT 0339 0043

[15] INQ 0047 0050; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'

[16] INQ 0047 0027 - 0029 ; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'

[17] INQ 0047 0033; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'

[18] INQ 0047 0044 - 0045 (paragraphs 103-5)

[19] Hospital and Community Health Services

[20] The footnote by Mr Bevan continues: `Source: Technical Appendix, Table 1, columns 1 and 2. These data give a good indication of the changing resources available for HCHS in England as they are largely unaffected by the change in the funding of RHAs (from catchment to resident populations) and largely exclude capital charges introduced following the NHS reforms.' INQ 0047 0046; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'. See Annex B

[21] `Working for Patients', January 1989, Department of Health

[22] The footnote by Mr Bevan continues: `But these extra resources were also required to help launch the NHS internal market with its various transaction costs: for example, of contracting, invoicing, price determination.' INQ 0047 0046; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'. See Annex B

[23] INQ 0047 0046; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'. See Annex B

[24] INQ 0047 0047 - 0049 and table at INQ 0047 0050; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'. See Annex B

[25] INQ 0047 0049; `National and Regional Resource Allocation Frameworks and Funding Availability for Acute Sector Health Services at Bristol'. See Annex B