Capitation arrangements are traditionally used as an alternative to fee-for-service reimbursement to facilitate a transfer of risk from the funder to providers of healthcare services. The objective of introducing risk sharing between funders and providers is to encourage the delivery of efficient and patient-centred care by incentivising the integration of services and minimising unwarranted variation in care. This paper by Milliman’s Joanne Buckle and Tanya Hayward explores how the principles of a traditional capitation arrangement may apply in a regional National Health Service system where the stakeholder roles differ and the implementation of various key capitation principles is not possible.
The role of private health insurance differs significantly from one country to another. A key reason for this relates to the availability and the delivery of public healthcare within each country. In addition, governments often dictate the role of private health insurance within any particular country. This eight-part series focuses on international health markets, comparing and contrasting the key elements of risk selection practice in the public and private health insurance markets in each region.
Health insurance market summary
The publicly funded English National Health Service (NHS) is a tax-funded system that provides (largely) free healthcare at the point of use to all UK citizens. It is funded out of general taxation, rather than by a social insurance scheme or earmarked tax.
The NHS budget is currently devolved to regional bodies, called primary care trusts (PCTs), which must then fund care for their geographically defined populations, ranging from 90,000 people to over 1 million. PCTs sometimes provide primary care service by employing clinicians directly, but more likely are involved in ‘commissioning’ and paying for the care deemed necessary to meet the needs of its population. As there are few defined benefits under the NHS, a PCT must perform a juggling act and identify needs and clinical priorities to ensure that they have enough budget throughout the year to pay for care.
PCTs receive their budget allocation based on a risk-adjusted methodology, which takes into account the demographic structure of each population, as well as loadings for ‘deprivation,’ which is deemed to be a broad indication of clinical need. However, there is little sophisticated use of past clinical data to risk adjust the budgets according to a future perceived demand based on past health status. In addition, a PCT that underspends its allocation is likely to have the surplus redistributed to another PCT that has overspent. In this way, a very informal and uncodified ex-post experience adjustment is made to the budget allocation, but this adjustment could be as much to do with poor management as true risk differences.
Under proposed reforms, PCTs will be formally abolished and instead the funds will be held directly by clinicians (mainly GPs), grouped together in clinical commissioning groups (CCGs). Estimates vary on the size of these groups, but they are likely to cover populations similar in size or slightly larger than PCTs. It is unclear how budgets will be allocated to CCGs, or budgets allocated to practices within CCGs, but it is likely there will be a more sophisticated type of risk-adjustment methodology required than is currently used. In addition, there is an expectation that CCGs may be held fully accountable for their allocated budget with a series of penalties for overspending through poor performance, and financial incentives for underspending (combined with quality outcomes). But this is not clear as the new reforms are still evolving.
One of the most important issues in the current discussion of reforms in the English National Health Service (NHS) concerns budget accountability. Healthcare costs are not exempt from the government’s public spending cuts, and it is widely understood that stricter accountability is needed to achieve financial results without compromising quality of care. The focus of accountability is shifting from the existing primary care trusts (PCTs) to general practitioner (GP) practices or, perhaps more likely, to clinical commissioning groups (CCGs).
Central to the issue of greater accountability is the question of whether and how to develop a person-based resource allocation formula that would draw upon risk-adjustment models to allocate budgets for GP practices and/or CCGs, which would then be responsible for their specific budgets. Risk adjustment (RA) is not used in England to the extent that it is in other European countries such as Germany and Holland, but it does have applicability within the NHS. The approach to resource allocation in England has utilized age, gender, and (to some extent) geographical factors, but it has never drilled down to the level of patient diagnoses or other details of the population’s medical history.
This article considers some of the factors in the potential application of an RA model to healthcare budget allocation in England.
Meanwhile, this article is also a useful reference for understanding the new risk management facing GPs in the UK.
And while we’re on the topic, Milliman today announced that GPC Solutions in the UK will embed Milliman Advanced Risk Adjusters technology in its National Health Services product portfolio.
We have looked before at the healthcare system in the UK. That system made news over the weekend with the announcement that its ambitious health IT project–“the world’s biggest civilian IT project”–may face delays for budgetary reasons. Not everyone is happy about it. Interesting to see the larger conversation over the value of health IT in an entirely different context.