NHS resource allocation 1997 to 2003 with particular reference to the impact on rural areas

Abstract

The central hypothesis of this study was that the allocation system for NHS hospital and community health services between 1997 and 2003 was not meeting key principles of compensating for differences in the need for services and unavoidable costs.

The review and analyses in this study indicate that the underpinning assumptions used when formulating the need adjustment were not robust and that this led to the selection of inappropriate proxies for need. In addition it is concluded that the age adjustment underestimated the costs of elderly care.

This study has concluded that the pay adjustment, which was the largest in the formula, did not reflect actual unavoidable differences in cost because the Warwick studies that were used to set the adjustment ignored the monopsonistic nature of the NHS. As a consequence the pay adjustment was based on the assumption that NHS salaries should be related to local salaries.

This study identified unavoidable additional costs of providing healthcare in rural areas. These findings were consistent with other comprehensive studies on healthcare costs in Scotland, Wales and Northern Ireland. This study concludes that the exclusion of a market forces adjustment for rurality was inconsistent with all other comparable allocation formulae in the Home Countries. The absence of a rurality adjustment resulted in rural areas receiving a lower proportion of NHS funding than was justified and this is referred to as the Inverse Share Law.

This study concludes that the central hypothesis was correct and that a rurality adjustment was justified, but that the principal determinant of service quality was an adequate focus on efficiency.