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Transcript of © Nuffield Trust Annual Health Strategy Summit Managing financial risk in the NHS March 2011...
© Nuffield Trust
Annual Health Strategy Summit
Managing financial risk in the NHS
March 2011 Twitter: #NTSummit
Jennifer Dixon (with thanks to Sian Davies)Nuffield Trust
© Nuffield Trust
PresentationConceptsHealth and Social Care BillInsurance riskPerson-based resource allocation
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© Nuffield Trust
Financial risk: conceptsFinancial risk: concepts
• Risk of a unit overspending due to circumstances beyond its control
• Insurance risk
• Provider risk
• Ex ante risk management
• Ex post risk management
March 2011
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Health and Social Care Bill: Insurance riskHealth and Social Care Bill: Insurance risk
• SoS specifies resources to NHS CB in annual mandate
• NHS CB allocates resources to consortia
• NHS CB commissions specialised services for rare conditions (SoS decides)
• NHS CB and consortia can set jointly or each up a pooled fund
• NHS CB can set up a contingency fund
• NHS CB can provide financial assistance
• NHS CB specifies matters in standard commissioning contracts
• NHS CB sets structure of pricing
• NHS CB can set up a failure regime for consortia
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Health and Social Care Bill: Provider (FT) risk; designated services
• Monitor sets prices
• Monitor: core function of setting up a ‘special administration regime’ in event of provider failure to preserve ‘designated services’
• Commissioners apply for a service to be ‘designated’ (Monitor provides guidance on criteria)
• Monitor can impose additional licence conditions on the designated.
• Can be local modifications of prices for designated services
• Corporate insolvency procedures (undesignated services)
• Special administration regime (designated)March 2011
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Health and Social Care Bill: Provider (FT) risk
• Financial assistance for failing FTs providing designated services could be through:
- providers and commissioners being required to set up a risk pool (powers by Monitor to require commissioners or providers to pay a levy)
- providers being required to purchase their own insurance to cover liabilities as specified by Monitor.
• Taxpayer investment in FTs managed through operationally independent banking function.
March 2011
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Risk map: undesignated services
InsuranceInsurance ProviderProvider
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Risk map: designated services
InsuranceInsurance ProviderProvider
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Insurance risk
March 2011 © Nuffield Trust
© Nuffield Trust
Insurance risk: strategies
Source: Ryan, J. Bruce, Healthcare Financial Management 07350732, Jan97, Vol. 51, Issue 1
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Insurance risk: some strategies (ex ante)
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Insurance risk: some strategies (ex ante)Insurance risk: some strategies (ex ante)
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Person-based resource allocationPBRA
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© Nuffield Trust
Policy context
• NHS Commissioning Board responsible for allocations to GP consortia
• Cover: secondary care, prescribing, community health services• Allocations based on aggregating up practice level budgets
(allows practices to move between consortia)• First allocations to be made for 2013/14• Shadow allocations in 2012/13
14
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Person-based resource allocation
• To develop a person-based formula for resource allocation to practices for commissioning
• To promote equity of access for equal need
• Provide advice on risk sharing
March 2011
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Needsa Other variablesa, , ,((f
Basic model
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Explanatory variables Prediction variable
Data
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PBRA model: actual to predicted costs, 2007/8
Table 4 Actual compared to predicted cost for the basic set of models, predicting costs for 2007/08 -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Model Set of variables Validation sample 2 Individuals=5,445,559 Practices=797 -------------------------------- -------------------------------- Percentage of practices where (actual-predicted)/predicted cost -------------------------------- -------------------------------- -10<%<0 -5<%<0 -3<%<0 0<%<3 0<%<5 0<%<10 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Model 1: age and gender 21 10 5 7 12 21 Model 2: age and gender morbidity markers 26 14 8 8 14 25 Model 3: age and gender morbidity markers 152 PCT dummies 34 16 11 11 18 31 Model 4: age and gender morbidity markers 152 PCT dummies 135 attributed needs & 63 supply 37 22 13 12 19 31 Model 5 age and gender morbidity markers 152 PCT dummies 7 attributed needs & 3 supply 35 19 11 12 19 33
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0.0000
0.5000
1.0000
1.5000
2.0000
2.5000
0 5000 10000 15000 20000 25000 30000 35000 40000
Comparison Observed and Expected Costs at Practice level
List size
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Risk sharing
Measures include: (actual-predicted)/predicted cost
Size of practice/group of practices/consortia
Various ‘risk’ arrangements:• Service ‘carve outs’ eg specialised commissioning• Per capita limit per annum (stop loss)• Extended ‘break even’ period
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Approach: Pseudo-Monte Carlo simulation
• Dataset of 10million patients with all relevant information to predict expenditures (for 2006/07) using
Nuffield model
• Randomly sample from dataset repeatedly for a given GP consortium size to assess risk:
• Example
• start with GP consortium of size = 10,000
• Sample 10,000 from the available 10m
• Generate the model predicted level of expenditure for each individual
• Compare predicted expenditure to known actual expenditure
• Compute difference (risk) at individual level and at aggregate consortium level
• Repeat above for different sizes of consortia from 10,000 to 500,000 in increments of 10,000
• Summarise results - done graphically
• Can repeat for different assumptions about composition of consortia and/or risk sharing arrangements
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Sampled from patients (10m) within a 20% random sample of all patients100 replications for each consortium sizeConsortium size increased in units of 10,000
-40
-20
020
40C
onso
rtiu
m r
isk
per
capi
ta(£
)
0 100000 200000 300000 400000 500000Consortium list size
Average risk Lower CI
Upper CI
Simulations from all data
Risk smoothed over time - predicted versus actual expenditure
Consortia risk profile
Upper 95% C.I.
Lower 95% C.I.
Average risk
© Nuffield Trust
-40
-20
020
40C
onso
rtiu
m r
isk
per
capi
ta(£
)
0 100000 200000 300000 400000 500000Consortium list size
Average risk Lower CI
Upper CI
Simulations from all data
Risk smoothed over time - predicted versus actual expenditure
Consortia risk profile
Upper 95% C.I.
Lower 95% C.I.
Average risk
© Nuffield Trust
-40
-20
020
40
Consort
ium
ris
k p
er
capita(£
)
0 100000 200000 300000 400000 500000Consortium list size
Average risk Lower CI
Upper CI
Simulations from all data
Risk smoothed over time - predicted versus actual expenditure
Consortia risk profile
14
-13.5
Upper 95% C.I.
Lower 95% C.I.
Average risk
© Nuffield Trust
© Nuffield Trust
Sampled from patients (10m) within a 20% random sample of all patients100 replications for each consortium sizeConsortium size increased in units of 10,000
-40
-20
020
40C
onso
rtiu
m r
isk
per
capi
ta(£
)
0 100000 200000 300000 400000 500000Consortium list size
Average risk Lower CI
Upper CI
Simulations from all data
Risk smoothed over time - predicted versus actual expenditure
Consortia risk profile
£4
£4
Upper 95% C.I.
Lower 95% C.I.
Average risk
© Nuffield Trust
Sampled from patients (10m) within a 20% random sample of all patients100 replications for each consortium sizeConsortium size increased in units of 10,000
-40
-20
020
40C
onso
rtiu
m r
isk
per
capi
ta(£
)
0 100000 200000 300000 400000 500000Consortium list size
Average risk Lower CI
Upper CI
Simulations from all data
Risk smoothed over time - predicted versus actual expenditure
Consortia risk profile
£8
£8
Upper 95% C.I.
Lower 95% C.I.
Average risk
© Nuffield Trust
ConclusionComprehensive strategy to manage insurance risk needs developingRecent empirical advances in risk adjustment helpEx post risk management needs to be more explicit
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© Nuffield Trust
Thank you
March 2011© Nuffield Trust