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Jennifer Dixon: Managing financial risk in the NHS
 

Jennifer Dixon: Managing financial risk in the NHS

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  • making market work betterRiskFailure regimePrimary medical dental ophthalmic and community pharmaceutical services, armed forces,secure psychiatric, other
  • Current strategies:Withhold (2% topslice) To other insurance entity: Carve outs (pooling), eg designated services; Stop loss; patients (user fees)
  • Current strategies:Withhold (2% topslice)Carve outs (pooling), eg designated servicesStop loss

Jennifer Dixon: Managing financial risk in the NHS Jennifer Dixon: Managing financial risk in the NHS Presentation Transcript

  • Annual Health Strategy SummitManaging financial risk in the NHSJennifer Dixon (with thanks to Sian Davies)Nuffield TrustMarch 2011 © Nuffield TrustTwitter: #NTSummit
  • PresentationConceptsHealth and Social Care BillInsurance riskPerson-based resource allocation © Nuffield Trust
  • Financial risk: concepts• Risk of a unit overspending due to circumstances beyond its control• Insurance risk• Provider risk• Ex ante risk management• Ex post risk managementMarch 2011 © Nuffield Trust
  • Health 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 © Nuffield Trust
  • 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 © Nuffield Trust
  • 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 © Nuffield Trust
  • Risk map: undesignated services Insurance Provider NHS CB PCT clusters Consortia FTs Practices Practices Patients © Nuffield Trust
  • Risk map: designated services Insurance Provider NHS CB Monitor PCT clusters Consortia FTs Practices Practices Patients © Nuffield Trust
  • Insurance riskMarch 2011 © Nuffield Trust
  • Insurance risk: strategies Transferring Risk bearing Risk sharing risk Source: Ryan, J. Bruce, Healthcare Financial Management 07350732, Jan97, Vol. 51, Issue 1 © Nuffield Trust
  • Insurance risk: some strategies (ex ante) Transferring Risk bearing Risk sharing risk Joining Increasing others’ risk To providers the risk pool pools Spreading To other Alliance risk across insurance contracts years entity Self insurance © Nuffield Trust
  • Insurance risk: some strategies (ex ante) Transferring Risk bearing Risk sharing risk Joining Increasing others’ risk To providers the risk pool pools Spreading To other Alliance risk across insurance contracts years entity Self insurance © Nuffield Trust
  • Person-based resource allocationPBRA © 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 © Nuffield Trust 14
  • 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 sharingMarch 2011 © Nuffield Trust
  • Basic modelExpenditurei f( Needs i , Needsa , supplya , Other variablesa ( © Nuffield Trust
  • Data Explanatory variables Prediction variable 2007/08 2008/09 2009/10 © Nuffield Trust
  • PBRA model: actual to predicted costs, 2007/8Table 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=5,445,559Practices=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 21Model 2: age and gender morbidity markers 26 14 8 8 14 25Model 3: age and gender morbidity markers 152 PCT dummies 34 16 11 11 18 31Model 4: age and gender morbidity markers 152 PCT dummies 135 attributed needs & 63 supply 37 22 13 12 19 31Model 5 age and gender morbidity markers 152 PCT dummies 7 attributed needs & 3 supply 35 19 11 12 19 33 © Nuffield Trust
  • Comparison Observed and Expected Costsat Practice level 2.5000 2.0000 1.5000 1.0000 0.5000 0.0000 0 5000 10000 15000 20000 25000 30000 35000 © Nuffield Trust 40000 List size
  • Risk sharingMeasures include: (actual-predicted)/predicted costSize of practice/group of practices/consortiaVarious ‘risk’ arrangements:• Service ‘carve outs’ eg specialised commissioning• Per capita limit per annum (stop loss)• Extended ‘break even’ period © Nuffield Trust
  • 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 © Nuffield Trust • Can repeat for different assumptions about composition of consortia and/or risk sharing arrangements
  • Sampled from patients (10m) within a 20% random sample of all patients100 replications for each consortium sizeConsortium size increased in units of 10,000 Consortia risk profile 40 Upper 95% C.I. Consortium risk per capita(£) 20 Average risk 0 Lower 95% C.I. -20 -40 0 100000 200000 300000 400000 500000 Consortium list size Average risk Lower CI Upper CI Simulations from all data Risk smoothed over time - predicted versus actual expenditure © Nuffield Trust
  • Consortia risk profile 40 Upper 95% C.I. Consortium risk per capita(£) 20 Average risk 0 Lower 95% C.I.-40 -20 0 100000 200000 300000 400000 500000 Consortium list size Average risk Lower CI Upper CI Simulations from all data Risk smoothed over time - predicted versus actual expenditure © Nuffield Trust
  • Consortia risk profile 40 Upper 95% C.I. Consortium risk per capita(£) 20 14 Average risk 0 -13.5 Lower 95% C.I.-40 -20 0 100000 200000 300000 400000 500000 Consortium list size Average risk Lower CI Upper CI Simulations from all data © Nuffield Trust Risk smoothed over time - predicted versus actual expenditure
  • Sampled from patients (10m) within a 20% random sample of all patients100 replications for each consortium sizeConsortium size increased in units of 10,000 Consortia risk profile 40 Upper 95% C.I. Consortium risk per capita(£) 20 £4 Average risk 0 £4 Lower 95% C.I. -40 -20 0 100000 200000 300000 400000 500000 Consortium list size Average risk Lower CI Upper CI Simulations from all data Risk smoothed over time - predicted versus actual expenditure © 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 Consortia risk profile 40 Upper 95% C.I. Consortium risk per capita(£) 20 £8 Average risk 0 £8 Lower 95% C.I. -40 -20 0 100000 200000 300000 400000 500000 Consortium list size Average risk Lower CI Upper CI Simulations from all data Risk smoothed over time - predicted versus actual expenditure © Nuffield Trust
  • ConclusionComprehensive strategy tomanage insurance risk needsdevelopingRecent empirical advances in riskadjustment helpEx post risk management needs tobe more explicit © Nuffield Trust
  • Thank you www.nuffieldtrust.org.uk Sign-up for our newsletter: www.nuffieldtrust.org.uk/newsletter Follow us on TwitterMarch 2011 (http://twitter.com/NuffieldTrust) Trust © Nuffield © Nuffield Trust