Martin Bardsley: Risk sharing and risk pooling in health

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Martin Bardsley: Risk sharing and risk pooling in health

  1. 1. Risk sharing and risk poolingMartin BardsleyHead of Research, Nuffield TrustNuffield Trust Health Policy Summit29 February 2012 © Nuffield Trust
  2. 2. Financial Risk• Risk is about how well you manage a budget and uncontrolled costs• Relates to both the commissioning (insurance risk ) and provider side• Will need new arrangements on the commissioning side• Bill mentions creation of a risk pool to ensure that certain designated services will continue to be delivered to patients in the event of failure.• Any allocation/budget has some element of uncertainty. Mitigating risks can mean removing local control © Nuffield Trust
  3. 3. Why is the management of risk of growing importance• Creation of new potentially smaller commissioning entities• More complex markets for health care with greater range of independent private provision• Renewed emphasis on organisation autonomy for providers and commissioners• Desire to create a system that reinforces incentives for ‘efficient’ care rather than bailing out ‘failures.’• Dangers of demotivating emerging CCGs• May apply at CCG level and potentially below © Nuffield Trust
  4. 4. Why might your expenditure be out of line with yourbudget/allocation?1. Random events2. Limitations in the budgeting/allocation process ie systematic elements of needs not recognised in allocation3. Local practice in use of resources..efficient and inefficient4. Systematic regional imbalances in supply © Nuffield Trust
  5. 5. Patterns of cost variation £100 £90 £80Monthly cost per person £70 £60 £50 £40 £30 £20 £10 £0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Month Observed cost Allocation Mean obs cost Mean +/- 2 sd © Nuffield Trust
  6. 6. Persistent variance from budget – in control but over budget £100 £90 £80Monthly cost per person £70 £60 £50 £40 £30 £20 £10 £0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Month Observed cost Allocation Mean obs cost Mean +/- 2 sd © Nuffield Trust
  7. 7. How have we done it in the past?• Commissioning for specialised services (the budgets for high cost, low volume care are effectively pooled across groups of PCTs)• Services that are provided outside the national tariff system may be commissioned using a block contract, effectively shifting the financial risk for service provision from the commissioner to the provider• Strategic Health Authorities hold a 2% (‘topslice’) of annual allocations to PCTs as a contingency fund with rules put in place for disbursement• There are ex post subsidies (bungs) to commissioners and NHS Trusts that end the financial year in deficit. © Nuffield Trust
  8. 8. Risk strategies Strategy Examples Risk bearing Spreading risk across financial years increasing the size of the pool of people at risk Risk sharing share financial risk with other entities, in the case of the NHS other commissioners or providers Specific arrangements for specialised services in which the risks are shared across a group of PCTs Transferring financial carving out’ whole services that are known to have unpredictable risk truncation when the annual cost incurred by individual patients are borne by another entity (the financier) when it exceeds a defined ceiling In commercially driven systems, the risk bearer or insurer can buy stop-loss insurance to cover spending bove a certain threshold © Nuffield Trust
  9. 9. What do we know of the impacts ?1. Specialist services2. Size3. Time for break-even4. Effects of truncation/stop loss arrangements © Nuffield Trust
  10. 10. Cut the cake ..... © Nuffield Trust
  11. 11. What’s in or out of the budget? Service element Approximate share of Our models total expenditure Specialist 14% Excluded Maternity 7% Modelled Critical care (non-specialist cases) 1% Modelled Inpatient (non-specialist cases) 46% Included Outpatients 21% Included A&E 4% Included Mental health (2ndry care) c.7% Excluded © Nuffield Trust
  12. 12. Balance of specialist /non specialist costs per person peryear © Nuffield Trust
  13. 13. Issues around the exclusions• No established and consistently applied definitions• Debates at what services are included/excluded and at what level• Some areas eg critical care information is patchy at present• Will not exclude some high costs cases – based on annualised costs• Scope for considering differential arrangements around the country if some CCGs want to take more risk © Nuffield Trust
  14. 14. No matter what size you are.... © Nuffield Trust
  15. 15. A world of randomly assigned CCGsDifferences between observed costs and predicted according to size of CCG. Based on randompseudo-CCG (Simulation run 50 times) “Target” Average number Average Average number Within ± Within ± Within ± Size produced size of practices 1% 2.5% 5% 100000 546 99996 14.9 39.0% 79.6% 98.5% 150000 364 149993 22.4 45.5% 87.0% 99.7% 200000 273 199990 29.9 52.4% 92.1% 100% 250000 218 249998 37.3 56.7% 95.0% 100% 300000 182 300029 44.8 61.7% 96.9% 100% 400000 136 400038 59.8 69.5% 98.8% 100% 500000 109 499984 74.7 73.6% 99.2% 100% © Nuffield Trust
  16. 16. Contiguous pseudo CCGs © Nuffield Trust CCGs at 100,000 pop CCGs at 250,000 pop
  17. 17. Contiguous pseudo CCGs © Nuffield Trust CCGs at 500,000 pop Jackson Pollock, Number 18
  18. 18. Contiguous pseudo CCGs © Nuffield Trust
  19. 19. Random pseudo CCGs © Nuffield Trust
  20. 20. Give me just a little more time.... © Nuffield Trust
  21. 21. Differences between expenditure and estimatedallocations at practice level for different time periods Within Within Months ±5% ±10% 90% 1 23% 44% 80% 3 32% 57% 70% 6 36% 63% 60% 9 38% 66% 50% 12 39% 68% 40% Within ±5% 18 42% 71% 30% 20% Within ±10% 24 43% 72% 10% 36 46% 76% 0% 48 48% 78% -2 8 18 28 38 48 © Nuffield Trust
  22. 22. Nelly the elephant packed hertrunc(ation).... © Nuffield Trust
  23. 23. Scale of cases affected (excl specialist services) Costs Resultant per person exposed to Percentage Amounts premium (based on Truncation truncation total cost ‘truncated ‘ registered practice threshold People affected (£million) truncated (£ million) population) £1k 5,057,759 17,769.10 79% 12,692.96 £232.10 £2.5k 2,266,079 13,390.95 60% 7,707.36 £140.93 £5k 962,578 8,844.89 39% 4,013.61 £73.39 £7.5k 464,314 5,826.57 26% 2,325.83 £42.53 £10k 258,562 4,053.38 18% 1,449.37 £26.50 £15k 95,306 2,098.34 9% 650.37 £11.89 £20k 41,142 1,172.68 5% 331.45 £6.06 £25k 19,739 698.64 3% 186.78 £3.42 £50k 1,571 124.28 0% 27.35 £0.50 £75k 420 57.19 0% 7.31 £0.13 £100k 187 37.09 0% - £- © Nuffield Trust
  24. 24. Impact of ceiling truncation Comparing the number of GP practices where expenditure is within 5% or 10% of predicted acute care costs (excluding specialist care), at different levels of truncationTruncation level % within 5% % within 10% 100%£5k truncation 59% 87% 90% 80%£10k truncation 54% 84% 70% 60%£15k truncation 52% 82% 50% 40%£20k truncation 51% 81% 30% % within 5% 20%£25k truncation 50% 81% 10% % within 10% 0%£50k truncation 50% 80%£75k truncation 49% 80%No truncation 49% 80% © Nuffield Trust
  25. 25. Summary observations• Population sizes is a critical factor affecting the scale of financial risk especially with populations below 150k• Break even period not that significant an - only small gains from extending beyond one year• Truncation (stop loss) was not that effective in our analyses (that excluded specialist care)• Significant underlying regional differences in the level of acute care spending• Range of options on ‘service carve outs’ that need to be explored further © Nuffield Trust
  26. 26. Key issues going forward• What level of risk should CCGs have to bear – and how might that change over time?• What organisations/mechanisms need to be in place for risk pooling?• Should there be some local discretion to take on more risk?• Do we need additional mechanisms to avoid ‘cream skimming’ or ‘dumping’?• What are the rules for underspends and overspends?• What will be expected in terms of pace of change to evening out regional differences ? © Nuffield Trust
  27. 27. www.nuffieldtrust.org.uk Sign-up for our newsletter www.nuffieldtrust.org.uk/newsletter Follow us on Twitter (http://twitter.com/NuffieldTrust)Feb 2012 © Nuffield Trust

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