Annual Health Strategy Summit
Managing financial risk in the NHS
Jennifer Dixon (with thanks to Sian Davies)
Nuffield Trust
March 2011
Twitter: #NTSummit
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Presentation
Concepts
Health and Social Care Bill
Insurance risk
Person-based resource allocation
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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 management
March 2011
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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
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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
Insurance
Provider
NHS CB
PCT clusters
Consortia
FTs
Practices
Practices
Patients
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Risk map: designated services
Insurance
Provider
NHS CB
Monitor
PCT clusters
Consortia
FTs
Practices
Practices
Patients
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Insurance risk
March 2011
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Insurance risk: strategies
Risk bearing
Risk sharing
Transferring
risk
Source: Ryan, J. Bruce, Healthcare Financial Management 07350732, Jan97, Vol. 51, Issue 1
© Nuffield Trust
Insurance risk: some strategies (ex ante)
Risk bearing
Risk sharing
Transferring
risk
Increasing
the risk pool
Joining
others’ risk
pools
To providers
Spreading
risk across
years
Alliance
contracts
To other
insurance
entity
Self
insurance
© Nuffield Trust
Insurance risk: some strategies (ex ante)
Risk bearing
Risk sharing
Transferring
risk
Increasing
the risk pool
Joining
others’ risk
pools
To providers
Spreading
risk across
years
Alliance
contracts
To other
insurance
entity
Self
insurance
© Nuffield Trust
Person-based resource allocation
PBRA
© 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
© Nuffield Trust
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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Basic model
f(
Needs i
,
Needsa
,
supplya
,
Other variablesa
(
Expenditurei
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Data
Explanatory variables
2007/08
2008/09
Prediction variable
2009/10
© Nuffield Trust
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
age and gender
morbidity markers
152 PCT dummies
135 attributed needs & 63 supply
37
22
13
12
19
31
age and gender
morbidity markers
152 PCT dummies
7 attributed needs & 3 supply
35
19
11
12
19
33
Model 4:
Model 5
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Comparison Observed and Expected Costs
at Practice level
2.5000
2.0000
1.5000
1.0000
0.5000
0.0000
0
5000
10000
15000
List size
20000
25000
30000
35000
© Nuffield
Trust
40000
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
© 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
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• 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 patients
100 replications for each consortium size
Consortium size increased in units of 10,000
40
Consortia risk profile
20
Upper 95% C.I.
0
Average risk
-40
-20
Lower 95% C.I.
0
100000
200000
300000
Consortium list size
Average risk
400000
500000
Lower CI
Upper CI
Simulations from all data
Risk smoothed over time - predicted versus actual expenditure
© Nuffield Trust
40
Consortia risk profile
20
Upper 95% C.I.
0
Average risk
-40
-20
Lower 95% C.I.
0
100000
200000
300000
Consortium list size
Average risk
400000
500000
Lower CI
Upper CI
Simulations from all data
Risk smoothed over time - predicted versus actual expenditure
© Nuffield Trust
40
Consortia risk profile
20
Upper 95% C.I.
14
0
Average risk
Lower 95% C.I.
-40
-20
-13.5
0
100000
200000
300000
Consortium list size
Average risk
400000
500000
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 patients
100 replications for each consortium size
Consortium size increased in units of 10,000
40
Consortia risk profile
20
Upper 95% C.I.
Average risk
0
£4
Lower 95% C.I.
-40
-20
£4
0
100000
200000
300000
Consortium list size
Average risk
400000
500000
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 patients
100 replications for each consortium size
Consortium size increased in units of 10,000
40
Consortia risk profile
20
Upper 95% C.I.
Average risk
0
£8
£8
-40
-20
Lower 95% C.I.
0
100000
200000
300000
Consortium list size
Average risk
400000
500000
Lower CI
Upper CI
Simulations from all data
Risk smoothed over time - predicted versus actual expenditure
© Nuffield Trust
Conclusion
Comprehensive strategy to
manage insurance risk needs
developing
Recent empirical advances in risk
adjustment help
Ex post risk management needs to
be more explicit
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Thank you
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