Appendix 1: NZ Documents for Case Study
2015 Population-based Funding Formula Review (released 2016)
What is the PBFF?
- The Population-based Funding Formula (PBFF) is used by the New Zealand Ministry of Health to distribute the funding between District Health Boards (DHBs).
- It does not set the level of funding received; it just distributes the fund between different health boards.
- The formula covers a wide range of health services such as primary care, hospital services and mental health.
- It does not cover disability support services for younger people, or public health services.
What is the PBFF comprised of?
There are two parts to the PBFF:
1. The core model that determines relative health need; and,
2. Three adjusters that modify funding allocations between DHBs.
The core model
- The most important factor that the core model of the formula considers is the number of people in each NZ district.
- Then it will adjust the share in light of the particular demographic of each district, such as age, ethnicity and socioeconomic status.
- The variable for a NZ citizen's socioeconomic status is based on the New Zealand Index of Socioeconomic Deprivation 2006, which itself is derived from census data.
- There are cost weights in the core model. A cost weight is "the average expenditure per head per year for a person in a particular demographic group. Under the PBFF, the Ministry applies these cost weights to DHBs according to their numerical populations together with their demographic profiles in order to determine the share of funding each DHB should receive".
- To work out how the population in each DHB has changed, each financial year, the PBFF uses population projections produced by Statistics New Zealand.
- The cost weights, therefore, "represent an estimate of future health need".
The three adjusters
There are three adjusters used to vary the funding allocation between DHBs:
1. The unmet need adjuster
This adjusts the formula for "population groups with issues accessing health services (Māori, Pacific peoples and those living in areas of high deprivation)".
2. The rural adjuster
This adjusts the formula for people living in rural areas.
3. The overseas eligible and refugees adjuster
This accounts for the cost of caring for those from overseas who are eligible for health care in NZ and refugees.
Review of the PBFF
This was undertaken by a technical advisory group (TAG) which is made up of members from DHBs, the Ministry of Health and the Treasury.
The TAG investigated the extent to which the PBFF was:
- "robust (developed with sound technical processes based on reliable evidence and data)
- legitimate (based on transparent formulae accessible to the sector and wider public)
- efficient (making use of formulae that were as simple as possible, with factors only included if they made, or could be expected to make, a significant material difference)
- effective (providing a workable outcome and minimising perverse incentives)".
The TAG reviewed both the core model and the adjusters.
|Core model||Retain, but update inputs (e.g. age, sex and ethnicity)|
|Unmet need adjuster||Retain, but update the model with current model with excess unmet need based on the New Zealand Health Survey|
|Rural adjuster||Retain but change to the rural population index model|
|Overseas eligible and refugees adjuster||Retain with updated inputs and review the overseas eligible portion in one year with a report back as part of the 2017/18 DHB indicative funding advice|
|Tertiary adjuster (not part of PBFF)||Retain outside model The National Costing, Collection and Pricing Programme (NCCP) will review this adjuster and report back|
|Land adjuster (not part of PBFF)||Retain outside model Ministry of Health will provide recommendations|
Testing of variables
- The Review tested the current variables against ambulatory sensitive hospitalisation (ASH) and amenable mortality rates (AM) to see if there was a reasonable distribution of funding between DHBs.
- They concluded that the current variables worked well and chose to retain them.
The rural adjuster
- This adjuster for the funding formula is based on "rural population numbers and geography and the diseconomies of providing hospital services to a small population."
- Three options were considered for allocating the rural adjuster against the criteria of "fairness, flexibility, robustness and transparency".
- The Review recommended to maintain the rural adjuster with the caveat of using a new and different way to measure this – the weighted rural population index.
How does the rural adjuster work?
1. The NZ Ministry of Health allocates "DHBs funding from a rural pool to cover the additional costs of providing small and dispersed rural population groups with access to primary care, travel and accommodation, inter-hospital transport and community services".
2. The Ministry then funds for unavoidable costs of providing full scale hospital services for small populations (the review describes this as "secondary level", so guessing anything under accident and emergency).
Advantages of the weighted rural population index
- Allows funding to be targeted more directly to a district with more rural residents.
- "Prior spending patterns of DHBs are less likely to lock them into future funding entitlements with only a small necessary inclusion of cost structures to account for diseconomies"
Tertiary and land adjusters
- The review recommended that neither of these adjusters should be included in the funding model (PBFF).
The revised PBFF cost weights
The Review recommended updating the core model cost weights. The biggest change was for Maori and Pacific people rather than average cost per head by age group, which remained relatively the same.
The implementation of the PBFF
The formula seems to be robust, as the review report states that "the changes made to the PBFF following this year's Review are minimal".
The final funding allocation depends on further data inputs, such as "new population projections, new DHB starting points, and the level of new funding for DHBs".
Further recommendations of improvements prior to any future review
1. Ensure districts have a costing system in place and comply with costing standards
2. Update the role delineation model [RDM]
3. Explore whether it is possible to create cost outputs for mental health care
The rural adjuster in depth
- "The rural adjuster allocates funding to DHBs for the unavoidable extra costs associated with providing health services to rural communities".
- "It is based on seven separate service areas in which DHBs have previously indicated they face additional costs relating to rurality, and the distribution of funding is strongly linked to existing service provision".
Seven service areas for rural funding
1. Offshore islands
2. Rural GP payments
3. Travel and accommodation
4. Inter-hospital transfers
5. Community services
7. Governance (this service area was removed in the review of the rural adjuster)
The Review looked at an enhanced version of the current model and proposed two alternative models. These alternatives put an emphasis on distributing funding more in line with rural populations and travel distances and times.
New rural indexes
The Project team proposed two new rural indexes to allocate funding (the weighted density index and the weighted rural population index). These both use three new inputs:
1. Weighted density – uses Statistics New Zealand's estimated resident population data split into five population density quintiles. Quintile 1 is for the most rural areas (as it is the least dense in population). 30% of the funding pool will go to each district's share of the number of people in quintile 1.
2. Weighted travel time – uses the estimated resident population that is within a certain travel time away from a base hospital. This model will give 32% of the funding to those who live 60-245 minutes away and >245 minutes away from the base hospital.
3. Weighted travel to tertiary – divides the estimated resident population into categories according to their distance from the nearest tertiary hospital, with 15% of the funding going to the population furthest away (quintile 4 and 5).
Results and Application to Scotland
- The two population-based models worked better than the enhanced current model.
- A similar model could be implemented in relation to districts in Scotland provided recent data can be found similar to that of Statistics New Zealand (e.g. census data).
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