Editorials

Allocating budgets for fundholding and prescribing

The way in which health authorities come to their decisions about budgets for fundholding and prescribing must seem like an arcane art to many general practitioners. The principle underlying the setting of these budgets is that general practices should receive a fair share of NHS resources and one that reflects the healthcare needs of their patients.^{1 2} However, there are great practical problems in setting budgets fairly. The main problem is that attempts to explain variations in the use of fundholding procedures and in prescribing costs have not been very successful.^{3 4 5} The variations between practices are just too large to be explained by currently available information. The most important reason for this is that general practices serve small populations that differ greatly from each other in their demographic, social, and clinical characteristics. There are also large differences in the way in which general practitioners provide care. Hence, resource allocation formulae, such as those used by the NHS Executive to allocate budgets to health authorities, will not work well at practice level.

Despite these problems, there have been some recent developments in setting general practice budgets. For example, many health authorities are using capitation based formulae to allocate budgets to practices that are total fundholders (responsible for buying all the health services received by their patients). The budgets of these practices are large (around £4m for a practice with 10 000 patients), and health authorities, quite rightly, want to fund them fairly so that neither their patients nor the patients of other practices are disadvantaged. To help achieve this aim, some health authorities have used the new NHS Executive resource allocation formula to allocate budgets to total fundholders.^{6 7} The NHS Executive will use this formula to allocate budgets for hospital and community health services to health authorities, and the use of this formula by health authorities to allocate budgets to total fundholders seems reasonable.

However, there are a number of problems with this approach. Firstly, the NHS Executive applied the weighting for need in the formula to only 76% of funding and not 100%. The effect of this is to reduce the resources allocated to health authorities with a high need for care.⁸ If health authorities follow the executive's example, this will result in smaller budgets for practices located in deprived areas. Secondly, the census variables used by health authorities in their calculation of practice budgets are estimates, and we do not know if these estimated values are accurate enough to be used in resource allocation formulae. Finally, routine sources of data such as the census contain only limited information on many groups with a high need for care, such as the homeless or refugees.

There have also been some developments in setting prescribing budgets. Prescribing allocations to health authorities have traditionally been based on historical spending. The NHS Executive hopes to move away from this approach and is considering the introduction of a weighted capitation formula to allocate prescribing budgets to health authorities. The NHS Executive has identified age, sex, cross boundary flows, and chronic illness as the best predictors of prescribing costs. Health authorities that were 2% below the predicted spending per person on drugs were given a slightly larger increase in their 1996-7 budget than other health authorities.² The NHS Executive has commissioned further work, and it is likely that prescribing budgets to health authorities will eventually be allocated using weighted capitation.

Although the NHS Executive is encouraging health authorities to think about using weighted capitation when they in turn allocate budgets to practices, they will find this difficult to do. Attempts to explain variations in prescribing costs between practices have only explained about 30-40% of this variation.^{4 5} Hence, a capitation based formula would be difficult to use at practice level. Despite the problems outlined above, health authorities need to move from practice budgets based on historical spending to budgets based on the need for care of practice populations.⁹ Health authorities are making some progress in this area, but it may be several years before substantial progress is made.¹⁰

In the interim, what can be done to improve the process of setting budgets for general practices? Firstly, general practitioners should be better informed about how budgets are set, and, to facilitate this, health authorities should publish the criteria they use to set budgets. Secondly, information on budgets for fundholding and prescribing should be included in the primary care indicator packages that health authorities are developing.¹¹ This would allow general practitioners to compare the budgets of their own practices with those of other local practices. Thirdly, health authorities should use weighted capitation as a guide to setting practice budgets and not as the ultimate determinant of these budgets. Rigid, inflexible application of weighted capitation may lead to practices becoming reluctant to register patients who need high cost care.¹² For the foreseeable future, therefore, there will continue to be some subjectivity in allocating budgets to general practices, and hence budget setting will remain an area that will generate controversy and debate.

Senior lecturer in general practice Division of General Practice and Primary Care, St George's Hospital Medical School, London SW17 0RE

Azeem Majeed 

1. General practice fundholding: guidance on setting budgets for 1995/96. Leeds: NHS Executive, 1994. (EL(94)84.)
2. Prescribing expenditure: guidance on allocations and budget setting for 1996/97. Leeds: NHS Executive, 1995. (EL(95)128.)
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