New funding formula for NHS

BMJ 1994; 309 doi: (Published 29 October 1994) Cite this as: BMJ 1994;309:1109
  1. J Warden

    Changes in the formula for allocating NHS funds to health authorities in England will be applied from next April. The adjustments take account of new information and more refined statistical techniques, as well as changes in the NHS. The amount of money to go to each region will be announced after the budget on 29 November.

    The new arrangements spring from a review of weighted capitation - the formula takes account of population characteristics and needs - which the secretary of state for health announced at the beginning of last year. Articles published in last week's BMJ from academics in York explained the work that informed the review (22 October, pp 1046, 1050, 1059). The NHS Executive has now published its decisions on how the money will be distributed.

    The government has broadly accepted the York findings for acute and psychiatric services, but the key message is that to safeguard stability there will be no dramatic changes in the first year. Weighted capitation will be retained as the fairest and simplest way of distributing resources, but the formula has been amended to take less account of age and more of socioeconomic factors. Funds that were previously held centrally to fund the specialist postgraduate teaching hospitals in London will now go to the regions as part of the internal health market. Money previously retained for central initiatives by the NHS Executive will be redistributed, in line with the policy of devolution. The calculations will also be affected by changes in the support funding for education and research, the inclusion of capital charges in the revenue distribution formula, the abolition of regional health authorities, and the merger of district health authorities and family health services authorities.

    The changes mean that in 1995-6 health authorities will receive more money to buy services that were previously purchased centrally, though with the extra costs incurred the effect will be neutral.

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