Programme budgeting and marginal analysis: bridging the divide between doctors and managers

doi:10.1136/bmj.330.7506.1501

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Danny Ruta (danny.ruta@ncl.ac.uk), senior lecturer in epidemiology and public health1,
Craig Mitton, assistant professor2,
Angela Bate, research associate in health economics1,
Cam Donaldson, health foundation chair in health economics1

¹School of Population and Health Sciences, University of Newcastle, Newcastle upon Tyne NE2 4AA
²Centre for Healthcare Innovation and Improvement, Research Institute for Children's and Women's Health, University of British Columbia, Vancouver, Canada V6H 3V4

Correspondence to: D Ruta

Accepted 6 May 2005

Recent NHS reforms give doctors increased responsibility for efficient and fair use of resources. Programme budgeting and marginal analysis is one way to ensure the views of all stakeholders are properly represented

Introduction

Tensions between doctors and managers and the differences between medical and managerial cultures have existed since the earliest provision of organised health care.1 In a resource allocation context, doctors are caricatured as taking the role of patient advocate while managers take the corporate, strategic view. Delivery of efficient (and in the case of the NHS, equitable) health care requires doctors to take responsibility for resources and to consider the needs of populations while managers need to become more outcome and patient centred. One economic approach, called programme budgeting and marginal analysis, has the potential to align the goals of doctors and managers and create common ground between them. We describe how the approach works and why it should be more widely used.

Economic principles

Programme budgeting and marginal analysis is an approach to commissioning and redesign of services that can accommodate both medical and managerial cultures and the widest constituency of professional, patient, and public values within a single decision making framework. It allows for the complexities of health care while adhering to the two key economic concepts of opportunity cost and the margin. When having to make choices within limited resources, certain opportunities will be taken up while others must be forgone. The benefits associated with forgone opportunities are opportunity costs. Thus, we need to know the costs and benefits of various healthcare activities, and this is best examined at the margin—that is, the benefit gained from an extra unit of resources or benefit lost from having one unit less. If the marginal benefit per pound spent from programme A is greater than that for B, resources should …