Needs-based resource allocation - a handy tool for PHNs (guest blog 1/4)
Dr. Eliana Jimenez Soto, experienced Health Economist
The Beacon Strategies team would like to welcome Dr Eliana Jimenez Soto as a guest blogger for the coming months. Eliana is a health economist with over 15 years of expertise in health financing, data analytics and M&E. From a PHN perspective, Eliana has held roles as a Senior Technical Advisor to a number of PHNs, providing technical advice on outcomes-based commissioning financing and the overall use of evidence to improve program performance and outcomes. Eliana has also been a consultant on health economics on equity-based financing to WHO and UNICEF. Her international assignments include the development of complex financing costing and epidemiological models to improve service delivery and evaluate outcomes for disadvantaged populations.
As an economist who has been working on health financing and data analytics for a variety of organisations and projects, I am painfully aware of the unexploited potential of applying practical economic tools and principles for improving commissioning processes and outcomes.
Beyond traditional cost-effectiveness, the type of economic studies most familiar to people are usually of very large scale such as hospital activity-based financing for resource allocation or cost-benefit analysis for multi-million dollar randomised trials, which seem very far away from PHNs day-to-day business operations.
However, for the real world of commissioning services in the middle of imperfect data and evidence, there is much more to economics than cost-effectiveness and trial evaluations: From understanding where the greatest needs are and how they align (or not) with patterns of resource allocation, through examining the major cost drivers and frequent users of services, to setting quality improvement frameworks linked to performance incentives for outcomes-based commissioning.
Over the last few months I have been working with Mitch and the Beacon team on a resource allocation project and we saw this as a great opportunity to illustrate some of the lessons learned from our approach in applying these types of tools in the context of PHNs service commissioning.
The challenge for this client (which is quite common across organisations) was to unpack the extent to which current funding aligns with population needs and establish an evidence-based funding formula for the next round of contracts. Specifically, our client was interested in developing needs-based resource allocation for their upcoming commissioning of services.
In recent years a shift towards evidence-based policy/programmes along with equity concerns have put needs-based funding allocation on the map again. A notable example is the Gonski Education reform, which included needs-based school funding as one of the key strategies required to ensure the best educational outcomes for all children in Australia.
The primary objective of needs-based resource allocation is to distribute funding according to the relative needs for health services across different populations. Originally pioneered in the 1970s in the UK, it has a long tradition in health and social services financing, though funding for many services around the world still continues to be based on incremental budgets (i.e. last year plus inflation) without consideration for population needs and priorities.
A similar strategic shift towards evidence-based and equity-driven funding was behind the commissioning strategy supported by our needs-based allocation model. To ensure equitable allocation of funding across organisations serving different populations, the model accounts for the various factors that are likely to impact the population need of services (i.e. economic disadvantage and high prevalence of common conditions) as well as key cost drivers such as local availability of specialist services.
On the other hand, negotiating budgets and funding is a sensitive exercise. It was important that in addition to the equity focus, the new funding model was transparent and driven by local evidence. Close collaboration with PHN staff and providers was paramount to select the key local indicators of need and cost drivers to be included in the needs-based allocation model.
If you are wondering as to how an organisation moving towards outcomes-based commissioning and financing would benefit from needs-based allocation, here is the answer:
First, we should not forget that although we all want to commission outcomes and reward good performers, we want to do so while advancing an equity agenda that prioritises outcomes and funding for disadvantaged populations. Needs-based financing provides a solid grounding to ensure populations experiencing a higher level of disadvantage receive relatively higher levels of funding, without which their outcomes are likely to stagnate or deteriorate even further.
Second, very often there is so much data and information available that it is hard for commissioners and managers to establish clear priorities, let alone to ensure funding alignment. Directly linking available indicators to funding allocation is a powerful tool to separate the wheat from the chaff.