Resource Allocation Formula - Information
Background
The 14 territorial Health Boards in Scotland are responsible for providing high quality healthcare services to the populations they serve. It is crucial that resources are distributed fairly across Scotland, taking account of the many factors that influence the need for healthcare in particular areas and the costs of supplying those services.
Basics of the Resource Allocation Formula
As in most resource allocation formulae, the main driver is the population size of each area - the more people you have, the more resources you will get. However, this on its own would not be a fair way of distributing resources as there is clear evidence that some groups, for example older populations, or those with particular morbidity and life circumstances characteristics, need a higher amount of resources than average. For this reason adjustments are made to the base population of each area to account for:
- The age/sex composition of the population
- The relative additional needs due to morbidity and life circumstances (MLC) and other factors
- The relative unavoidable excess costs of providing services in remote places.
The adjustments to the base population result in what is known as a weighted population. Calculations are initially carried out on the populations of small geographical areas and GP practices, which are then aggregated up to provide NHS Board level shares. This is then used to determine the target share of funding for each Health Board.
The small areas utilised within the formula are "data zones" which are key small-area statistical geographies in Scotland introduced by the Scottish Government for use in Scottish Neighbourhood Statistics.
The four steps to creating a weighted population are:
- Take the base population of each Health Board at small area (data zone or GP practice level) by age and sex
- Predict the expected resources required in each small area based on national average costs per head by age and sex to create an age-sex cost-weighted population
- Predict the additional needs over and above the need due to age and sex, and adjust the weighted population
- Finally adjust for unavoidable excess costs to create the final overall weighted population for each small area.
In each step, the population is multiplied by an 'index' to make the adjustment; an index value of 1 indicates that an area's predicted resource use is equal to the national average, while values above and below 1 are above and below the national average, respectively. Both the indices and the population shares can be aggregated in various ways - geographically, or over the four components to create an 'overall' index
Formula Structure: Hospital & Community Health Services (HCHS) and GP Prescribing
At each step of the formula, the calculations are carried out separately for different care programmes. These are: Acute, Mental Health & Learning Difficulties, Maternity, Care of the Elderly, Community, and GP Prescribing. Each care programme goes through the formula separately, with different MLC indicators, different age-sex cost weights, and different excess costs indices (e.g. GP Prescribing has no excess costs adjustment, since prescription costs do not vary with location). This ensures the prediction of overall cost is as accurate and detailed as it needs to be.
The Acute, Mental Health & Learning Difficulties, Maternity, Care of the Elderly, and Community care programmes together make up Hospital and Community Health Services (HCHS). For HCHS care programmes the calculations are based at data zones. GP Prescribing is based on GP practices and so is presented separately from HCHS.
The indices from all care programmes are finally combined at NHS Board level as a weighted average weighted by the relative expenditure in each programme, to produce the target areas.
Additional Information
For more detailed information on how the Resource Allocation formula works in practice please see the following documentation:
How the Formula works in practice 
