Programme budgeting and marginal analysis: linking health investment to health improvement

What is programme budgeting and marginal analysis (PBMA)?

Programme budgeting is simply a way of looking at where the money in a local health system (such as a primary care trust (PCT)) has been invested, broken down into health programmes (like heart health, mental health, and cancer) instead of traditional budget headings (like GP prescribing, hospitals, and community services). Armed with this knowledge, it is then possible to ask what the investment is for and what it achieves—the programme objectives, outputs, and outcomes—and how these compare with similar health systems elsewhere. The purpose is to adjust the pattern of spending to get a better fit between the programme resources and the programme objectives. That should lead to improvements in efficiency, effectiveness, and equity.

Programme budgeting is often used in conjunction with marginal analysis. Marginal analysis is an economic appraisal of incremental changes in costs and benefits (‘at the margin’) when resources in programmes are increased, decreased, or deployed in new ways. Programme budgeting shows where a PCT is starting from; marginal analysis helps it decide how to move forward.

How does PBMA relate to needs assessment and commissioning?

Needs assessment is “a systematic method for reviewing the health issues facing a population, leading to agreed priorities and resource allocation that will improve health and reduce inequalities.”—NICE, 2005, Health needs assessment: a practical guide

The NICE definition could just as well be used to describe programme budgeting.

A verb, not just a noun!

Programme budgeting (verb) is a way of thinking and working—a way of framing questions and objectives, of planning, coordinating, communicating, networking, and reporting. It helps everyone concerned to recognise the opportunity costs and trade-offs that have to be made as we constantly try to get a better fit between what the population needs and what resources are available to do the job.

It is more than just a programme budget (noun). It is not the spreadsheet that matters but how it is used—not the map that matters but the journey.

Commissioning is the collaborative process by which all the parties in a local health economy seek to get a better fit between the needs of a population and the resources at their disposal. It works best when the partners share a sense of common purpose. Perhaps it should be spelt co-mission-ing. A health programme approach, with programme objectives and programme budgets, provides the unifying framework that is needed. It brings together clinicians and managers, commissioners and providers, PCTs and the populations they serve.

What information is readily available?

A key resource is the Department of Health Programme Budgeting website ( External Link ).

For three financial years (2003/04, 2004/05, and 2005/06), all PCTs in England submitted a return to the Department of Health (DoH) showing their best estimate of how their total expenditure was deployed across 23 programme budget categories. In late 2006, the third year’s returns will be published (2005/06), but this time with additional information linking expenditure to data on activity and outcome, and grouped into the new PCT configurations.

The first 20 programme budget categories relate to the chapters in the International Classification of Disease (version 10). Category 1 relates to infectious diseases, category 2 to cancers and tumours, and so on. A further three programme budget categories were added to this list to capture the remaining areas of spend that did not easily fit with the first 20. These are: 21, healthy individuals; 22, social care needs; and 23, other (eg, general medical services). In time, these three extra categories may be absorbed into the main 20.

In order to get to a figure for each programme budget category to send to the DoH, PCTs had to add together the component parts: hospital expenditure, community expenditure, GP prescribing, and the rest. That level of detail is not sent to the centre but is held locally by each PCT. These component parts are very different in the different programme budget categories. For example, GP prescribing is a prominent feature in the endocrinology and circulatory diseases programmes but much less prominent in the cancers programme. This local detail should be used in local commissioning and liaison with clinicians and the public to inform any local redistribution within the programmes or between the programmes.

The Department of Health’s programme budget spreadsheet, available on the website as above, allows anyone to look at any PCT and establish:

• What the PCT’s ‘distance from target’ with respect to overall funding is—essential context for other comparisons
• What its per capita spend was in each of the programme budget categories
• How the PCT spend in any programme budget category compares with a cluster of similar PCTs, the strategic health authority average and the England average
• Time trends—links between programme expenditure and programme outputs and outcomes, in an interactive atlas, via a link to the National Centre for Health Outcomes Development: nww.nchod.nhs (note that this is an ‘nww’ address for NHS users only at present).

How can programme budgeting be used in a PCT?

Interpret all cost data as ‘best estimates’ since the methodology is ambitious and in its infancy. Even so, some trends will chime with local experience and local knowledge, especially low and high spends, and should prompt further action. With greater use, accuracy will improve.

Start with the big picture:

• Look at the PCT programme budget spends and those of others in similar areas
• Unpick the detail in those programmes—discuss and understand them
• Start framing some new questions. Tap into the creativity of local clinicians, managers, public and partners—think of new ways of deploying those resources to fill gaps and improve health outcomes before adding or subtracting from a programme as a whole.

For each programme in turn, convene a marginal analysis advisory group to reframe the commissioning questions:

• What is the broad pattern of PCT investment across the health programmes?
• What are the programme objectives? Challenge the status quo and set objectives at every step along the patient pathway.
• How much do we spend at present?
• What activity does that generate?
• What outcomes are we getting (are we really meeting the programme objectives)?
• How do all these compare with similar parts of the NHS elsewhere?
• What do our public, partners and professions suggest?
• Is there a better way to match programme resources (people, buildings, money) to programme objectives?

Programme budgeting is an ideal framework for:

• PCT public health reports—relating needs assessments to resource allocation. It takes us from needs assessment to needs addressment!
• PCT local delivery plans—systematic coverage of all disease areas, derived from needs assessment and appraisal of delivery against the previous year’s programme objectives
• Public and patient involvement—framing the discussion in terms of people’s needs, not organisations’ needs
• Bridging the gap between doctors and managers—helping clinical teams in hospital and primary care to recognise and manage opportunity costs
• Re-engineering patient pathways and patient care within the discipline of set budgets (transformational commissioning rather than just transactional commissioning)
• Putting a resource framework and context to NICE appraisals and similar authoritative guidance
• Performance monitoring and reporting—systematic, comprehensive coverage
• Getting back into financial balance—accepting the discipline of a programme budget and tailoring the programme activities to meet the programme objectives.

Remember: in 2008 the rate of new resource input for the NHS will slow down. Thereafter, innovation will still be possible but there will be a much greater emphasis on redeployment of resources within and between programmes. The guiding principle will still be the same: a constant refinement of programme investments to get a better fit with programme objectives.

What is the policy context?

1997 “The New NHS, modern, dependable”, DoH

Para 6.2: “Partnerships between secondary and primary care clinicians and with social services will provide the necessary basis for the establishment of programmes of care, which will allow planning and resource management across organisational boundaries.”

Para 9.18 “Efficient use of resources will be critical to delivering the best for patients. It is important that managers and clinicians alike have a proper understanding of the costs of local services, so that they can make appropriate local decisions on the best use of resources.”

24 June 2005. Financial management in the NHS. National Audit Office and Audit Commission

“The overall benefits of Programme Budgeting are considerable and include:

• Showing where total NHS funds have been spent in a way that is useful and interesting to tax payers;
• Enabling expenditure on particular conditions to be assessed against National Service frameworks and health outcomes;
• Providing consistent data to compare one body’s expenditure and performance with another’s;
• Assisting Primary Care Trusts in planning the provision of services, thus supporting more effective budgeting and commissioning.
• Ultimately, the Department intends that Primary Care Trusts and Strategic Health Authorities will publish their Programme Budgeting figures as an audited note to their annual accounts, thereby increasing transparency about their performance.”

28 November 2006. Letter from Richard Douglas, DoH Director of Finance, to all SHAs

- “Purpose … to ask you to communicate the 2005/06 programme budgeting figures to all PCTs, NHS Trusts and NHS Foundation Trusts within the SHA boundary.”

- “Analysis of expenditure in this way should help PCTs examine the health gain that can be obtained from investment, and will help inform understanding around equity and how patterns of expenditure map to the epidemiology of the local population.”

Is there an evidence base?

Yes. Programme budgeting has built up a large evidence base over many years, in this country and abroad, and in a variety of healthcare settings. A few illustrative examples are listed below.

• Brambleby P, Jackson A, Gray AJM. Better allocation for better healthcare: the first annual population value review. NHS National Knowledge Service. 2007. Available at External Link
• Ruta D, Mitton C, Bate A, Donaldson C. Programme budgeting and marginal analysis: bridging the divide between doctors and managers. BMJ. 2005;330:1501-1503. External Link
• Jackson A, Brambleby P, Young C. Putting spending on the map. Healthcare Finance. 2006:11-13.
• Gray AJM. How to get better value healthcare. Offox Press; 2006.
• Mitton C, Donaldson C. Priority Setting Toolkit: a guide to the use of economics in healthcare decision making. BMJ Books/Blackwell, London; 2004.
• Brambleby P. The quiet revolution. ACCA, Health Service Review. 2004:5-7.
• Brambleby P, Dixon J. The HSJ Debate: Programme budgeting is better for the health service than payment by results. Health Service Journal. 21 July 2005;18-19. External Link

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