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WHATT-12-2013-0053
ABSTRACT
paramount.
Originality/value Although there is a large body of literature on prior-
ity setting particularly in countries like the United Kingdom and
Canada, this chapter serves to highlight key messages specifically in the
context of fiscal constraint and in relation to the concept of disinvestment
or service reduction.
Keywords: Priority setting; resource allocation; disinvestment
INTRODUCTION
Countries the world over are experiencing fiscal constraint to a level that
has potentially not been seen previously in history (Appleby, Crawford, &
Emmerson, 2009; Callan, Nolan, & Walsh, 2010; Canada Institute for
Health Information, 2009). Disinvestment, decommissioning, service
reduction, and other related terms have jumped into the vernacular of
many healthcare decision makers who previously held that annual budget
growth outpacing inflation by 2 3 times or more was the norm. In most
OCED countries, this new fiscal reality results in the slowing of year on
year healthcare spending growth if not outright reduction in real terms
(Callan et al., 2010). While operational efficiencies achieved with processes
such as LEAN have made some inroads in reducing expenditure or freeing
up capacity, significant budget gaps often still exist. As a result, in Canada,
as elsewhere, healthcare decision makers are moving toward evidence-based
processes for disinvestment.
In this chapter, we explore the concept of disinvestment, identifying
different types of cost savings and clarifying what we would put forward
as an appropriate understanding of disinvestment. We then explain why
Criteria-based Resource Allocation 197
BACKGROUND
of the tools that decision makers can use as they approach disinvestment
within priority setting processes.
Before going any further, it would be useful to take stock and define what is
meant by disinvestment in this context. This is important because the term
disinvestment is used with a range of meanings and there are different ways
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overall (i.e., net) costs are decreased. The purpose and mechanism for
achieving this may indeed vary, but the point is, any cost saving is a form of
disinvestment. The implication of disinvestment may be that quality or
quantity of service is reduced, but this will not necessarily be the case as it
may be that a cheaper service re-design can still provide the same, or even
better, quality of service. Furthermore, at the organizational level, if quan-
tity or quality of a given service is reduced but the savings are re-allocated
to a higher producing service, overall quantity and quality increases.
Our personal experience suggests that the literatures lack of clarity on
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situation that is, this applies equally whether the budget is balanced, in
deficit or in surplus. One could argue that if new funds were available, tak-
ing resources from one area to re-invest elsewhere would in fact not be
necessary. But this could only be accepted if it were shown that all resources
are currently spent in the optimal manner possible (i.e., marginal benefits
exceed opportunity costs for all funded services). It is not to say that this
state is not possible but it is far more likely that any given health system will
require some shifting in order to receive more benefit out of the existing
pot of resources. The problem with new money, in our view, is that this
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One approach that has been used many times over in health systems across
countries is Program Budgeting and Marginal Analysis (PBMA). The aim
Criteria-based Resource Allocation 203
growth areas)?
3. Can any existing services be provided as effectively, but with fewer
resources, allowing items on the growth list to be funded?
4. If some growth areas still cannot be funded, are there any services that
should receive fewer resources, or even be stopped, because more benefit
would be obtained by funding a growth option instead of an existing
service?
These questions relate to the two fundamental resource allocation princi-
ples underpinning PBMA: opportunity costs, as discussed earlier in the
chapter, and marginal net benefits. Answering the first question above
brings clarity to the current spending pattern. The actual budget numbers
from a given organization provide essential information but are often
not broken down along service or program lines and usually do not relate
overhead to specific services or programs.
The answers to the second through fourth questions provide the basis for
resource allocation decisions. The use of marginal analysis of benefits and
costs is required as, typically, healthcare costs do not increase at a constant
rate per patient or client and benefits are not constant across all patients or
clients. The marginal benefits and costs are those directly related to the
addition or the elimination of an incremental unit of a given program or ser-
vice. Through examining areas for service growth (i.e., question 2) alongside
of areas for resource release (i.e., questions 3 and 4), resource shifts can be
made at the margin to improve benefit overall. In this case benefit is
defined against a set of decision criteria that reflect the objectives and
strategic priorities of the given organization or health system under review.
PBMA does not alleviate the need to make difficult decisions. It does
however provide an approach that is explicit and evidence-based, and which
makes decision making more transparent and hence more accountable to
relevant stakeholders. This leads to decisions that conform more closely
with articulated values and preferences, and should prevent legal challenges
204 CRAIG MITTON ET AL.
services through mandatory public insurance. In some but not all provinces
there is an income-adjusted premium set for individuals or families that
ranges from $50 to150 per month (and is waived entirely for low income
groups).
Physicians for the most part act outside of the regional health boards
(although they are granted admitting privileges from hospitals that are oper-
ated within the boards) and the majority are paid directly from the provin-
cial Ministry on a fee-for-service basis. Patients are free to access physician
and hospital services of their choosing although in order to see a specialist
the patient must be referred through a general practitioner. Overall in
Canada healthcare expenditure exceeds CAD$200B ($1 CAD = $0.9 US)
(about CAD$6,000 per capita) and equates to just under 11% of GDP.
In both case studies, the research team were hired in a consulting role
with the task of assisting the organization in developing a plan to address a
specific financial challenge.
The first case study comes from an organization in British Columbia
which is in one of the largest health regions in Canada serving a population
of approximately 1.5 million people with an annual operating budget of
CAD $3B. The specific financial challenge being addressed was the neces-
sary elimination of a forecasted deficit of approximately CAD$5M in one
of the divisions of the organization.1 Despite a challenging timeline of only
three months, managers and clinical leaders (programs are typically lead
jointly by a professional manager and a physician, those physicians are the
clinical leaders) worked together to not only eliminate the deficit through
application of a transparent set of criteria but to also go further and
identify options for re-allocation to program areas of high need.
A priority setting committee composed of directors and clinical leaders
within the division was established, as was an advisory panel that included
a mix of senior executive members and directors from the division. An
internal project manager worked closely with the external research team
throughout the process. Process features included a formal communication
Criteria-based Resource Allocation 207
plan, assessment criteria, proposal rating tool, and structured business case
template. Some examples of criteria used were: alignment with mandate,
number of individuals to be affected, equity, impact on clinical outcomes,
and impact on service utilization. The criteria were weighted by decision
makers within the organization to reflect their relative importance.
Proposals for disinvestment and investment were submitted to the prior-
ity setting committee for assessment and ranking using a formal multi-
criteria decision analysis rating tool with recommendations forwarded to
the advisory panel (examples of rating in Table 3). The recommendations
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Alignment to mandate 3 0
Efficiency, effectiveness, and appropriateness 1 1
Access 1 1
Flow and integration 0 0
Number affected 1 1
Equity 3 1
Significance of impact 3 1
Health promotion and prevention 0 0
Client experience 2 1
Workplace environment 3 1
Innovation and knowledge transfer 0 0
Implementation challenges 2 0
Impact on future service utilization 0 1
Weighted score 1.45 0.73
Note: The weighted score is a measurement of the opportunity cost for each of the proposal,
that is, if we do not keep the number of beds as it is we forego 1.45 units of benefits per dollar
saved and if we remove 0.5 FTE of professional services we forego 0.73 units of benefits per
dollar. The scoring for each criterion, for each proposal, is done by consensus and is not an
averaging of the estimates of every member of the committee charged with the proposals
evaluation. In this case the final decision, taking into account the score of each proposal, the
values of the projected savings and the total amount of savings required was to implement the
community services reduction but not the bed reduction. If investment proposals had been
considered at that stage, the minimum score of an investment would have to be above 0.73
units of benefits per dollar invested. If there were such investment opportunities, the decision
on proceeding or not would include consideration of the level of certainty around the estimates
of impact.
208 CRAIG MITTON ET AL.
DISCUSSION
The basic claim made in this chapter is that the identification of disinvest-
ment options is an essential component of proper resource management and
that a formal, explicit process for priority setting and resource allocation
fosters organizational ability to fulfill this necessary function. In times of
fiscal constraint it may seem that disinvestment is of even greater
importance, but we have explained that regardless of the external financial
pressures, organizations can only optimize resource use if consideration of
disinvestments is part of routine resource management activity. Developing
organizational capabilities that is, the skill set to do this well underpins
much of what is being conveyed in this chapter. External expertise can be
drawn upon for a short time but in reality all organizations should be foster-
ing these skills internally, building up capacity so that resource management
activity can be carried out routinely and proactively.
PBMA is a resource allocation framework that has been around for
many years and has been applied in a wide range of contexts. The draw of
PBMA is that it forces decision makers to become more rigorous in their
priority setting activities through development and implementation of expli-
cit decision criteria. As the research work on high performance has shown,
at a very minimum, all healthcare organizations should have a well-defined,
clearly articulated process for priority setting and resource allocation that is
based on pre-established criteria that reflect the stated objectives and strate-
gic values of the organization or system (Smith et al., 2013). To put it sim-
ply, this is a non-negotiable which taxpayers in publicly funded health
systems should demand of all senior management teams. Anything less and
not only will transparency and therefore legitimacy be comprised but
resource use will most likely not be optimized, other than by good fortune.
212 CRAIG MITTON ET AL.
Having said all of this, the skeptic might concede that PBMA, or some
other criteria-based management tool, is all well and good in publicly
funded systems, or, in the case of the United States, perhaps could concei-
vably have merit in Medicare and Medicaid programs where transparency
and stakeholder involvement should be a natural expectation. But what of
the rest of the US system? We would contend that in the United States
where systems of care are in place, a tool like PBMA is transferable, and
profit can be one criterion amongst other key criteria such as health gain,
equity and access, for example. In the end, each management team is
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CONCLUSION
In the end, a criteria-based approach for assessing investment and
disinvestment proposals must be included in the decision maker toolbox in
supporting priority setting and resource allocation activity. This chapter
has outlined one such tool but let us be clear that we are less interested in
an organization taking up PBMA and much more interested in seeing all
decision makers charged with making funding decisions act in the best
Criteria-based Resource Allocation 213
NOTE
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