Understanding Resource Allocation Mechanisms

1. Resource Allocation
in Healthcare
Abdur Razzaque Sarker
MHE (Health Economics), MSS (Economics)
Health Economics and Financing Research, icddrb
and
PhD Fellow in Strathclyde University, UK
Email: razzaque.sarker@gmail.com

2. Why resource allocation a big concern?
 Resource scarcity is commonly recognized in healthcare
sector, especially in the low income countries.
 While identifying new sources of funding is a major
political decision and usually a long-term plan of the
government, many countries concentrate on effective
utilization of available resources instead
 Effective budget (resource) utilization in an area or
hospital means the way of using limited resources for
providing quality healthcare services to maximum number
of patients/people

3. Health care triangle
Citizen Provider
Delivery
Third-party insurer
or purchaser
Source: Reinhardt, 1990
What is resource allocation?

4. Purchaser-Provider
 Commercial insurance pools (U.S.
Medicare system)
 Local governments (Scandinavia)
 Local administrative boards (UK,
New Zealand, Australia, Canada)
 Sickness funds (Netherlands,
Belgium, Israel, Germany)
• Public hospitals
• Private for-profit-
hospitals/clinics
• Private not-for-profit
hospitals

5. Issues to be considered in allocation process
 Equity
 Equal access to healthcare according to need
 Equal payments for equal income or wealth according to
ability to pay
 Efficiency
 Use of prospective budget by adopting capitation approach
 Secure control of expenditure (cost containment)
 Risk-adjustment protects cream-skimming

6. Two methods of resource allocation
 Capitation
 Diagnosis related group (DRG)

7. Capitation
A “capitation” payment is defined as the contribution to
a health plan’s budget associated with a target
population for the service in question for a given
period of time.
Why risk adjustment?

8. How are capitation payment set?
Three fundamental choices
 Total amount of finance to be distributed
 Personal factors to be considered in risk
adjustment
 Weights to be placed on need factors

9. Total amount of finance to be
distributed
 Political decision
Who takes decision and how?

10. Personal factors to be considered
in risk adjustment
 Need factors
Unmet need and unjustified utilization

11. Selection of need factors is highly controversial
and complex:
1) Data in short supply
2) Research evidence is sparse, dated and ambiguous in its
implications
3) Difficult to establish to what extent one factor is independent of
others
4) Difficult to disentangle legitimate needs factors from other policy
and supply influences on utilization
5) Often difficult to identify healthcare costs associated with a proven
needs factor
6) Recipients of budget try to choose factors that favor them using
political process

12. Though controversial and complex some
common factors:
Age (8 categories)
Sex (2 categories)
Ethnic status (3 categories)
Disability status (2 categories)

13. Weights to be placed on need
factors
 Using regression analysis “weights” are put on each factor.
 Individual level or aggregate level data are used.
Individual level factors
Age (8 categories)
Sex (2 categories)
Ethnic status (3 categories)
Disability status (2 categories)
Capitation payment estimation required for 8×2×3×2=96
cells

14. Aggregate level (geographic area based)
factors
 Demography
 Mortality
 Population density
 Proportion unemployed
 Proportion disabled
 Housing quality

15. Diagnosis-Related Groups (DRG)
Two components,:
 primary classification of the diagnosis of the
patients (ICD-10 coding)
 costs of treatment
.. .. .. will be merged for deciding diagnostic related
groups (DRGs).

16. Modular approach of cost
calculation in G-DRG

17. General overview of clinical cost approach.

18. Resource allocation procedure in
public hospitals in Bangladesh
Resource allocation in public hospitals in
Bangladesh is based on number of employees and
number of bed.
What are the equity and efficiency aspects of such a
procedure?

19. Email: razzaque.sarker@gmail.com
THANK YOU