Academic journal article Applied Health Economics and Health Policy

Managing Healthcare Budgets in Times of Austerity: The Role of Program Budgeting and Marginal Analysis

Academic journal article Applied Health Economics and Health Policy

Managing Healthcare Budgets in Times of Austerity: The Role of Program Budgeting and Marginal Analysis

Article excerpt

Published online: 24 January 2014

* The Author(s) 2014. This article is published with open access at

Abstract Given limited resources, priority setting or choice making will remain a reality at all levels of publicly funded healthcare across countries for many years to come. The pressures may well be even more acute as the impact of the economic crisis of 2008 continues to play out but, even as economies begin to turn around, resources within healthcare will be limited, thus some form of rationing will be required. Over the last few decades, research on healthcare priority setting has focused on methods of implementation as well as on the development of approaches related to fairness and legitimacy and on more technical aspects of decision making including the use of multi-criteria decision analysis. Recently, research has led to better understanding of evaluating priority setting activity including defining 'success' and articulating key elements for high performance. This body of research, however, often goes untapped by those charged with making challenging decisions and as such, in line with prevailing public sector incentives, decisions are often reliant on historical allocation patterns and/or political negotiation. These archaic and ineffective approaches not only lead to poor decisions in terms of value for money but further do not reflect basic ethical conditions that can lead to fairness in the decision-making process. The purpose of this paper is to outline a comprehensive approach to priority setting and resource allocation that has been used in different contexts across countries. This will provide decision makers with a single point of access for a basic understanding of relevant tools when faced with having to make difficult decisions about what healthcare services to fund and what not to fund. The paper also addresses several key issues related to priority setting including how health technology assessments can be used, how performance can be improved at a practical level, and what ongoing resource management practice should look like. In terms of future research, one of the most important areas of priority setting that needs further attention is how best to engage public members.

1 Introduction

Public sector budgets have been under enormous pressure since the economic crisis of 2008 [1, 2]. So-called 'belt tightening' around the usual suspects of discretionary travel, consultant fees, and overtime expenditure typically garner the expected first wave of attention. While this may be palatable politically, in reality such cost savings barely scratch the surface, in part because many healthcare organizations have been 'leaning up' for well over a decade. Of course it is not to say that there are no efficiency gains that can be made, but it would be atypical to identify a plethora of low-hanging fruit in this day and age.

Acknowledging this, researchers and policy makers have turned attention to pulling resources from areas of ineffective care. For example, in the UK, the National Institute for Health and Clinical Excellence has been producing 'do not do' lists for a number of years now [3]. Furthermore, work in Australia has identified over 150 areas of care that health service delivery organizations could potentially stop doing based on the latest evidence [4]. The important point is that it is clear that there are tangible service areas from which resources should be released, thereby freeing resources to go towards government bottom lines or for re-investment elsewhere in the system. The question then becomes, are even more resources required to be 'found' beyond efficiency gains and stopping ineffective services?

The answer to this question will depend on the context. In some relatively cash-rich systems where the notion of scarcity has not come to the fore, indeed the impetus to 'go further' may simply not be there. However, in most countries today, following the current extended economic downturn and limited hope for a near-term recovery, there is really only one option. …

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