Rural and remote health services lose out on NHS funding

The way the NHS distributes funding between local health services is unclear, unfair and fails to fully compensate remote and rural areas for the extra costs they face, an evidence review conducted by the Nuffield Trust for the National Centre for Rural Health and Care, concludes today.

The financial position of remote hospitals is so precarious that six of England’s smallest and most remote hospital trusts account for nearly a quarter of the £1 billion deficit carried by NHS organisations in England. 

The factors used to decide how funding is allocated transfer at least £1.3 billion away from rural areas.

Although the evidence on any additional costs associated with rurality is mixed, those trusts which are unavoidably small due to their remoteness generally have high cost pressures, longer waiting times, more delayed transfers of care, higher average unit costs and a worse financial position. Of the seven most remote rural hospitals in England, six are in deficit.

The particular challenges faced by remote services include:

• Difficulties in staff recruitment and retention and higher overall staff costs.
• Higher staff travel costs and therefore less productive staff time.
• The scale of fixed costs associated with providing services within, for example, safe staffing level guidelines.
• Difficulties in realising economies of scale while adequately serving sparsely populated areas.

Report authors Billy Palmer, John Appleby and Jonathan Spencer acknowledge the complexity of allocating funding fairly.  Weighted capitation systems across the four nations of the UK have developed over the last fifty years and are highly sophisticated, but have serious limitations, the report argues.  There are inevitable trade-offs between the desire to offer equal access to services to everyone, and the financial costs of doing so where economies of scale cannot be achieved. However, England appears to pay less attention to the challenges of rurality than Scotland, Wales and Northern Ireland.

Allocations to the clinical commissioning groups (CCGs) that buy and fund local services are adjusted to account for the factors affecting the local population’s needs for services and the costs of delivering them.  The allocations do attempt to account for the higher levels of health needs in rural areas, due to a typically older population. In addition, there are two specific adjustments that move funding for hospital services towards rural areas to account for:

• the extra costs of ambulance provision and
• allowance for remoteness

But these are hugely outweighed by the factors that move funds towards urban areas, including:

• market forces (the higher costs of buildings , land and labour) and
• health inequalities.

The net effect of the latter two adjustments to the total budget for core services is to move around £600 million of funding from ‘predominantly rural’ areas to urban and less rural areas. 

History plays an important role in the way funds are allocated.  In an effort to avoid huge changes in funding that could destabilise services, previous funding allocations tend to be preserved as an important part of the total. On average this has the cumulative effect of favouring existing services in urban areas. Funding allocations for specialised services such as child heart surgery are strongly based on previous spending patterns, again favouring urban areas by around £700 million.

In addition to these allocation issues, the subsequent funding of services is even more opaque. The adjustment for higher costs of building, land and labour, which tends to favour urban areas, is clear – at the extreme, this means that the prices University College London charge clinical commissioning groups are 29 per cent higher than those commanded by Royal Cornwall Hospitals. But the process by which rural services receive funding to account for any of their higher costs is highly opaque, the report finds. The most common reason why any trust requests formal compensation for their higher costs is due to rurality, sparsity (small and widely dispersed populations) or impossibility of achieving economies of scale.

To date only one trust, Morecambe Bay, has been successful with its application.

The report is a rapid evidence review and does not claim to give a comprehensive picture of rural cost pressures.  However, the disparities uncovered suggest a need for much greater transparency and consistency.

The Nuffield Trust’s Chief Economist and Director of Research Professor John Appleby says:

“The evidence is mounting that small and remote hospitals face higher costs that they cannot avoid, with comparatively poor performance against key NHS measures and dire financial positions.  It is certainly worrying that the methods used to allocate funding to these hospitals are inconsistent, obscure and depend so heavily on judgment.  We recommend that the true scale of costs is examined again, and that national bodies are much clearer about how they make their funding decisions.”

Chair of the National Centre for Rural Health and Care, Dr Richard Parish, said:

“This study was commissioned as part of our wider work to identify the issues faced by health and care providers in rural areas and the challenges in providing services in these areas.

“Over 9 million people in the UK live in rural areas, so it is vitally important that we identify the challenges to providing health and care services for them and that through research such as this we can challenge any imbalance in funding, attention or prioritisation for the benefit of our rural populations.

“The findings of this study are really very interesting and of huge importance nationally.”