The Concept And Economic Principles Of Program Budgeting In Healthcare

The Great Recession, which started in late 2000s and lasted until early 2010s, has significantly impacted global markets, with sinking international trade, dropping commodity prices and rising unemployment (Isidore, 2018). In healthcare, the effect of this financial crisis was evidently demonstrated in one study: with every 1% increase in unemployment, there is a $ 138 decrease in health expenditure per capita (Faramarzi et al. , 2018). In UK, the economic recession has affected the National Health Service (NHS) spending, with a decrease of 7. 3% as a percentage of gross domestic product (Charles et al. , 2015).

In most countries, the effect of this economic crisis is still reverberating, while concomitantly anticipating the “great economic crash of 2020” predicted by financial experts (Elizalde, 2018; Light; 2018). These highlights the need for priority setting of scarce resources across national initiatives, including healthcare programs (Mitton et al. , 2014). Priority setting poses one of the most critical issues in health policy due to the gap between public health’s needs and the resources to meet these requirements (Mitton et al. , 2009). To guide priority setting, frameworks were developed such as multi-criteria decision analysis, accountability for reasonableness, burden of disease & cost-effectiveness analysis, and program budgeting and marginal analysis (PBMA) (Kapiriri and Razavi, 2017). This paper will focus on the concept of program budgeting in healthcare and its underpinning economic principles. Specifically, this paper will discuss one economic approach that is commonly used in healthcare, i. e. the PBMA.

The reasons to support its routine use in healthcare decision-making will be presented, as well as the perceived advantages and limitations of this approach. What is ‘program budgeting’? Program budgeting was initially developed in the 1950’s to tabulate data to determine where and how expenses or resources are used in the US defence department (Mitton and Donaldson, 2003). This approach was subsequently employed by other sectors, including health departments such as the NHS that applied this evaluation approach as early as 1974 (Mitton and Donaldson, 2003). Brambleby (1995) described program budgeting as a framework to ensure strategies and plans have “some substance, some continuity, and some openness”. He further specified that program budgeting information should be able “to simplify, to inform, to plan, to co-ordinate, and to communicate” planning of health services. Since program budgeting alone was not designed for program appraisal, economic evaluation was recommended to be conducted alongside program budgeting (Mitton and Donaldson, 2003). What economic principles support program budgeting and priority setting? Program appraisal aims to manage scare healthcare resources and the economic principles of ‘opportunity cost’ and ‘margin’ are often considered in setting program priorities (Donaldson et al. , 2008). Opportunity cost takes into consideration the premise that investing resources in one program to achieve an intended benefit, will influence the possible benefits other programs would have had if resources were allocated to them instead (Mitton and Donaldson, 2004). It is therefore important to know the health gains obtained from several identified programs and the costs attributed to them and use this information to maximize overall benefit to the public (Donaldson et al. , 2008). The other economic principle, margin, refers to the effects of changes or shifts in the resource mix (Mitton and Donaldson, 2004).

There is a need to understand the costs and benefits of several health services, and the best way to determine this is at the margin, i. e. , the benefit added from one unit increase in resources, or conversely, the benefit misplaced from one unit decrease in resources (Ruta et al. , 2005). If the marginal benefit for every dollar spent for one health program is higher than another, then resources should be shifted to the program with the greater marginal benefit (Donaldson et al. , 2008). This reallocation of resources in selected health programs should ideally continue until the marginal benefit and marginal cost ratio are equal, which can potentially maximize the total health benefits in the community (Ruta et al. , 2005). What is ‘Program Budgeting and Marginal Analysis’?Program Budgeting and Marginal Analysis is a framework based on opportunity costs and margin and it aims to maximize healthcare resources by focusing on the impact of decisions in resource allocation (Angell et al. , 2016). Program budgeting is defined as an evaluation of past and future resource allocation in identified health programs while marginal analysis can be broadly defined as the assessment of benefits and costs of planned investments or disinvestments of health programs, which can be performed through specific economic evaluation techniques, such as cost-effectiveness analysis or cost-benefit analysis (Edwards et al. 2014). This approach is initiated by asking five questions about resource use (Donaldson et al. , 2008; Ruta et al. , 2005). The first two questions are related to the program budget while the last three refers to the marginal analysis.

1. What is the total amount of resources available to the health system or organization?
2. How are these resources currently spend and to which programs?
3. What health programs would need additional or new resources?
4. Are there current programs that can be executed effectively with fewer resources?
5. Are there current programs that can be eliminated or receive fewer resources because they are less effective?

PBMA was successfully conducted in North Wales for resource reallocation in respiratory care (Charles, et al. , 2017). Since respiratory care is a large cost-driver in this area, a PBMA was initiated, led by a multi-professional advisory panel who established local decision-making criteria and voting process via electronic means. From 2012-2013, the respiratory care total program budget is £86. 9 million. The advisory panel identified 13 interventions and recommended to invest in 7 interventions (e. g. , pulmonary rehabilitation and medicines waste management), disinvest in 4 interventions (e. g. , high prescriptions for mucolytics and antibiotics), and maintain 2 current interventions. The PBMA priority setting process has seven stages as shown in the box below. The first two stages refer to the program budget while the last five stages refer to marginal analysis (Donaldson et al. , 2008; Ruta et al. , 2005). Box. Stages of PBMA Process (Mitton and Donaldson, 2004)Program BudgetThe first step determines what services, programs, or organizations will be in scope. PBMA can be conducted to allocate resources for services within a program or used to allocate resources between programs.

Once this is done, the activities and expenditures can now be mapped and compiled (Donaldson et al. , 2008; Mitton and Donaldson, 2004; Ruta et al. , 2005). Marginal AnalysisThe next steps would include formation of a panel of stakeholders that can contribute to priority setting. Ideally this would include not only the leadership team, but also patient-facing healthcare professionals and even patients or their representatives. The advisory panel would then identify relevant local decision-making criteria based on the regional or national objectives or guidelines.

The relevant data gathered at this point, as well as evidence on effectiveness of interventions or programs, will be used to identify options for investment or disinvestment. Recommendations will then be made by the advisory panel based on costs and benefits, followed by validation and re-examination of recommendations ideally by other stakeholders (Donaldson et al. , 2008; Mitton and Donaldson, 2004; Ruta et al. , 2005). Why should Program Budgeting and Marginal Analysis be used routinely in healthcare decision-making?In a recent systematic review of published papers on approaches to healthcare priority setting, PBMA was reported to be the most common approach that was able to influence policy making (Kapiriri and Razavi, 2017).

According to decision-makers, PBMA is an important and practical tool for setting priorities, which contributes to a well-informed decision making (Kapiriri and Razavi, 2017). Donaldson and colleagues (2008) made a particularly strong point on the need for structured approaches to healthcare priority setting such as the PBMA, because reports from HTA agencies do not manage the trade-offs in their recommendations. HTA agencies are unable to recognize that interventions with low incremental cost per quality adjusted life year would still warrant additional resources. These opportunity costs will affect the local health institutions where most local decision-makers are at a disadvantage if no structured resource allocation tool is used (Donaldson et al. , 2008). This is particularly detrimental for programs that are deemed of low priority such as postnatal care in NHS (Bowers et al. , 2018).

What are the advantages and limitations of program budgeting and marginal analysis? The main benefits of a systematic process like the PBMA, is the structure it provides for assembling key information, evidence-sharing between multi-disciplinary healthcare professionals, and encouraging constructive discussions on resource allocation (Bowers et al. , 2018). It is also potentially useful to ensure evidence-informed decisions are conducted on areas of possible controversial issues such as disinvestment (Charles et al. , 2017). PBMA, however, requires much input from staff who would act as panel members, so it may be difficult to remove inherent biases or self-serving intentions (Bowers et al. , 2018). Furthermore, if PBMA is done as initially intended, a comprehensive program budget is required as well as intensive literature review and data collection, debates and validation of assumptions. This may potentially be a problem because frontline healthcare professionals, managers and administrators may have other more pressing responsibilities (Bowers et al. , 2018). This can therefore impact timeliness, which is can impact successful implementation of resource allocation projects.

Another possible issue with PBMA is that the decision criteria is not explicitly stated, which may incorporate bias in the process (Gibson et al. 2006). Furthermore, there is no formal mechanism on validation of results as well as communication plan in place to ensure all stakeholders are informed of the rationale for the decisions for resource allocation (Gibson et al. 2006). ConclusionPrudent healthcare is described as ‘healthcare that fits the needs and circumstances of patients and actively avoids wasteful care that is not to the patients benefit’ (Bradley et al. , 2014). Employing program budget approaches should be used routinely together with HTA recommendations to accommodate opportunity costs and marginal costs and benefits. This will ensure proper utilization of scare resources for the betterment of the community. 2