Marginal analysis in practice: an alternative to needs assessment for contracting health care

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Abstract
Prioritising health care services on the basis of total needs can lead to inefficient use of resources. A better option is to determine priorities by marginal analysis, which examines the effects of altering the existing balance of expenditure between health care programmes. Resources to support investment are released from disinvestments - that is, the strategy is resource neutral. Thus an increase in total health benefits is achieved independent of any gains that may result from increased spending on health. In 1989 the Welsh Health Planning Forum identified 10 health gain areas, outlining within each one where further investment was likely to produce health gains and where disinvestment might be considered. All Welsh districts then attempted, with varying degrees of success, to produce a resource neutral strategy. Mid Glamorgan further explored the possibility of using marginal analysis in producing its strategy and influencing its policy for contracting. Working groups for most health gain areas each proposed 10 programmes for investment and a further 10 for disinvestment, which were then evaluated by a core evaluation team. In the case of maternal and child health the team dropped 10 of the 20 proposals. The remainder were considered by the health authority, which dropped a further proposal. Nine of the original 20 proposals thus formally became policy for 1995. As part of the process of creating the internal market in the NHS, health authorities and health boards were given responsibility for assessing the total needs of the populations they serve and advised to include these assessments as part of the process of setting priorities. Economists have long opposed prioritising on the basis of total needs for reasons given below, preferring an approach that focuses instead on the needs that are currently just failing to be met.1,2 This approach of analysing costs …

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