Allocative efficiency is the point of difference between us and the US | Muir Gray

Stacks of coins

A paradigm shift is occurring in healthcare  a shift from a focus on quality and safety to one on value. The quality and safety model itself replaced the evidence-based paradigm, which was the first significant departure away from the original paradigm that healthcare was free.

In both the UK and US there has been a massive growth of interest in value. In the US, articles on value have been appearing in those journals previously known for publishing 'hard science', for example, the Journal of the American Medical Association (JAMA) and the New England Journal of Medicine. The book Redefining healthcare by Porter and Teisberg has also put value on the agenda. 

There is, however, a different value agenda in the UK and all other countries working with finite budgets. The type of focus in discussion in the US – what one might call a ‘technical value’ or efficiency (namely outcomes over costs for a service) – needs to be complemented by another type of value, called ‘allocative efficiency’ by economists.

Aiming for the point of indifference

The aim of people allocating resources is to reach what economists call the ‘point of indifference’ – the point at which it is no longer possible to derive any more value by shifting a single pound from one budget to another. 

Within the NHS, the main focus has been on allocation to hospital, mental health and community services, but with the publication of Commissioning for value packs under the Right Care Programme, the focus is now increasingly on programme budgets and the amount of money being spent on, for example, cancer or mental health. 

We still don’t have good programme budgets for people with co-morbidity or elderly people with frailty, but with additions to the archipelago of care (illustrated below), we are at least seeing the need to focus on the core business of care – for example, people with pelvic pain or people with rheumatoid arthritis, or people with multiple conditions. This approach has been called population healthcare by Public Health England. 



The key task of commissioners is to allocate resources to different programme budgets – many, however, seem preoccupied with management, or even micro-management, of service quality.

Within programme between system marginal analysis

Once resources have been allocated to a programme, clinicians need to take responsibility for what has been called ‘within programme within system marginal analysis’. For example, within the eyes and vision programme budget, how should resources be allocated to the six main conditions like glaucoma, retinopathy, low vision, etc. 

Finally, having allocated resources for a single system, the next step is to ensure that the distribution of resources in the management of chronic obstructive pulmonary disease is optimal. Work done by respiratory physicians and scientists in London, using the Socio-Technical Allocation of Resources (STAR) tool, resulted in a decision to shift money from triple drug therapy to rehabilitation and smoking cessation. This has to be a patient responsibility with patient involvement.

Personalised value

The third type of value of equal importance to the two aforementioned types is personalised value, and this will be discussed further at the Inaugural NHS Value Lecture on 3 June.

Professor Sir Muir Gray is director of Better Value Healthcare (BVHC). Follow him and the organisation on Twitter: @muirgray @BVHC

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