6.1 Introduction

The terms demographic “time bomb”, “baby boomers” and the general ageing of populations are terms that have been widely discussed in a variety of arenas. The actual effect this is going to have is hard to predict, however this paper aims to provide some indicators of the changes that could be noticed over the next 25 years on the casemix of hospital admissions. This approach is speculative as it is based on crude payment by results (PbR) costs of finished hospital stays (FHS) being extrapolated onto projected changes in the age structure of the population.

6.2 Background

6.2.1 Payment by Results

Payment by Results (PbR) is the term given to a method of paying for health services. The origins of this date back to the use of Diagnostic Resource Groups (DRGs) which were developed in America to inform insurance companies on the costs of health care provision on a case by case basis.

The UK version of DRGs was coined as HRGs (Healthcare Resource Groups). HRG groupers are  a software based series of algorithms which “read” hospital activity data – known as HES (Hospital Episode Statistics) – and append a label known as an HRG code. These codes are grouped into chapters similar to ICD chapters and the HRGs within them are aggregations of similar conditions, treatments and resources needed to provide care. The costs for HRGs have been developed over a number of years, and the clinical groups have been created and iteratively refined by lead clinicians from around the country. Factors such as age and co - morbidity have been taken into account.

NHS finance is currently being aligned to HRGs and as a result, there have been improvements in the collection of data – to enable money “following the patients”. The costs assigned to each HRG depend on a number of factors including whether the admission was elective or emergency.

6.2.2 Demographic Projections

The Office of National Surveys (ONS) produces population projections in close collaboration with the Government Actuary Service (GAD). The projections are based on a number of parameters and start from a particular year. The projections are available at a national, regional and sub-national level. These include Strategic Health Authority and Local Government population projections. PCT population projections are not available unless the PCT is co-terminous with the local authority.

The population projections are available by quinary age and extend for a 25 year period. The accuracy of the projections deteriorates the longer the time frame.

This chapter aims to provide an insight in to the latest population projections and moreover extrapolate the PbR costs on to these to understand more of where the changes in costs could occur if services continued to provide the same level of services.

The analyses presented in this paper are globally aligned to SHA boundaries as these were the smallest health service structures that had population projections computed by ONS and GAD.

6.3 Methods

Five year age bands (quinary) were used to compute the numbers of FHSs for each HRG for each SHA in the West Midlands Region. These were then costed using the HRG tariff relevant for that year.

2003 HES data and HRG tariff’s were used because the population projections were based on 2003 as the initial point of the 25 year projection.

6.4 Results

6.4.1 Population Projections

There appears to be a number of significant trends apparent in the population projections on the whole:

The numbers of old elderly are rising fast (Figure 6.01)

Figure 6.01: WMRHA Population Projections - Old Elderly

Figure 06.01 WMRHA Population Projections - Old Elderly

The baby boomer effect – seen as a rippled effect in the graphs below – is working it’s way through the young elderly. This will hit the old elderly age bands after 2028 (Figure 6.02)

Figure 6.02: WMRHA Population Projections - Young Elderly

Figure 06.02 WMRHA Population Projections - Young Elderly.

The numbers of people aged between 40-60 are not going to rise as much as the numbers of old elderly. This age group are the main supply of volunteers and informal carers for the elderly. (Figure 6.03)

Figure 6.03: WMRHA Population Projections - Middle Age

Figure 06.03 WMRHA Population Projections - Middle Age.

The numbers of young adults and children will remain static in the main (figures 6.04 and 6.05).

Figure 6.04: WMRHA Population Projections - Young Adult

Figure 06.04 WMRHA Population Projections - Young Adults

Figure 6.05: WMRHA Population Projections - Children

Figure 06.05 WMRHA Population Projections - Children.

It should be noted that each SHA and PCT has different population profiles, and so these differences should be taken into account. An example of this is Heart of Birmingham PCT which has a population profile which has considerably more young adults than elderly when compared to neighbouring Sandwell.

Population projections are only available at local government administrative levels and also at regional and strategic health authority levels. They are not available at PCT level. This means that PCTs that are not co-terminous with their local government boundaries, do not have population projections available to consider.

For reasons of brevity this chapter will consider the 3 SHA populations and in particular consider the possible effects of extrapolating the population changes on PbR.

6.4.2 Strategic Health Authority Population Projections

WM Regional Health Authority comprises of three merged strategic health authorities.  The percentage change in the populations projected over 25 years is described for Shropshire and Staffordshire Strategic Health Authority (SASSHA) (Figure 6.06), West Midlands South Strategic Health Authority (WMSSHA) (Figure 6.07) and Birmingham and Black Country Strategic Health Authority (BBCSHA) (Figure 6.08) when compared to the regional projections (Figure 6.09). The most striking observation is that there are different levels of inflation or deflation of populations. An example of this relates to the relative fall in the percentage population of young people and rise in the population of elderly and is most dramatically seen in SASSHA and least dramatically seen in BBCSHA.

Figure 6.06: SASSHA Population Projections

Figure 06.06 SASSHA Population Projections

Figure 6.07: WMSSHA Population Projections

Figure 06.07 WMSSHA Population Projections

Figure 6.08: BBCSHA Population Projections

Figure 06.08 BBCSHA Population Projections

Figure 6.09: WMRHA Population Projections

Figure 06.09 WMRHA Population Projections

6.4.3 SHA Projections of PbR Costs

Adding up the HRG specific tariffs for each quinary age band imputed PbR costs. The baseline year was 2003 and tariffs appropriate to that year were then applied to the respective HRGs.

The quinary age band tariffs were then compared with 2003 tariff and the gross difference for each HRG chapter is described in table 6.01. As can be seen, some areas of spend rise more than others. Some areas of spend actually fall (children and obstetric related costs) when age projections are modelled on the populations.

Table 6.02: The Difference in HRG Chapter related PbR spend based on changes in age 2003 - 2028 Population Projections

6.5 Discussion

This chapter describes a crude estimate of the possible effect of changing demography on populations in the West Midlands. The methodology should be better – but due to limitations of data access, it was not possible to overcome these. In addition ONS does not produce PCT level population projections to enable a more meaningful view for PCTs and their commissioners.

No short stay, long stay, speciality specific adjustments to these tariffs were made as it  was not possible  to get access to raw HES data. It is on this basis that table 6.01 is for indicative purposes only. Accurate cost projections would not only have to take these factors into account but also inflation and service redesign.

Despite these limitations, this chapter provides an insight into the main areas where current levels of case mix will result in the greatest flux in PbR costs. These should be considered by all commissioners when planning long term services development.