Everyone seems to assume that because healthcare budgets are so big that they are immune to chance-based risk. Since most healthcare systems operate using capitated budgets (i.e. a fixed budget) you would think that the literature would be full of papers on how to calculate the risk associated with such budgets. All you will be able to find are a few UK studies from the early 1990's when GP fundholding was first introduced.

It turns out that financial risk in healthcare is unacceptably high to provider and purchaser alike. This explains why achieving break even is such a strenuous task with high levels of swapping between budgets. Even very large healthcare providers and commissioners can accumulate huge debt simply due to chance variation in volume and case mix.

In particular, emergency admissions are a source of exceedingly high risk and studies by HCAF have shown that the actual risk is up to 3-times higher than simple chance variation alone. This is in addition to the financial pressures arising from the three to eight year pattern in medical emergency admissions (see Emergency Admissions folder).

The issue of financial risk has a huge impact on the area of GP commissioning and many of the current policies in this area need significant revision to work in the real world. Refer to the 'HRG, PbR, PBC' folder for details regarding additional financial risk arising from limitations in the structure of the HRG tariff.

HCAF are the leading UK source of actuarial evaluation in healthcare. Rather than wait for chance variation to overtake you unawares it may be a sensible idea to understand how this impacts your organisation and devise appropriate contingency plans using the output from such studies.

Commissioners will greatly benefit from HCAF's leading edge national and international research into the nature of healthcare costs and the patterns of growth associated with different diagnoses. The 'Emergency Admissions' folder contains details of the research relating to trends in emergency admission from both a UK and international perspective.

Based on two decades of experience HCAF support the idea that the CCG umbrella organisation should cover around 3,000,000 head of population for the following reasons:

1. It minimises the cost of the executive functions per head of population

2. It gives sufficient size to provide high quality decision making support functions (information analysis & synthesis, geo-demographic tools, etc)

3. It minimises the total financial risk and allows a more rational approach to statistical fluctuation (including high cost individuals) at local level

4. It maximises the available funds to support effective implementation of change using managers with local knowledge

5. It provides the necessary size for clinical networks to be effective and to disseminate good practice

6. It provides sufficient size to evaluate gross differences in counting and coding exhibited at some acute trusts and gives the leverage to bring them to task (see 'Forecasting Demand' folder)

7. While gaining all the benefits of size it does not preclude the freedom for localities to implement the schemes of their choice

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