Scotland’s independent think tank
Scotland’s independent think tank

Gain with least pain: using economics thinking to advance population health in a budget-neutral world – Cam Donaldson & Alastair Noble

Gain with least pain: using economics thinking to advance population health in a budget-neutral world

Almost since the inception of the NHS, there have been debates about its sustainability as well about how to set priorities across the competing claims on its limited resources. Often unrecognised is that these two issues are linked. The sustainability of a publicly-funded NHS (and social care) might require more resources to be allocated to it, but it also requires us to do better with the resources we have. The latter becomes even more important when the options with respect to the former are limited: as they are currently, and seem to be no matter the colour of government going forward.

Managing scarcity: the basic economic principles

At any point in time, health boards or integration joint boards (IJBs) will be faced with a given mix if resources. Although the nature of claims on such resources are changing all the time, a constant feature is that such claims will be greater than the total resource available. This requires us to think about changing the given mix of resources to better meet the needs, or claims, with which we are faced. Choice is inevitable – this is ‘managing scarcity’.

To help manage scarcity, two key economic concepts can be brought to bear. The first is ‘opportunity cost’ which represents the benefit forgone in the next best alternative use of any given pot of resources. The implication of opportunity cost is that we need to be able to measure the resource inputs (or costs, as well as any cost savings) and benefits (e.g. well-being) associated with alternative claims on resources. This information allows to spend our budget in the best way possible; maximising well-being and, conversely, minimising well-being forgone. But, with such measurement being hard to achieve  for everything, this  brings us to second economic principle, that of the margin, or marginal analysis. The margin is concerned with change, which is almost always the focus of policy and planning. Questions of resource allocation will normally involve addressing issues such as: should we expand services for older people? Should there be fewer hospital places for people with mental illness? Should the number of hysterectomies be increased/decreased? These are all questions of change, leading us to think about marginal costs and marginal benefits. It is comparison of these (cost and benefits at the margin) that can lead us decide on which changes in services should be implemented.

Operationalising the management of scarcity

Please note that word ‘margin’ should not be equated with small. Changes examined can be large or small. The notions of opportunity cost and the margin are often operationalised through asking five questions about resource use as follows:

  1. What resources do we have available in total?
  2. How are those resources currently used?
  3. What would we like to do more of and what would be the implications of these in terms of resources required and improved outcomes?
  4. Are there areas of care which can be provided to the same level of outcome but with less resources?
  5. If not, are there areas of care which, despite being effective, provide less outcomes than some items on our ‘wish list’ in 3.?

The first two steps are commonly known as programme budgeting and are based on the logic of ‘how can we know what to change if we do not know where are currently?’.

Questions 3-5 are the basis of marginal analysis. The logic of programme budgeting and marginal analysis (PBMA) can be applied at any level of the health and social care system where resource scarcity exists and choices have to be made. This may be across a whole health board or IJB (often referred to as ‘macro PBMA’) or within a programme (often defined by disease [e.g. diabetes] or demography [services for frail older people]). Indeed, we have worked with this framework since the mid-1990s when using it to plan for chronic disease management in a general practice in the Highlands.1

PBMA: a route out of the stalemate of budget-neutrality

Many reviews of service areas get stuck around question 3; that is, they know what they want to do more of in order to address unmet needs, but are unable to implement change because they do not think they have the resources. Disillusion often sets in. But, if we can address technical efficiency (question 4) and even allocative efficiency (question 5), we then have the freedom to consider how all resources are currently used and whether some things should be given up in order to do more of others.

So, we now have a way forward out of the perceived stalemate of not being able to do anything without extra money. It is also important to note that costs and resources are often thought about in monetary terms. But money is hard to free up in health care systems. If we become more efficient, it just allows the system to do more, rather than allowing us to take money out of one part of the system and plug it in elsewhere. Since working together in the early 1990s, we have promoted the use of PBMA thinking as useful for any resource allocation discussion.2 Detailed guidance is available for how to work through the five questions above.3

Take, for example, our biggest resource; staff. The key from PBMA thinking is not how much our staff cost (or in monetary terms) but, rather, to ensure that our workforce is working to deliver the right clinical outcomes.

PBMA thinking can be brought to bear on big questions such as:

  • in the complicated area of Integrated Community Care, might more home carers or social workers produce better clinical care and outcomes than, say, A&E consultants or nurses looking after delayed discharges in a secondary care setting, especially when we know that, despite expanded numbers of such consultants, no improvements in the 4-hour target have been observed (which, it could be argued is problematic in and of itself)?
  • do we need Geriatricians to look after these delayed discharge patients or will we deliver better clinical care if we have more general practitioners?

Most of these patients should be being looked after by the extended primary care team. Variations across Scotland show this. We know that general practitioners look after over 60% of the occupied bed days for over-75s’ medical admissions in their Community Hospitals in Aberdeenshire; yet in Glasgow they are all under consultant care, mainly geriatricians. The DATA, especially MAISOP (Multi agency inspection of services for older people), all support the view that the Aberdeenshire clinical care produces better outcomes than the Glasgow Model. This is just one of several examples of achieving equivalent (or improved) outcomes alongside potential resource savings which could be put towards meeting currently-unmet needs.

Such questions extend beyond delayed discharges and care of older people. For example, publicly-available data in Scotland allow us to ask:

  • if, in one hospital in Scotland, four orthopaedic surgeons were undertaking 1600 hip replacements per annum in 2006, why now are 20 orthopaedic surgeons in  the same hospital delivering  a similar number per annum?
  • why are obstetricians in some locations required to look after low-risk pregnancies and is this associated with unwarranted rates of caesarean section deliveries in those same locations?

Of course, resolution of such issues would require decisions about relative workforce to be made over time in order to achieve a better ‘balance of care’ model; a model of integrated care more suitable to addressing key modern issue of managing chronic diseases closer to home. One such model was recently outlined in this series.4 Nevertheless to facilitate such a model, it should be possible to move some staff around the system or cease recruitment of some to employ more of others. At least, that’s what the theory of integrated care tells us.

Using PBMA at the local level

In such integrated care models, we might begin to ask, if we take 100 nurses or doctors or allied health professionals, are we sure they are all doing the right clinical activity? For example, it is hard to understand how we can take a system like Nairn Healthcare, with immunisation rates in the high-90%s, with well-trained nursing and secretarial support, good premises and capable of delivering over 800 Covid Vaccinations in a day and watch the vaccination rates fall to the low 80% and not worry about the quality of our decision making.5

The use of PBMA would also help to us to understand where the Specialist Model fails, as in some of the examples above. Taking the maxim of “which bed did you sleep in last night?” as a guide to where we might want to get to, we can see which communities are delivering quality integrated care and which are not, especially in the over 75 age group. This group represents our largest area of spending in health and social care, many of whom will be in the last year of their life. Previously-collected data, referred to as (Multi Agency Inspection of Services for Older People – MAISOP) clearly identified variations in practice throughout Scotland. Continuing this work in in Perth & Kinross, using linked data, we identified that using which-bed-did-you-sleep-in-last-night on a defined locality basis (for this purpose, GP clusters) highlighted important variations in patterns of clinical care. There were no clinical reasons for this, such patterns often representing historic use of existing buildings.

Which-bed-did-you sleep-in is really a form of PBMA (without the money) as it is really about trying to identify the best ‘balance of care’. The best outcomes are where there is high-quality integrated community care – see Box 1 for what this means in terms of balance of care. The poorest are where there are high numbers of delayed discharges or people spending longer than needed in nursing homes. We know 2% of patients take up 79% of occupied bed days (OBDs) and that we have around 1600 OBDs due to delayed discharges. That is equivalent to filling two District General Hospitals (out of roughly 20 in Scotland) with patients who will be better looked after in a community setting. Using PBMA thinking each community could look at where they are now with respect to ‘which bed you slept in last night?’ and what this means for resource spending, and, from that, map out a better balance of care and plan for how to get there. To an extent, this would allow us to move away from finance and austerity as the excuses for avoiding change to how best to train and retain staff doing the right job in the right place with the right patients. It may seem simplistic, but thinking about resource re-allocations to bring people closer to home brings into play £1b currently spent on unproductive delayed discharges.2 Returning to the issue of sustainability, if we can do this, then we minimise the most difficult choices, reducing opportunity costs, so maintaining belief in and support for publicly-funded systems.

Cam Donaldson, PhD FRSE Yunus Chair & Distinguished Professor of Health Economics, Yunus Centre for Social Business & Health, Glasgow Caledonian University, UK; Professor of Health Economics, National Centre for Epidemiology & Public Health, Australian National University, Australia.

Dr Alastair L. Noble, MBChB MBE retired General Practitioner, Nairn, UK.


  1. Scott A, Currie S, Donaldson C.  Evaluating innovation in general practice:  A pragmatic framework using programme budgeting and marginal analysis.  Family Practice 1998; 15:216-222.
  2. Donaldson C, Knight P, Noble A, Strathearn S. Health and social care integration in Scotland: evidence versus rhetoric. International Journal of Integrated Care 2024; 24 (1): 4, 1-4 (DOI: https://doi. org/10.5334/ijic.7759).
  3. Mitton C, Donaldson C. Priority Setting Toolkit: a Practical Guide to the Use of Economics in Health Care Decision Making. BMJ Books, London, 2004.
  4. Marr G. Through recovery to reform. Reform Scotland (, 10th April 2024.