1. To support the allocation of resources to Integrated Care Boards (ICBs), the independent Advisory Committee on Resource Allocation has recommended a target formula that estimates the relative need for resources for the populations registered with practices associated with each ICB.

2. A needs-based allocation methodology supports population-based commissioning of specialised services. Needs-based allocation methodology can help not only to achieve equity (see Equality and Health Inequalities Assessment at Annex 5) but may also suggest opportunities to increase the efficiency of services, by upstream investment to reduce the need for specialised services.

3. The model takes a similar approach to the established General and Acute component of the core services target model, modelling the drivers of utilisation of services at an individual level. The individual estimates are aggregated up to practices and then ICBs. The choice and weighting of variables is recalibrated to specialised commissioning specifically. The differences are plausible, given the differences in services. For instance, the age-cost curve for specialised services increases less quickly for older people than for core General and Acute services.

4. This is not our first analysis of a target distribution of resources for specialised commissioning. However, previous analysis was limited by the limited representation of some specialised services in key activity datasets. The modelling we are using for 24/25 allocations is based on the Patient Level Contract Monitoring datasets (including data on activity, drugs and devices) used for contract compliance monitoring. This has allowed much greater coverage of services and significantly increased our confidence in the model.

Convergence policy

5. As for core services and primary medical care allocations, we will not move allocations from their historic or baseline position immediately to the target position. Rather we will move towards the target distribution over time, through a process known as convergence.

6. The existing principles of convergence will apply to specialised commissioning allocations:

• ensure the maximum growth for the furthest below target is set at a level that balances achieving an acceptable distance from target with setting growth at a level that can be effectively deployed;
• ensure the minimum growth for the furthest over target is set at a level that allows stability of services and creates confidence for medium term planning;
• avoid year-on-year volatility in allocations for those ICBs close to their target allocation; and
• produce a distribution of allocations that does not exceed the available budget.

7. The distribution of distances-from-target for specialised services (see Table Y1) is much broader than for other allocations (core ICB and primary medical care). We expect convergence to be very slow to begin with to maintain stability. However, over time, we will seek to bring specialised commissioning allocations to a level consistent with target.

8. We are not at this point setting an objective for how quickly this DfT distribution will be achieved. We will consider this issue again ahead of 2025/26 allocations taking account of relevant factors, including the total resource available.

9. For 2025/26 onwards we will explore ways to integrate the specialised commissioning, core and primary medical care allocations policy to ensure that the overall resource available to a system is reasonable and reflects the increasing ability of ICBs to set local priorities as delegation progresses.

10. The final step in setting actual budgets is to make adjustments for high cost drugs and devices (HCDD). The fair share determined for each ICB-population by convergence policy includes HCDD but this component of the budget is managed centrally. We therefore partition the converged ICB-population allocation to create a contribution to the HCDD budget. This contribution recognises that the fastest growth in demand for HCDD is likely to be in systems with more intense use of HCDD. In systems with low HCDD use this can leave them with an inappropriately high growth in the remaining allocation under our convergence policy, and so for over-target systems this is capped at the gross cost uplift factor.

11. The ICB level specialised commissioning allocations figures will be published along with other system allocations as part of the 2024/25 planning guidance. 

Table Y1: The 2023/24 distance-from-target estimated from expected spending this year and the recommended target model, for physical health services and high cost drugs and devices.