NHS costs: the bill's in the post?

20 Sep 12
Ian Blunt

Tracking the cost of an individual's treatment could be a powerful efficiency tool for healthcare organisations. But it needs to done with tact and care

Earlier this year, Dr Phillip Lee MP proposed that patients should be sent an annual NHS ‘bill’ by their GPs, setting out the exact cost of the care they had received over the previous twelve months.

The idea was that it would help people understand the value they get from the NHS and reduce the chance of our free-at-point-of-use service being taken for granted.

The proposal remains an idea and, whatever the pros and cons (not least that cost and value are clearly not the same thing), at a practical level the NHS would have a rather hard time working out exactly what an individual patient costs.

The NHS is better at recording basic information on activity - for example a single database covers every hospital stay in England. But tracking the cost of those stays is an altogether murkier affair.

Usually costs are calculated by dividing the running costs of a department by the number of patients it treats; this is the average cost.  In contrast, patient level costing (or PLICS) tracks the cost of each element of care that a patient receives (which may span over many departments). Why does that matter?

Well, in these chastened times the NHS desperately needs to make efficiency savings (famously in the order of £20 billion by 2014). Hospitals in particular are under greater pressure to find efficiencies, in large part as a result of the squeeze on payments  and rising demand.

One major lead in the search for inefficiency is unwarranted variation - where similar patients are treated differently for similar conditions. Many studies (for example the NHS Atlas of Variation  or the Dartmouth Atlas ) have shown unwarranted practice variation certainly exists. But if a hospital only knows average costs then it is blind to this variation.

For example, for a treatment with an average cost of £2,000 there could be ten cases all costing £2,000 each or nine cases costing £1,000 and one costing £11,000. Patient level costing provides a way to reveal this variation. When implemented well it makes accessible a vast array of useful and accurate data on distributions of expenditure and profitability against income.

However, just knowing the costs doesn’t by itself save any money. The provider must make use of this information in terms of influencing practice to become more efficient. Here they will need to exercise a great deal of caution and tact.

As the Nuffield Trust demonstrates in a new report, it should not be a case of simply declaring consultants with high costs ‘wasteful’; the reasons for cost differences have to be understood as they may be perfectly valid.

Clinical engagement in this process is crucial and linking costs to individual patients helps describe resource use in terms that clinicians can relate to. In this way patient level costing has the potential to help doctors and managers to work together to make the best use of NHS resources.

So far there is limited evidence for cost savings as a result of patient level costing, and those that are documented involve relatively small amounts. It would seem that patient level costing is a long-term investment rather than a short-term saving.

Despite this, trusts without access to high-quality cost information will find it challenging to ensure their efficiency savings are cutting waste not care.

Ian Blunt is a senior research analyst at the Nuffield Trust. A version of this blog appears on its website





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