Skip to content

Waterloo sunset

09/18/2018

We submitted our reference costs for the 2017-18 financial year a few weeks ago. After weeks of number crunching and analysis it’s always a relief to wrap things up by inserting the final cost and activity figures into an all-singing macro-enabled spreadsheet and press the button that sends it winging across London to the Waterloo headquarters of NHS Improvement, the health service’s financial watchdog. Responsibility for overseeing this annual costing exercise transferred from the Department of Health to NHS Improvement in 2016 and they collect data from 234 NHS trusts across England and will publish the results later in the year.

By my reckoning it’s the fifteenth time in the last 18 years that I’ve worked on reference costs for three different NHS trusts – I’m something of an old hand at this game now. They’ve been collected annually since 1997 and are defined as “the average unit cost to the NHS of providing defined services to NHS patients in England in a given financial year” – typically an average cost per inpatient spell, or outpatient attendance or contact. The information, once published, has a multitude of uses not least as the national average costs that are derived from it form the basis of the set of prices (or national tariff) that are paid by commissioning bodies to providers of acute services in the so-called “internal market”.

But they are also used to answer questions in Parliament and to respond to queries under the Freedom of Information Act about how much NHS care costs and used by journalists to write the next big headline about how much money the NHS is “wasting” on this, that or the other. So earlier this year when the Daily Express plastered the headline “bed blocking costs the NHS £3 billion per year” on its front page the chances are that the costs bit of that headline was a hastily scribbled calculation on the back of an envelope based on figures extracted from the annual publication of reference costs – data that is available on NHS Improvement’s website for everyone to view whether you are a journalist, a politician, a patient or simply someone who is keen to learn a bit more about how much the NHS costs. So if you live in Barnsley and would like to know how much, on average, it costs your local hospital to treat someone with a urinary tract infection you can find this out (it’s £1,691 in case you’re interested). Or likewise if you reside in Barnet and are curious to know how much it costs for a child to be seen by your local child and adolescent mental health team the details are there too buried deep in the reference costs publication (I’ll let you work that one out for yourselves).

And this data, in turn, is based on figures that have been sweated over by cost accountants at more than two hundred NHS trusts, quite literally in the searing heat of this summer (air conditioning in an NHS finance department? You having a laugh?). Unlike management accountants harping on about budgets and variances or financial accountants with their fixation with debits and credits and balance sheets we cost accountants are striving to link the pounds and pence that the NHS spends on patient care to the patient “activity” (in the form of a spell in hospital as an inpatient or an outpatient attendance for instance) that we actually spend that money on. But when each NHS trust spends hundreds of millions of pounds each year treating hundreds of thousands of patients it is no easy task.

The role of the cost accountant is often portrayed as an unglamorous one – the very back of the back office populated by introspective nerds who prefer spreadsheets to social interaction. And there may be some truth in that – when was the last time, for instance, you saw Anna from finance quizzing Jac Naylor about the costs of her cardiothoracic surgery on Holby City? The reality is that Anna’s probably sent Jac an email with a bamboozling spreadsheet attached to it inviting her to comment but Jac’s likely to have ignored it as she’s a busy surgeon and, quite frankly, hasn’t got the time to engage in this financial nonsense. And as Jac, whilst recognised as a brilliant surgeon, can be a bit volatile at the best of times and Anna, who is also very good at her job but doesn’t let on about it, tends to shy away from confrontation, the email is neither replied to or followed up on. It can be tricky to get “clinical engagement” with the costing process at the best of times. As an aside, if there are any Holby scriptwriters reading this (unlikely but, hey, nothing ventured) then please message me as I have several ideas for a future costing based episode <inserts winking eye emoji>.

But, joking aside, the role of the NHS cost accountant can be an interesting and immensely rewarding one and behind the production of the annual accounts which are a legal requirement for all NHS organisations reference costs are arguably the second most important piece of work to emerge from an NHS finance department each year.

When I first joined the NHS in 1990 specialty cost statements, introduced in the late eighties, were the only attempt to assign costs to clinical activity. The costs were compiled by District Health Authorities for all the hospitals in their area but only covered a limited number of specialties and there was criticism that the costs did not account for the mix of cases treated by different hospitals. “Case mix” was far from a new concept – there had been calls for costing information to account for case mix as far back as the 1960s and ultimately this lead to the development of healthcare resource groups (HRGs).

The introduction of the internal market in 1990 led to something called “costing for contracting” – the production of cost-based prices to be charged by provider trusts to purchasers of healthcare such as District Health Authorities and GP fundholders. Most of this was done on spreadsheets and, unlike the national tariff introduced later, different prices could be charged to different purchasers for the same activity. Oh what fun we had during the contract negotiation season, munching on our late night pizzas, crumbs going everywhere, shifting costs from one purchaser to another in order to be competitive on price like less good looking versions of Bud Fox in a low budget production of Wall Street.

Reference costs represented an attempt to introduce a more standardised approach to costing and to provide a measure of the relative efficiency of different providers through the collection of cost information from all hospitals for benchmarking purposes. The first reference costs collection was for the 1997-98 financial year and marked, at the time, a significant step up in hospital costing to identifying a cost for a group of clinical procedures or treatments that were clinically similar and consumed similar levels of resources – the aforementioned healthcare resource group or HRG.

Previously a view prevailed that it was not possible to attach an accurate cost to a procedure or treatment as no two patients were the same – the variability of patients, doctors and diseases makes it difficult to assign costs with any degree of accuracy but the introduction of HRGs represented an attempt to get round that problem. However even when two patients have the same condition and are treated by the same doctor on the same day who is to say that their costs will be similar?

As a management accountant at a small northern mental health and community trust in the late nineties I remember a booklet introducing reference costs being plopped down on my desk and taking it home to learn more. We purchased a new piece of software shortly afterwards that would assist us in calculating unit costs for each of our services but it was not until 2001 when I took up my first costing role at an acute hospital that I got properly involved in actually calculating reference costs. Since then the annual reference costs exercise has tended to dominate my summer months. Holidays put on hold. Gorgeous summer evenings spent in the office. Bus journeys home spent scrutinising the 200 page tea-stained document known as the annual reference costs guidance. And worldwide and personal events framed by how reference costs is going.

While Brazil were beating Germany in the final of the 2002 World Cup in Japan I was sat in a portacabin in Mansfield frantically trying to complete our reference costs on time whilst listening to the match on the radio. In an Edinburgh strip club on my brother’s stag do in the summer of 2005 I found myself repeatedly tuning out of the flashing lights and scantily clad dance routines to ponder how I was going to clear all the validation errors in our reference costs return when I got back into the office the following Monday. What a saddo. A year later and I was trying to convince a maxillofacial surgeon, who was one of the finance department’s most outspoken critics, of the merits of reference costs. After weeks of meetings and emails and scrubbing up in theatre to watch an operation being performed we had managed to produce a set of average costs per procedure that we both felt were robust and clinically meaningful. And in 2008 when I moved down to London I got to experience patient level costing for the first time and witness at close quarters what a mini-industry it had already become.

As with most occupations we like to think that we’re continually improving things but in reality hospital costing information was being produced more than a hundred years ago – largely as a means of measuring the relative efficiency of different hospitals but also, interestingly, during the second world war this costing information was used as the basis of funding different hospitals for treating additional patients as part of the war effort. But reference costs as we know them are set to disappear soon as our Waterloo-based watchdog seeks to replace them with an annual collection of patient level costs from all provider trusts.

Many trusts have been costing at patient level since the mid-noughties but soon it will become compulsory for all 234 provider trusts – each one required to either upgrade their existing system or purchase new costing software (a new costing system typically requiring an initial outlay of between £30k and £100k) that meets the requirements of NHS Improvement’s Costing Transformation Programme. Half a dozen suppliers offer systems that claim to be CTP compliant but, and here’s the catch, there are significant doubts about the compliance of at least one of those systems and NHS Improvement, when pressed on this, are unable to clarify whether a system definitely meets the criteria set out in the CTP or not. Seemingly the risk of being sued for loss of business by one of these suppliers overrides NHS Improvement’s primary objective of offering support to NHS organisations to deliver high quality patient care.

According to the latest census by the Healthcare Financial Management Association (HFMA), published earlier this year, there are 16,443 finance staff working in the NHS in England, accounting for less than 1.4% of the 1.2 million staff that work in the English health service. And of those finance staff, 352 were employed in costing roles across 234 NHS trusts in England (little more than 2% of the finance staff that are employed by the NHS) – equating to an average of around 1.5 costing accountants per trust. It’s apparent therefore that this is a specialised role that often requires you to look beyond your own organisation for advice. A costing lead often reports to a deputy director of finance who may have scant knowledge of the intricacies of costing so the opportunity to ask your manager or a colleague for advice is much reduced.

As a result it’s perhaps no surprise that something akin to a goalkeepers’ union formed in the early years of reference costs and it, somewhat bizarrely, provided my first experience of using an internet discussion forum as the Department of Health established a forum for those involved in costing to ask questions and exchange views. Although Department of Health staff offered some advice on the forum it quickly became a means for cost accountants all over the country to help each other out and became an invaluable source of information, and something of a comfort blanket, at the time for relative newbies like me. As was our local costing group that met regularly and brought together costing leads from across South Yorkshire and the East Midlands – we discussed problems, often had a good moan, but came up with solutions too. The likes of Sue from Derby, David and Trevor from Sheffield and Julia from Rotherham were experienced cost accountants and I learnt loads from them in those early years.

There were some who questioned the accuracy and usefulness of reference costs with its emphasis on averages and there were always rumours that some trusts paid little attention to the annual costing exercise, doing the bare minimum necessary to get through, but it was clear that many trusts with experienced costing staff spent many months on the exercise during which their costing teams built up a wealth of knowledge about the services that their organisations provided. In all my years working in NHS finance departments I’ve met very few finance professionals who are as knowledgeable about their organisation’s “business” as this group of cost accountants.

In the dash for the nirvana of patient level costing it feels like we’ve lost a little of that curiosity, empathy and genuine interest in what we are doing in favour of an almost robotic churning out of huge volumes of numbers that can be fiendishly difficult to interpret. All the while having to acknowledge that what we’re trying to do – accurately cost every single patient that our organisations see or treat or operate on (including every single dressing or drug or stitch or cup of tea they drank or minute they spent with a nurse, doctor or therapist) – is ultimately impossible and what we end up with is merely an approximation of the true cost just as reference costs are. The jury is out on whether the CTP will be successful and whether investment in yet more new systems (not an area where the NHS has a great track record) will be worth it all in the end. They’ve had their faults but I, for one, will be sad to see the sun set on reference costs.

Advertisements

From → NHS

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: