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Personal Finance for Trusts
A Masterclass in Patient Level Costing

by David Beeson, http://www.Ardentia.co.ukWednesday, June 17, 2009
David Beeson of Ardentia discusses why access to patient level costing is essential for NHS Trusts to match resources to income and ensure strong financial management

It’s awkward, as every parent of a teenager knows, when one person has to account for money that another spends.

But no-one blinks an eye over exactly this state of affairs inside hospitals. Most spending decisions are taken by clinicians. Quite properly, they decide what care each patient needs, and their prime concern is health need, not cost implication.  However, away from the clinical arena, management and finance staff have to account to the Trust Board for the financial consequences of those decisions.

Now more than ever, Trusts need a robust reporting system capable of quickly costing individual patient records across all departments, to get a clear indication of the overall financial position of the Trust and to ensure that clinicians and managers have a shared understanding of the resources they use.

Cost analysis and reporting is becoming increasingly crucial for Foundation Trusts and also those working towards Foundation status.  So how can finance managers ensure they are able to calculate treatment costs accurately and get a clear indication of whether care is being delivered within income? 

Service line reports and reference costs: only part of the picture

The ability of finance managers to do so is currently strictly limited. Increasing numbers of Trusts are able to provide service line reports from existing data sources, meaning they can see where in the hospital a problem may have arisen, for example in Orthopaedics or Gynaecology. Unfortunately, they can’t drill down further to find out which specific patients received the care that caused any excessive costs to be incurred, or understand the details of cost structures to support sharing of best practice. As Chris Watson, Head of PbR Development at the Department of Health points out, the HRG tariff covers a range of patients within each HRG. Trusts need to understand the detailed variation across that range.

Of course, Trusts can use their own internal Reference Costs to get below the level of the speciality.  But Reference Costs are averages and the whole point about analysing exceptional costs is to concentrate on deviations from the average.  An additional problem with Reference Costs is that they are calculated annually: when they first come out, they’re a little out of date and as the year goes by, they become older and less useful.

Taking a more strategic approach to financial management

What we need to get to the source of a problem is to have costings attached to the records of the patients who incurred them.  At the heart of a patient level costing application is a mechanism that identifies cost and indeed income items that can be directly attributed to patients, and assign them to the right records, and then take all the other financial values and apportion them across patient records using such measures of resource usage as bed days, nursing hours, theatre minutes, etc. That means that clinicians can see for themselves exactly which activity brought in what income and led to what costs. With that information, we can understand if and how a specific problem arose and what action needs to be taken to prevent it occurring again.

So, service line reporting reveals a problem, but it takes patient level costing to identify the solution.  Because it also provides a basis for dialogue between finance staff and clinicians, it becomes the means to make management of healthcare more transparent and more effective.

Southampton University Hospital Trust and the case for patient level costing

Southampton University Hospital Trust was already carrying out a detailed review  of financial management when a manager pointed out a single item in Orthopaedics.  A £10,000 invoice for a single knee prosthesis was the first indication to the finance department that such costly devices were being used in the Trust: previously, these costs were buried within invoices for multiple devices, disguising exceptionally expensive elements.  The immediate concern was that the National Tariff would note even cover anything like the cost of the prosthesis alone.

In this case, it emerged that the prostheses were only very rarely used, on patients who were on a first or second revision of the operation, and who were young enough to need a prosthesis that would last for decades. In other words, there were excellent clinical reasons for using the device.

Given the good clinical justification, finance managers were able to negotiate with Commissioners off-tariff reimbursements to cover the cost of the prosthesis, as the item was tailor-made for the individual patient . But it took a chance item and a lot of investigation by finance into the clinical sphere to find all the relevant information.

The dialogue between finance and clinicians is precisely the model of collaboration that the Trust is hoping to encourage – a collaboration which guarantees quality of care but eliminates the losses that were previously being incurred, and favours more effective use of healthcare resources.

Adopting a more intelligent approach to financial planning

However, Trusts clearly cannot afford to rely on chance discoveries of this nature. What’s needed is a system which can identify both the problem and its cause, in a systematic and rigorous way – and that means service line reporting linking through to patient level costing.

To address this need and gain access to strategic financial information, finance managers at Southampton have chosen to deploy a patient level information and costing system from Ardentia, as a key component in their management armoury.  As well as highlighting to finance managers when there is a problem, the system will crucially show them where to look for its solution.

So instead of monitoring service performance on the basis of broad average costs allocated in a top-down way to services, Southampton will be able to work with more accurate costings based on actual interactions and events related to individual patients and the associated costs.

This approach will help Southampton not only to deliver sound and controlled financial management and consequently to make the best use of healthcare resources, but also to ensure closer collaboration between finance staff and clinicians to ease the task of managing healthcare delivery and matching capacity to demand.

So for once the teenager will be working with the long-suffering parents to make sure everyone gets the most from what the family spends.

About Ardentia

Ardentia has been providing business intelligence solutions to the healthcare sector since 1990. This has given us a great understanding of the information healthcare organisations need to manage and improve the delivery of healthcare.

www.ardentia.co.uk /  +44 (0) 1785 238000

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