Articles
The attached article recently appeared in the Financial Times, endorsing Trust Analytics Balanced Scorecard approach – the “Health Wealth & Happiness tracker.
Towards a healthier medical service
http://www.ft.com/cms/s/0/22252872-a8fe-11de-b8bd-00144feabdc0.html? nclick_check=1
Trust Analytics Article:
Cutting Fat not Muscle in the NHS – the case for Standard Costing
Payment by Results (in the NHS) is introducing a more commercial mind-set into how the health sector is run at the grass roots. While positive health outcomes must remain the priority, we have always known it cannot be at any cost, and that ignoring cost only backfires on patients in the long run through longer waiting lists etc, as there are always constraints on resources.
However, the question is whether a focus on surplus versus deficit (which is where PbR currently leads us) is the right way to achieve this.
The problem is that making “deficit” the great evil to be avoided can lead to “unintended consequences”: cutting costs which reduce capacity to deliver positive health outcomes. This happens in the private sector for similar reasons, but is made even more likely in the NHS where one of the other key levers for improving “profitability” is generally not available to providers, namely “increasing prices”.
Furthermore there is a public perception issue with surpluses and deficits. Whilst an NHS Trust talks positively about generating a “surplus” of £X million this year, you might well expect that many members of that community are thinking “why didn’t they spend that on more resource to improve care?”
What we really want to do is not so much “turn deficits into surplus” as reduce waste.
So how does that change the game plan in terms of what we measure and reward?
While reducing waste will improve “profitability”, other less desirable
cost-cutting actions might achieve that result more easily. What we need
is measures that are more focused on waste.
A system which records cost standards of performance, based on established
good practice, and helps health organisations to diagnose reasons for
adverse variances against those standards can help here.
This is another way of describing Standard Costing, and has been established as good practice management accounting in the private sector for some time. Rather than focusing on endless debates on why this or that Service Line is generating a deficit – often put down to unrealistic tariff or poor coding – Standard Costing helps management to plan effectively based on what is achievable and good practice, and then to diagnose reasons for variations against the plan.
The variance analysis that Standard Costing delivers helps you diagnose why things are not the way you expected them to be. This may be because you are not doing what you planned, or it may be because there’s something wrong with your data. It enables you to find the problem quickly and adjust to produce more meaningful outputs.
It also helps management answer the “why” and “how” questions, more so
than the “what”. For example, if your costs are higher than expected,
is this because:
• You’re actually treating more patients; or,
• You’re not working as efficiently as planned; or,
• Your patient episodes are more severe than expected; or,
• You’re paying more for your resources?
It helps to deal effectively with the fixed cost nature of acute provision, by effectively isolating the impact of variations in volume of activity – ie treating more or fewer patients. Management can see at a glance the extent to which costs are affected by these volume variations – to support more meaningful discussions with commissioners.
Trust Analytics is implementing this approach in a number of NHS Acute
Trusts. For a discussion on how we can help you, please call Jamie MacAlister
on 020-7220-6595 or email Jamie.macalister@trustanalytics.co.uk
This advertorial on Standard Costing was placed in the June 2008 version of HFMA’s Healthcare Finance
Standard costing from Trust to Patient Level – a pragmatic & proven way of getting the “actual” information you need to govern and manage effectively.
Patient Level Costing is a great idea if you can do it in an accurate and meaningful way. But the problem is that most hospital trusts don’t have good quality “actual” data much beyond consultant level, and often scarcely to specialty level.
Furthermore a lot of data risks producing output swamped in the detail, and not producing the kinds of reports that answer the questions that managers and clinicians have.
Standard costing has been developed successfully in large private sector organisations to address these very points.
It is designed to give you good quality information, at whatever level your data is currently. And to show you where it’s useful to have more detail.
It cleanses the data as it goes. This is because the variance analysis that standard costing delivers helps you diagnose why things are not the way you expected them to be. This may be because you are not doing what you planned, or it may be because there’s something wrong with your data. It enables you to find the problem quickly and adjust to produce more meaningful outputs.
It also helps management answer the “why” and “how” questions, more so than the “what”. For example, if your costs are higher than expected, is this because:
- You’re actually treating more patients; or,
- You’re not working as efficiently as planned; or,
- Your patient episodes are more severe than expected; or,
- You’re paying more for your resources?
Furthermore, it’s so important not just to provide numerical output, but to communicate through click-through pictures, to enable clinicians to understand the consequences of their decisions, and to help financial managers to add more value to hospital board and management decision making.
Trust Analytics Limited is a health analytics specialist, offering a graphical web-based management service line reporting and information service called Acute Trust Analytics to hospital trusts, using a standard costing approach.
For more information: contact Jamie MacAlister on 020 7220 6595; jamie.macalister@trustanalytics.co.uk
www.trustanalytics.co.uk