Feature / Cleaning up on cost

Kidney dialysis stands out from the crowd among the Department of Health’s payment by results development sites. Most sites are focused on creating tariffs for activities where workable currencies do not exist.

But for the team looking at kidney dialysis, the challenge has been different – improve the consistency and accuracy of costing so that the existing currency can be turned into a live tariff.

Kidney dialysis is currently outside of PBR and funded through local contracts between specialist commissioning groups and 52 dialysis providers in England. The introduction of new healthcare resource groups (HRG4) led to improved granularity in the groupings for renal replacement therapy. A simple dialysis with or without complications or comorbidities turned into eight HRGs within subchapter LC (one of three sub-chapters in the L chapter covering urinary tract and male reproductive system).

With separate groups for haemodialysis and peritoneal dialysis, split by whether the patient has hepatitis B (and so requires isolation) and by a child/adult age split, it was believed a workable tariff was achievable.

The initial plan was for an indicative tariff to be in operation this year with mandatory use in 2010/11.  However, the 2006/07 reference costs (the first to use HRG4) revealed wide variations in reported costs. For example, even the interquartile range for the basic haemodialysis HRG (LC02A) ranged from £133 to £197 – a 50% variation. And the variations were bigger in some other HRGs – 180% in the case of child haemodialysis.

While the raw differences take no account of adjustments for market forces, there were concerns about this wide range and the kidney community was keen to understand the variations and develop more robust costings. So the PBR for kidney dialysis project group was set up, led by Beverley Matthews, director of NHS Kidney Care.

‘The main benefit of a tariff for kidney dialysis will be more consistent quality,’ says Ms Matthews. But she says it will also lead to much greater understanding about what is being delivered as part of care packages and hence better commissioning decisions.

‘There is great variation in how and what commissioners commission and a common language will provide major benefits,’ she says.

The project recruited 16 dialysis service providers. Early meetings brought clinicians and finance managers together – in some cases for the first time – and this clinical engagement was continued, becoming one of the foundations for the success of the project.

The group’s early analysis of participants’ detailed cost submissions quickly identified some of the causes of the variation in national reference costs.

There were major weaknesses in data. For instance, not all organisations were following recently changed reference cost guidance to exclude patient transport and high-cost drugs costs. But there was also confusion over what exactly was being counted in the case of peritoneal dialysis – therapy days (as per guidance) or dialysis solution bags (a proxy measure for a treatment session that had been used in past reference costs).

Some trusts had also made errors in assigning activity to the wrong HRG heading – for instance, including all patients with a blood-borne virus under LC01 (which just covers haemodialysis patients with hepatitis B).

While a decision was taken that the 2006/07 costings across all providers would not be robust enough for a tariff, the early work led to a number of improvements.

For a start, a reference cost data collection checklist and template was developed and sent to all dialysis providers to inform the 2007/08 reference cost collection and the notion that therapy days should be used as the activity denominator was reinforced.

This reduced the variation range in the 2007/08 reference costs. For instance, among the 16 project participants the full range of costs for LC02A in 2007/08 stretched from about £125 to £190 – almost exactly the same as the national interquartile range in 2006/07.

The learning has also led to changes in the tariff design. So in future all patients with transmissable blood-borne viral infections will be grouped in a separate HRG for haemodialysis rather than just those with hepatitis B.

The hepatitis B distinction has also been dropped for peritoneal dialysis as the work showed no material difference in service delivery costs. And a new HRG has been developed to allow the separating out of continuous ambulatory peritoneal dialysis and automated peritoneal dialysis. These changes have been built into the 2008/09 reference costs collection.

On the project group’s advice, a tariff will be produced for 2010/11, calculated using 2007/08 reference costs data. This will not be part of the mandatory national tariff. The aim of issuing the tariff on a non-mandatory basis is to signal the intention to fund renal dialysis on a PBR basis.  Strategic commissioning groups are starting to assess the likely impact of the switch to a tariff, even though the non-mandatory tariff is likely to be run in shadow form next year.

Project team member Chris Newton, senior divisional finance manager at University Hospital Birmingham NHS Foundation Trust, acknowledges that the impact will be different from provider to provider.

‘The perception of many providers is probably that the tariff will not respond to their local circumstances,’ he says. ‘However we know there are different local contracting arrangements around the country and the level of complexity differs from patch to patch.’

For some providers the local kidney dialysis package of care can also include more than the dialysis session, such as emergency admissions related to the dialysis therapy or other pathway elements.

‘So there is work to be done to work through these differences and identify the various elements of local contracts so that the dialysis episodes are separated out,’ says Mr Newton.

This means it can be hard to make a straightforward assessment of how income under the non-mandatory tariff would compare to local contract income.

Beyond next year, the work has also been included in the Department’s plans to introduce best practice tariffs. The first of these best practice tariffs will be introduced in 2010/11 (see ‘An eye on quality’, p21), with the expectation that renal dialysis follows in 2011/12. With concerns about single tariffs not reflecting the difference in costs between dialysis undertaken in hospital, in satellite units and at home, the project group has also recommended greater granularity in HRG4 to improve links to patient condition and clinical need – often the key driver in decisions over where dialysis is performed.

The best practice tariff also hopes to reinforce the best pathway. For example, best practice dictates connecting patients to a dialysis machine via a fistula vein in the arm, created by a separate operation. This leads to fewer problems, such as infections or clotting, than a temporary line in the neck. The thinking is that a best practice tariff could reinforce this best practice with a financial incentive.

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