Comment / Costing is the plan

The Public Accounts Committee last month slammed NHS system leaders for having  no ‘overarching and convincing plan for where and how the £22bn savings needed by 2020/21 will be made’.

The ‘where’ and the ‘how’ are the key words. Identifying ‘transformation’ as a solution or insisting ‘higher quality should be lower cost’ is all very well, but it hardly pinpoints how organisations can first make the step change in value delivery and then continue to drive down costs.

There is, however, a tool that should help organisations do just that and this month it will get thrust back into the spotlight – as NHS Improvement’s Costing Transformation Programme reaches a significant milestone with the publication of new draft standards. The PAC’s missing plan could be as simple as prioritising the introduction of patient costing, using a common methodology.

To be fair, the importance of good cost data is not lost on the PAC. It raises concerns about the ‘material inaccuracies’ within reference cost data used to set savings targets for providers as part of Lord Carter’s work on improving NHS productivity. But its view of costing is as a way of improving the accuracy of these targets.

In reality, robust and detailed patient cost data not only indicates what is achievable, but tells you where to look and often how to achieve the improvement. If properly used, it should provide the foundation for continuous value improvement across the health service.

Clinicians like good cost data – a point likely to be made in NHS Improvement’s Case for change publication this month (see page 16). But they often need convincing. After dealing with years of crude averages, clinicians are likely to start off disbelieving the data, challenging the overheads and pointing out every error.

Once a tipping point is reached, however – where cost differences reflect the treatment differences they observe between individual patients – they can become cost converts and the ones that drive the pace on costing improvement.

Addressing unwarranted variation is a big part of meeting the £22bn challenge. And patient cost data provides the microscope for first of all spotting variation (where it is leading to cost differences), considering its appropriateness and then drilling down into exactly where the variation is occurring.

Armed with this information, clinicians can change or refine clinical processes to optimise value. This can be informed by what is being achieved in other organisations, confident in the knowledge that cost differences are down to clinical processes, not costing methodology.

It is not just about being cheaper. A shorter stay in hospital that leads to higher readmissions is clearly a false economy, but you need accurate costs to understand how costs are driven across the whole pathway.

Cost data also needs to be at the heart of the transformation programme. The NHS cannot afford to enter into new ways of delivering services without understanding the impact on costs. That doesn’t mean it shouldn’t implement reforms just because the costs go up – again the decisions need to be about value measured in outcomes and cost. But it at least needs to plan for this impact – otherwise it will be firefighting financial problems for years to come.

There are two real challenges. The first is getting everybody on board. The NHS has made some good progress with patient-level costing over the past decade (see page 21), but it’s been slow and patchy. Then it is about timescales. The ambitious NHS Improvement Costing Transformation Programme would see a first comprehensive (all sector) patient-level cost collection for 2020/21 data, with submission in September 2021.

That may not be ambitious enough to make a massive contribution to the £22bn for all organisations. However, benefits should start to accrue from day one and can really accelerate once practices are embedded.

The NHS needs this more granular cost data. The centre, provider boards and NHS finance teams need to commit properly to the journey and then set a demanding pace to implement as quickly as possible.