Comment / Department: costing is key to future NHS

Costing will play a bigger role and have a higher profile in the revised NHS, Department of Health director of NHS finance Bob Alexander told the HFMA’s new annual costing forum at the end of September.

Mr Alexander praised the work of the association in publishing updated clinical costing standards earlier in the year, taking on the work to develop the standards originally produced by the Department.

He said it was right for NHS costing practitioners (the ‘industry’) to lead this work rather than the centre. He predicted the standards, which currently support the creation of patient level costs in acute and mental health settings, would play an increasing role in the new system where providers are regulated and licensed.

Under this system the NHS Commissioning Board and Monitor will split responsibilities for setting currencies and tariffs, but the job of producing tariff prices is likely to sit with Monitor.

Speculating on the future, Mr Alexander said: ‘I have no doubt the regulator will want to move away from the current pricing approach in the foreseeable future.’

This would not happen in the very short term, but he suggested a different basis for tariff setting – moving away from ‘tweaked average prices’ – could feasibly be in place for 2015/16.

He believed best practice tariffs were ‘here to stay’, although the  costing underpinning the tariffs could change. He also suggested Monitor would want to investigate the potential of using a sample of providers known to be delivering high-quality or efficient services.

The current use of national average reference costs to set tariff prices has been criticised by some as incentivising average care. And sampling has been seen as a way of driving improvement.

Even with sampling, it is likely there would still need to be a nationally mandated reference costs-style collection. Last year’s review of reference costs showed costing data was used more widely than simply to inform tariff. There would also need to be ways of establishing and validating the quantum of costs as well as managing the make-up of a sample.

Mr Alexander said a requirement for better costing was a certainty both to support the expansion of tariff – for example, to cover education and training and traditionally difficult areas such as community services. But he also expected Monitor to take a robust line on the costing standards and outputs required from providers.

He said it wasn’t clear if this would be part of licence terms. ‘But I’d speculate they’ll take the same rigorous approach to costing information to support the pricing methodology as they do with everything else,’ he said.