Comment / A key ally in the costing revolution

There is huge potential for clinicians and finance staff to come together to exploit the rich information available in patient level cost data. But they will only be able to take informed decisions – driving improvements in the efficiency and effectiveness of patient care – if the cost data is reliable and sufficiently accurate.

A key partner in assuring patient cost data is robust is the internal audit team.  Developing an audit programme for patient costing is not a simple task and may have the best results if undertaken in a couple of phases over a number of years. 

While most internal auditors have an accounting background, it is unlikely that many will have experience of patient-level costing. So it is unlikely that any first pass of an audit program will be able to focus on the costing application setup and processing.  However this should be seen as an opportunity to develop an audit program that actually reflects the fundamental requirements of the patient costing process: quality data and robust governance.

It does not matter how technically proficient cost accountants may be or how sophisticated your costing software is, if the general ledger and patient activity data is found wanting, the patient level cost data will be compromised.  And if there is no ownership or sign-off of the financial and patient activity data, then any issues requiring resolution will always be ‘someone else’s problem’.

Some may argue that the general ledger and patient data collections are already subject to audit processes.  In the case of the general ledger however, the focus of audits tends to be on financial statement reporting and compliance with accounting standards.  The assumption that the general ledger is suitable for patient level costing is risky at best. 

The structure of the general ledger typically reflects operational or organisational structures. This often results in the costs of patient care being fragmented over a vast array of cost centres, and in some instances, a number of separate ledgers.  The general ledger structure typically does not align with patient activity.

Patient-level costing, at its most basic level, requires that the right pool of expense is allocated to the right pool of patient activity.  NHS Improvement’s Costing Transformation Programme looks to build this mapping process into the mandated process. But a good first audit program could examine how expenses are identified and matched to the correct pool of patient activity.  Asking the reverse question of how patient activity is matched with the correct pool of expense may surprisingly elicit different answers. 

The general ledger and the patient activity need to be well understood. They must also be subject to appropriate data quality processes and be the clear responsibility of appropriate stakeholders. This needs to be the first phase of a patient level costing audit program. 

This exercise will enable stakeholders to understand how missing or incomplete patient activity data will result in a higher cost reported than is actually the case. Or it might highlight how the failure to identify all the related expense in the general ledger will result in a lower cost reported for a particular patient cohort. 

Both scenarios create risks and compromise decision makers’ abilities to make the required changes to improve the efficiency and effectiveness of patient care.

Internal auditors can also make things happen. The fact that ‘internal audit needs the data’ usually helps to speed up the provision of information. Internal audit recommendations are also tabled at board sub-committees, with progress against actions monitored. And auditors can be effective change agents when mobilised. 

Once the general ledger and patient activity data quality and governance processes are clearly and effectively embedded, the next more technical phase of cost allocation methodology audit will make sense.

Providing healthcare to patients is a complex process and the same is true for patient-level costing. It requires an investment in time and resources to educate all those involved in collecting financial and patient activity data and a recognition of the importance of quality data.  Internal auditors should be seen as a key ally in the costing revolution – enlist your team now.

See also the HFMA guide to understanding the general ledger for costing.

Hear more from Julia and her colleagues Alfa D’Amato and Susan Dunn at the Healthcare Costing for Value Institute International symposium on 4 October in London.