Feature / Vision of depth

Monitor has set out its future plans for collecting patient costs – taking costing to a deeper level than the current averages for healthcare resource groups. Steve Brown detects the initial signs of a costing strategy

Monitor last month broke new ground for the NHS with its two publications on costing and cost collection. With the date when it assumes responsibility for setting prices fast approaching – its first tariff will cover 2014/15 – its prime focus is to improve the quality of cost data on which future prices will be based. But the by-product has been a multi-year vision for costing.

Previously the NHS has had much more of an annual focus to costing development. It has been given annual instructions for how to collect costs through the reference costs collection guidance. And there has been some general encouragement to improve – including one-off audit exercises and cheerleading  from the sidelines to support the uptake of patient-level costing. But there has been no firm development plan covering more than the year ahead.

Monitor’s new strategy – set out in Costing patient care released towards the end of November – may be a little short on the ‘we’ll do this by then’ type of detail, but no finance director or board member can be in any doubt about the direction of travel.

Reference costs will continue to be used in the short term to inform prices, although there will be changes here to help improve data quality. However, patient-level costing is clearly where the service is heading, starting with a voluntary collection next year on a limited patient data set. To be fair, Monitor is really just building on foundations laid by the Department of Health in recent years. The Department didn’t mandate patient-level costing or set any timescales, but it did encourage its uptake and developed initial standards to cover its introduction before asking the HFMA to take on their development.

It has overseen other developments too – such as the requirement (with 2011/12 reference costs) for finance directors to certify that clinicians have been involved in the costing process.

Pace of change

But the pace is undeniably picking up – in part as a result of the handover of responsibilities and in part because the NHS has probably reached a critical mass of patient level costers, at least in the acute sector.

Having published two costing related reports on the back of work by PricewaterhouseCoopers – evaluating the current reimbursement system and assessing strategic options for costing – in part Monitor uses Costing patient care to manage expectations and perhaps to reassure those yet to implement patient-level costing.

‘Moving to a pricing system using patient-level information and costing system (PLICS) data is a long-term aspiration, which will take time to implement,’ it says in the report.

However, it is clear that Monitor sees significant advantages in doing so – once it is confident the data quality is adequate. The clear equation behind its thinking is that better costs at the patient level equal better prices. While costs could still be aggregated to HRG level, Monitor would additionally be able to drill down into patient data to see how those costs were put together and what was driving the costs.

This should give a better understanding of the full range of patient costs contributing to the average and could lead to more accurate prices and inform currency development. Monitor believes the submission of costs by cost pools could even enable it to introduce extra validation. For example, having analysed the component costs within an HRG, a collection template could be developed that did not allow costs to be submitted in inappropriate cost pools.

But patient-level costing should also benefit NHS organisations directly too as they will have better data with which to manage and make decisions. This broader ambition to support a general improvement in costing practice also led Monitor to reject an alternative approach to costing – involving a central calculation, having obtained the raw ledger and activity data from trusts. Monitor says central calculation would reduce transparency of price setting, but it could also ‘undermine costing capabilities of providers and reduce clinical involvement in the process’.

PLICS collection

Having made its case for a patient-level approach, Monitor sets out its immediate plans and is consulting on them until 11 December. It has published draft PLICS collection guidance as part of its overall Approved costing guidance publication, released alongside Costing patient care (see box). A collection template is under development and is available on request from Monitor.

The template, once finalised, will be used in a voluntary collection of patient costs data for 2012/13. This will only involve acute providers and be limited to admitted patient care. The timing of the collection is yet to be finalised and finance managers are being encouraged

to suggest the most appropriate period soon after the financial year-end while recognising existing commitments such as the reference costs submission.

So there will be no formal sample initially – as trailled in the Strategic options for costing report earlier in the year – and the collection will not be mandated, although Monitor says either of these could be possible in future. The data would be used for ‘analytical purposes, to develop our collection capability, and potentially to inform price setting in 2015/16’.

In the meantime Monitor will continue to analyse data from existing patient-level benchmarking groups. This would purely be to help with understanding what is possible but would not be used for price setting in 2014/15.

Methodology

Monitor stresses that cost data needs to be prepared using a consistent methodology if it is going to be useful. It has stopped short of mandating the use of the HFMA Clinical costing standards – arguing that not everyone has implemented PLICS yet and those that have are at different stages of development. But it says it is planning to ‘promote the HFMA costing standards as recommended practice’. Pilot participants will be asked to confirm they are compliant with the standards or explain why not. However, it says ‘we are open to the possibility of making standards mandatory in future years’.

The standards will be integrated into Monitor’s overall costing guidance but Monitor says the association will continue to be responsible for them and their development.

Assurance

The pilot collection will rely on self-assessment to provide assurance over the quality of the data. In future this could develop to use peer review or external assurance, but initially it will involve the completion of a self-assessment checklist and the calculation of a materiality and quality score (MAQS) – as defined in the HFMA standards.

The MAQS helps organisations score their costing process, taking account of the amount of money being allocated in a particular cost pool, the allocation method and the amount of activity that can be matched to patient level.

The HFMA is currently reviewing and updating the MAQS template as part of the process to update the costing standards for 2013/14.

Sampling

Monitor has a choice to make about who it should collect costing data from in the long term. Either it retains the current  ‘everybody in’ approach or it creates a representative sample of providers whose data quality is known to be good. Other countries have adopted the sampling approach, including Germany – seen as a leader in costing and prospective pricing systems.

While Monitor had seemed to be attracted to the sampling approach earlier in the year, it now says it wants to analyse further data to understand the implications better before making a decision.

Non-patient care

Income from non-patient care activities – such as education and training, research and private patients – is currently netted off the quantum of costs before these are allocated down to HRG level. This effectively assumes that the income exactly matches the costs.

However, if income is in fact more than costs, this would have the impact of lowering the reported reference costs. It would also feed through to tariff, meaning that on average the tariff was set below the real cost of delivery. Equally, if costs exceeded income, reference costs and tariff would be artificially high.

Monitor is keen that in future providers should identify the actual costs of these activities and exclude these from being allocated to HRG or patient level costs. It highlights existing work at the Department – to derive education resource group costs to create a future education tariff system – and complementary guidance in the HFMA standards defining an approach to the separate identification of these costs. 

As a specific step towards this overall goal, Monitor says its pilot collection will include separately flagged private patients – enabling these costs (not income) to be excluded from any pricing analysis.

Reference costs

In addition to looking at the medium-term improvement of costing data, Monitor wants to drive reference costs improvement, which will remain the basis for informing tariff prices until a patient-level system is deemed ready to fly. Monitor says there have been improvements to reference costs in recent years, but wants to go further. The Department will continue to manage the collection, although Monitor will be accountable for the 2012/13 reference costs collection.

Changes will include elevating approval of the reference costs process to board level, a more targeted assurance process and the possibility of a requirement to submit costs broken down by cost pools (as defined for patient-level costs in the HFMA standards). A role for the MAQS is also being considered.

Monitor acknowledges its work so far has focused on the acute sector and that the mental health and community sectors have ‘less well-developed activity and costing systems’. But it is clear it wants to move into these areas and even has the independent sector in its sights.