Further push needed to deliver costing potential

by Catherine Mitchell

05 April 2018


There has been some major progress in recent years with NHS costing as the service moves towards using a common approach to costing at the patient level. But there is still a huge amount to be done to realise costing’s full potential.

Costing gets a bad press. This is perhaps because, for many people, it is associated with cost-cutting and cost improvement. These things aren’t bad things in themselves. But many people’s perception of these approaches is as crudely imposed budget reductions that take little account of ongoing pressures or sometimes of the wider impacts.

But the reality is that good cost data is the antidote to crude top-down cost cutting programmes, where everyone is required to deliver 3% efficiency regardless of demand and context. Good cost data should enable efficiency programmes to be targeted on the areas where resources are currently being wasted and actually help highlight opportunities for improvement.

Looked at alongside outcome data and patient experience, good cost data should help organisations to start viewing all decisions in terms of how they deliver value for patients and taxpayers – and that should be something that everyone can sign up for.

So 2018/19 is an important year for costing. All acute providers will have to submit patient-level cost data to NHS Improvement in the summer of 2019, compiled using the oversight body’s acute healthcare costing standards. The standards have been through a revision cycle over the last few years as part of NHS Improvement’s Costing Transformation Programme and are now effectively in their final form.

This is a big deal involving all trusts calculating costs down to individual patient level using a consistent approach that means, arguably for the first time, the NHS will have truly comparable costs.

Reference costs – top-down average costs at healthcare resource group and outpatient attendance level – have served a purpose. But they too often did not have the confidence of the clinical community or of the finance practitioners that compiled them. Average costs often bore no resemblance to the specific activity and care delivered by a clinical team to an individual patient. And trusts often used bespoke approaches to allocating costs – dictated either by the costing systems they used or the availability (or lack of) of detailed data.

It was too easy for clinicians to blame data quality for apparent high costs. And finance teams simply didn’t have the confidence in data to put it at the heart of decision making.

That should all change now with NHS Improvement’s costing programme. Crucially this is about spreading patient-level costing across the whole NHS. Reference costs chiefly focused on acute services, with cost data informing national tariff prices. But there was no similar driver for mental health and community services, where commissioning was undertaken largely using block contracts.

But now mental health, community and ambulance services are all working towards their own timetable to adopt patient-level costing, using the same core approach as acute trusts (see Mental health costing moves centre stage, Healthcare Finance, April 2018).

This will, over time, give these service areas the same access to good cost data to inform decision-making as acute trusts. But it also opens up the prospect of establishing whole pathway costs. This will be vital to support the NHS as it looks to establish new models of care with higher levels of community support and reduced levels of avoidable hospital admissions.

Currently we have very limited information on the financial impact of moving services into the community and changing the way we deliver care. Even where new models lead to higher costs, if they are the right things to do for patients, NHS organisations need to enter into the new arrangements with a sound grip on likely financial impact so they can plan for it.

We should also acknowledge that these improvements in costing practice will not be achieved easily. A huge amount of work has been done already – by costing practitioners, system suppliers and NHS Improvement’s central team. But there is a huge amount still to be done to realise the overall goals and meet deadlines that are deceptively demanding despite some of them still being years away.

Costing teams need to be properly resourced, perhaps particularly in mental health and community services where costing ‘teams’ have sometimes not even amounted to a full-time equivalent. 

But the programme also places demands on informatics professionals in establishing some of the required patient-level data feeds.

In particular, boards need to pick up this agenda– this is an important initiative that will help organisations and systems to deliver the best value possible across all services. By setting the right tone, boards will help to prepare their organisations so that clinicians both support the costing work and are enabled to use the data to drive improved services.

The HFMA Costing for Value Institute was established to support organisations in their costing and value journeys. Resources are being added regularly to support institute members – a PLICS toolkit for community services being the latest example. And a newly published programme will see a series of events, briefings and webinars delivered in 2018/19 grouped under four key themes:

  • Confident costing
  • Translating data
  • Driving value
  • Innovation

Taking any initiative forward is difficult in the current climate with such an extreme focus on meeting short-term control totals. But good costing data has huge potential – both to help organisations meet those control totals in a way that enhances value and to underpin the transformation of service models.

The costing standards alone won’t deliver this. We need organisations fully committed to their adoption. And just as importantly, organisations need to start devising approaches that put cost data – alongside outcomes – at the heart of decision-making.

This won’t be delivered overnight. But in time, this should change the perception of costing – helping people to see it as an ally in the pursuit of better value and better services for patients.


The HFMA costing conference is taking place on 18 April in London.