The value of costing

by Hayley Ringrose

27 July 2022

Costing teams can do more to support transformation. But they need to be given the time and support to use costing data alongside population and wider patient-level data to drive improvement.

The NHS is facing significant challenges to financial sustainability, while also dealing with increasing operational pressures. Access to high quality information is vital to ensuring that limited resources are allocated wisely and that systems can demonstrate value for patients and organisations.

Costing information is a core element of this and becomes even more powerful when aligned to population demographics and the wealth of other non-financial data available. But are organisations and systems making the most of it? Furthermore, are costing teams sufficiently skilled, resourced and empowered to support this agenda?

National efficiency requirements in 2022/23 are over 4% as NHS England seeks to address the additional costs generated by the pandemic. Things are not expected to get any easier in the next few years either, with challenging levels of efficiency and modest cash increases.  On top of this many trusts are facing even higher targets as they aim to return to pre-pandemic cost bases.

Despite targets for elective recovery, most health services are facing increasing waiting lists, while struggling to work at capacity due to workforce vacancy and sickness rates. Hospitalisations due to Covid-19 may have reduced, but they continue to have an impact with peaks and troughs in demand exacerbated by corresponding sickness rates. The pandemic has also brought health inequalities sharply into focus and it is now a national imperative to understand and address these. Increases in the cost of goods and services due to rising inflation place further pressure on non-pay costs.

This paints a bleak picture that is undoubtedly contributing to sleepless nights for finance directors trying to balance multiple competing constraints.

But there are opportunities to make efficiencies and work towards financial sustainability. The emphasis needs to be on system transformation and looking through the lens of value-based healthcare.

Integrated care systems should enable local population-centred solutions – looking at how, where, when and to whom services are most effectively delivered. Addressing health inequalities will take time and effort, but Bola Owolabi, director for health inequalities at NHS England, highlights that getting this right will result in improved efficiency and productivity.

Digital technologies such as digital medicine, artificial intelligence and robotics have huge potential to increase productivity, address capacity constraints and reduce costs across patient pathways as highlighted in the HFMA delivering value with digital technologies programme of work.

But knowing that there are opportunities is one thing. How do organisations and systems begin to know where to focus time and effort? This is where we see the power of costing information combined with the other data. For example, patient-level cost information across a whole system matched to indices of multiple deprivation may signpost the need for realignment of community or mental health services to reduce high-cost acute interventions. But organisations need the skills of experienced costing practitioners and data analysts to support this work.

So back to my earlier questions. Are organisations and systems making the most of their costing information and are costing teams sufficiently skilled, resourced and empowered?

It is clear that some teams are well resourced and have a significant role in supporting organisational efficiency. For others, the focus remains solely on the mandated annual production of patient-level costs for NHS England’s national cost collection (NCC). Most are likely to be somewhere in the middle of these two extremes.

Expectations regarding the use of costing information, both nationally and locally, have certainly increased over the past few years. Costing teams are under pressure to deliver more, but staff numbers have not expanded to meet these needs, despite this being an expectation when the then Monitor published its costing transformation proposals back in 2014. And there continue to be issues with recruitment and retention of experienced practitioners within the profession.

To make the most of the potential of detailed costing data, all organisations will need to recognise its importance and support their teams appropriately.

Costing teams are keen to spend their time using costing data to support local transformation, so there has been concern about talk of increasing the frequency of central returns. Aside from more frequent cost collections, the HFMA Healthcare Costing for Value Institute has raised a number of concerns on behalf of costing practitioners in recent years – chiefly around the complexity of the current costing approach. Instead, practitioners would like to see a greater focus on their material costs and a national model that leans more on how they report costs locally.

Given this context, it was really encouraging to hear NHS deputy chief financial officer Peter Ridley tell the HFMA summer conference that meeting the data needs of local providers and systems would be the priority for future costing developments. That sounds like the right direction of travel. This now needs to be backed up with concrete proposals for change that enable costing teams to concentrate on the point of costing – supporting service improvement – rather than on simply producing the cost data.

The HFMA has produced a suite of publications to support finance teams to understand and address the challenges of financial sustainability. See Financial sustainability – the essential building blocks for links to the whole suite.

Find out more about the HFMA Healthcare Costing for Value Institute.