The value of patient level costing – an international view

by Alfa D’Amato

04 September 2017


Gold is the most popular investment of all the precious metals and in times of economic uncertainty, the markets typically turn to gold stocks as a trusted safe haven.  I have always thought it a bit sad that, after all the effort expended to dig up the gold, often from deep underground mines, the bullions are stored in a locked vault where no one can see them.

Patient-level cost data is a bit like gold for a number of reasons.  First, getting cost data often seems like a deep underground mining venture, fraught with danger and challenges and it is just plain hard work.  Second, unfortunately often the patient-level cost data remains locked in a vault and is accessible to only a limited number of people. And third, patient-level cost data is a precious resource. In the current environment of budgetary constraints and increasing demands, the health system should be turning to the patient-level cost gold bullion to help guide and map a pathway through the economic challenges ahead.

Viewing patient-level costing purely as a reporting requirement utterly fails to capitalise on the wonderful opportunity that cost data presents.  It is a rich source of information that should be used to inform and guide operational and strategic decision making.  Patient-level cost data provides the data necessary for activity-based management.  Strategically, patient cost data can be used to develop financial impact statements for capital projects.  From a small departmental refit to a whole hospital rebuild, the patient-level cost data provides critical data for recurrent funding requirement calculations.

Comprehensive clinical service plans will also be informed by the costs of particular patient cohorts or various models of care and service delivery options that maybe on the table.  There are many questions where patient-level cost data can facilitate informed choices, such as:

  • what is the impact of having an early discharge program for both the inpatient and the community services teams?
  • what is the impact of a nurse-led model of care for a chronic disease program?
  • what is the cost of running an elective surgery theatre list on the weekend as opposed to outsourcing the work to a private hospital?
  • what is the impact of providing allied health services over the weekend for inpatient units ?

Patient-level costing can also be used to assess the impact of not having the right people doing the right jobs.  So often in tight financial circumstances, support staff such as orderlies or ward clerks are withdrawn.  This may in fact be a false economy if more expensive staff, such as doctors, are being held up waiting for the patient to be brought to theatre or are doing tasks that are a waste of their valuable clinical skills, such as running around looking for patient records for a case conference. 

Patient-level costing can identify under or inappropriately used staff resources and find opportunities for a more effective use of the healthcare pound.  Given that staffing costs constitute about 70% of total healthcare costs, ensuring the right person is doing the right job seems like a really good idea.

But the truly exciting possibilities emerge when the data is used to piece together the patient journey and linked with outcome data.  Sometimes having a total cost attached to a patient for all their inpatient, emergency department and non-admitted care over a period of time can be powerful driver of change. 

This was the case in one large public hospital that had a number of patients with chronic illnesses presenting frequently.  One patient, with both a mental health and a chronic cardiac condition, had multiple presentations over a 12 month period.  The two teams were aware of the co-morbidities, but it wasn’t until they saw the full-year costs that things changed.

This patient’s quality of life was poor with frequent hospital attendances.  As one doctor stated, it would have been cheaper to employ a nurse just to monitor the patient.  A much more proactive chronic care program for patients with multiple co-morbidities is now in place.  Money talks and having a monetary value attached to the care for a patient over a time can be very powerful.

Linking cost data with patient outcomes such as return to work may also provide some insight into the value of the healthcare.  A good example of this may be a seemingly ‘expensive’ procedure that may be better value as the patient is able to return to work earlier.  

Patient-level cost data, combined with outcome measures, is a valuable asset in every sense of the word.  How much value you extract from this asset is your choice.

Alfa D’Amato, with colleagues Julie Heberle and Susan Dunn, will be speaking at the HFMA International symposium: turning value theory into practice on 4 October in London, book your place now.