Feature / Costing gets critical

It’s a big year for costing in the NHS with some key decisions around patient-level data, education and training collections and further revisions to clinical costing standards. Steve Brown reports

‘We are at a critical stage in the development of costing in the health sector.’ This is how Monitor managing director of sector development Adrian Masters introduces the new Approved costing guidance. While this comment could have been made in several of the preceding years, the description is particularly appropriate for the coming one.

The focus on costing is increasing, and with it greater scrutiny of the costing process and the data produced. There are already calls for local providers to ramp up their use of cost data – particularly patient-level cost data – to inform decisions around service change and transformation. But clinicians are also pushing for cost data to be brought together with quality data to assess and compare value added by different approaches to service delivery.

Clinicians and managers will be keen to ensure they can rely on any cost data before taking significant decisions on the back of it.

Monitor is also taking a far greater interest in the data produced and submitted by providers to inform its pricing calculations alongside national tariff partner NHS England. New payment mechanisms will only work if the prices are set at the right level to provide the intended rewards and incentives. And 2014/15 represents a step up in what is expected of costing practitioners and their organisations.

The Approved costing guidance brings together three discrete sets of guidance. First it incorporates the reference costs guidance that NHS providers should use in compiling and submitting their reference costs for 2013/14. It also includes the HFMA Clinical costing standards – this year for the first time Monitor has also included the standards for mental health services – which provide best practice guidance to how organisations should look to calculate costs at the patient level. Finally, it sets out the rules for this year’s patient-level information and costing systems (PLICS) collection, which will be undertaken for the second year running by Monitor itself.

This PLICS collection is key to the future of costing in the NHS. Almost all acute providers have already implemented PLICS (or are in the process of doing so) – although there are fewer examples of organisations really using the information to inform major service change. But the richer data source provided by patient-level cost information is also likely to be key to Monitor and NHS England’s plans to produce a more refined pricing system.

What the two bodies learn from these first collections could have major implications for how services are paid for in future. Last year, Monitor ran the first national voluntary collection of patient cost data. Sixty-six trusts chose to take part in the exercise to submit admitted patient care costs – a response Mr Masters said he was ‘delighted with’.

 ‘A direct output of this is that we were able to give participating trusts access to an analysis tool allowing them to analyse their costs and compare them with other trusts in the pilot,’ says Mr Masters.

Even based on just a quarter of all NHS providers (40% of acute providers), the data contains seven million consultant episodes. The regulator plans to publish its findings by April. ‘This will include our first thoughts on the suitability of existing patient-level cost data for the purpose of price-setting,’ says Mr Masters. But the early noises are positive, with Monitor talking about the benefits of more granular data and more in-depth analysis. It says the exercise ‘added considerable value to future pricing development’.

The parallel collection of materiality and quality scores (MAQS) – a costing process self-assessment tool described within the HFMA’s Clinical costing standards – has helped the regulator to identify best practice and target specific areas for improvement.

For example, on work-in-progress, the regulator says MAQS submissions show that nearly 70% of providers (in the PLICS sample) currently cost work-in-progress using a level 2 approach of five levels identified by the HFMA standards, where 5 is the most accurate.

Although it recognises that this is largely dependent on how costing systems are configured, it says that all providers should be targeting at least a level 4. (Under level 4, providers would cost work-in-progress for patients who have been admitted in the current cost calculation period but who have not yet been discharged.)

This year’s second collection remains focused on admitted patient care and will again be voluntary, although Monitor ‘strongly encourages’ trusts to take part. There will also be a review of the relationship between reference costs and patient-level costs with a view to rationalising the collections.

Providers taking part in the collection will again be required to comply with the HFMA Acute health clinical costing standards or explain where and why they have not. The association published revised standards (the 2014/15 version), which have been approved by Monitor and incorporated within the Approved costing guidance. The acute standards largely involve minor revisions in response to practitioner feedback. For example, a very small number of cost types have had their classification changed between direct, indirect and overhead costs. And more detailed guidance has been added into Standard 8 (data integrity) to support organisations with data matching, particularly around radiology tests and drugs.

But the most significant changes relate to Standard 3 (allocation of costs), which has been supplemented with three new standards covering the allocation of specific costs.

Standard 3a covers the allocation of ward costs and focuses on how nursing costs in particular can be most accurately allocated to patients. Traditional approaches to allocating nursing costs have used length of stay on the ward to share costs among the various patients. But this takes no account of the intensity of support provided by nurses or the acuity of the patient.

Some trusts have already moved away from this basic approach and the standard provides a framework for organisations to move to greater levels of sophistication.  With the standards intended to capture and incentivise best practice, the standard describes four rising levels of allocation quality.

For example, the gold standard (a score of 1 under the MAQS) calls for patient acuity to be captured electronically at intervals during the day and fed straight into the costing system. The silver standard would use acuity weightings based on patient type.

However, these standards have not yet been incorporated into the MAQS, which continues to give a gold standard rating to a per hour allocation method using any kind of acuity weighting (see table). However, the intention is to incorporate stretch targets into the MAQS for this area of costing for the 2015/16 update.

Standard 3b looks at the allocation of theatre costs. A detailed table provides four options for allocating all the relevant costs.

For example, the gold standard for allocating theatre nurse costs would use actual theatre time weighted by the cost of the session (taking account of a premium for weekend working). Again, the aim is to build these into the

MAQS for 2015/16. Standard 3c covers the allocation of medical staffing costs.

Monitor describes the incorporation of the HFMA’s Mental health clinical costing standards into the approved guidance as an ‘important milestone’ in the development of mental health costing. Again there have been tweaks to the standards, including minor changes to the defined cost pool groups.

But the most significant change is the introduction of a fundamentally reworked MAQS template, which enables MAQ scores to be compiled on a service-by-service basis. The standards recommend using the score generated by the revised template as a new baseline for the MAQ score.

Alongside the mental health standards, the association has also published a Mental health costing support guide. The guide discusses the importance of costing mental health services and some of the general challenges, while also providing advice on implementing PLICS systems in the mental health sector.

Helen Strain, head of costing for the HFMA, says this year’s standards mark a change in the detail of support provided.

‘With the new work on acuity, theatres and medical staffing, we are seeing a much greater level of sophistication in the standards,’ she says. ‘You can see this also with the revised mental health MAQS template. The standards are deliberately intended to be stretching and drive improvement and we are looking to provide support that meets the needs of NHS costing practitioners as they look to improve the quality of their costing and systems locally.

‘The point of costing is what you do with it and how you use the data to inform decisions about existing and new services. But the quality of such decisions is directly linked to the quality of the underlying data.

‘The standards’ development is driven by practitioners – in particular those on our costing groups, but also by the wider costing community – and hopefully that means we are addressing the areas where practitioners most need the support.’

She adds that the association’s future costing work will continue this approach.

Monitor says it is a critical year in the journey towards better costing.  Mr Masters insists the challenge is ‘not to reinvent’ but to learn from existing examples of best practice. A promised ‘long-term development path’ – to be published by Monitor in the summer – should provide costing practitioners with a better idea of the end destination.