Feature / Into the new world

01 March 2013

Login to access this content

New Monitor guidance is aimed at improving costing in the short term while also moving the NHS towards an ambition of being able to set prices based on patient-level costs rather than just national averages. Steve Brown reports


NHS costing is going places. Thanks to a ‘direction of travel’ document published last November by sector regulator Monitor, we know that while improving current costing approaches remains important, the ultimate goal is to collect NHS costs at the patient level. Beyond this there is the potential to use this data to set more accurate prices.

November’s document Costing patient care (published alongside draft costing guidance) was perhaps never going to set the wider world on fire, but it was an important step. It clearly stated: costing is important; it’s going to become more important; we need to do it better; and here’s how we are going to do that within some broad timescales. And Monitor appears to have won broad approval for its approach.

In February the regulator published responses to November’s documents alongside its final Approved costing guidance. Nearly 90% of respondents agreed with the described long-term vision and the six objectives Monitor hopes to achieve with this vision (see box right). The response may have been from a select group of organisations and representative bodies (56 responses in total), but the support provides some confidence that Monitor’s proposals will not face opposition from practitioners likely to be on the receiving end of some of the new requirements. In part this support reflects a view that, despite progress with costing in recent years, the NHS could have moved faster.

Monitor is clear that costing is key to improvement and should be of interest far outside costing and finance teams. ‘Costing services accurately has the potential to deliver higher quality care to patients and better value for the NHS, both through better prices and improved information for clinicians and other decision makers at healthcare providers,’ says Monitor managing director of sector development Adrian Masters, introducing the guidance document.

There is recognition that clinicians need to be engaged more in the process itself, informing the accurate allocation of resources and identification of cost drivers and refining the process from year to year. They then need to use the data, accepting its validity and making appropriate changes to services and approaches where these are indicated.

Monitor’s main interest initially is in improving the cost data underpinning the payment by results system as it looks to take responsibility for tariff pricing with the NHS Commissioning Board from 2014/15.

New costing approaches cannot be switched on overnight; there is a three-year lag between the reference costs collected for a specific year and their use in tariff, so Monitor must maintain and improve where possible the current process while looking to the future.

The guidance in fact spells out a twin-track approach. It gives detail on the reference cost collection for 2012/13, which will continue to be undertaken by the Department of Health acting as an agent of Monitor. But it also looks beyond this by incorporating the HFMA’s Acute health clinical costing standards – further revised for 2013/14 – to support the compilation of patient-level cost data. With more than half of acute trusts having already implemented patient-level information and costing systems (PLICS) – rising to nearly 90% when you include those implementing or planning to – the need for guidance to ensure a consistent approach is vital.

The HFMA standards also underpin the first PLICS collection between June and September. Providers involved in this voluntary collection of admitted patient care costs will be expected to comply with the standards or explain non-compliance, without risk of enforcement action. A self-assessment tool known as the materiality and quality score, or MAQS, described in the HFMA standards (Standard 9), will play a key role, with all pilot participants asked to submit their own assessments.

John Graham, finance director of Royal Liverpool and Broadgreen University Hospitals NHS Trust and chair of the HFMA Costing Practitioner Groups, welcomed the Monitor guidance and partnership approach. ‘We’ve streamlined costing guidance, removing the NHS costing manual completely, and we have a plan that looks to provide guidance and support to improve the quality of costing in both the short and longer term. Combining new thinking with existing experience in the Department’s reference costs team and partnership working with the HFMA and costing practitioners gives us the best chance of further improving the quality of cost data.’

Monitor is keen to get as many trusts involved as possible in next year’s PLICS collection. ‘Many providers already use PLICS data and we encourage them to share this data with us. We’ve made changes to our collection in response to the feedback we received from stakeholders, which should make it easier to do this,’ says a spokesman.

‘The more high-quality data we receive for the pilot, the more quickly we can move towards an improved pricing system that will deliver higher quality care for patients and better value for taxpayers.’

While the current focus is on acute providers – both in the pilot collection and in the more developed acute standards, Monitor is keen to push on with improvements in other areas too, including mental health, community and ambulance services. The HFMA will publish revised mental health standards soon and Monitor is happy to have discussions with non-acute providers keen to supply PLICS data.

Changes to costing systems and collection processes take time. The 2011/12 reference costs, collected last summer, will be the costs to inform Monitor’s first tariff in 2014/15.

So the new guidance is unlikely to have an impact until the 2015/16 tariff (the 2015/16 tariff is likely to be broadly based on the 2012/13 reference costs although Monitor has said the pilot PLICS data could be used to ‘inform price setting in 2015/16’.

A pricing system based on PLICS data remains a ‘long-term aspiration’. But Monitor has set out plans for improving the pricing of NHS-funded services. And with the new guidance, it believes it is step closer to that.

Change of reference

The Department of Health has again prepared guidance to cover the reference cost collection for 2012/13. This guidance has been approved by Monitor for inclusion in its Approved costing guidance. Highlights and key changes include:

  • Spell costs The submission of spell costs by all trusts will continue to be mandatory for all trusts submitting equivalent finished consultant episode costs. The tariff is based on spells not FCEs and collecting spell based cost data is seen as a way to make the tariff calculation more transparent.
  • Cost pools There will be a pilot voluntary collection of FCE average unit costs by cost pool group for all admitted acute care, using the cost pool groups defined in the HFMA Acute health clinical costing standards.
  • Education costs The long-term goal is for trusts to exclude costs of non-patient care activities from the cost quantum rather than netting off the income from these activities. As a first step, trusts are being asked to exclude costs (rather than net-off income) from private patients and other non-NHS patients.
  • Mental health The requirement to report total number of unique service users has been removed, but providers must report average length of completed cluster review periods.
  • Assurance Boards must approve the costing process. The aim is to raise the profile of costing.
  • Minimum costs Mandatory minimum unit costs have been set for some services to eliminate some implausibly low unit costs that have been submitted in previous years.
  • Long/short stay The distinction between a non-elective long and short stay has been clarified. No trust must report as long stay any FCE that has a length of stay of less than two days (after adjustments for critical care, rehabilitation and specialist palliative care).

The Department has also flagged up planned changes for 2013/14. This may include changes to support the new maternity pathway tariff. There are also plans for a pilot collection of all education and training costs using the newly designed education resource groups. This is likely to be held in autumn 2013 based on costs from April to September.


Monitor costing goals

  1. Improve data quality
  2. Increase comparability and consistency of data
  3. Improve transparency
  4. Develop the potential for new pricing mechanisms
  5. Proportionate regulatory cost
  6. Improve the use of cost data by managers and clinicians


HFMA costing standards

This is the third year in which the HFMA has published clinical costing standards, building on work started by the Department of Health. While the Department has remained fully involved in the revision process, the driving role played by the association reflects a belief that costing standards should be led by the healthcare finance profession. The work undertaken in updating the standards over the past two years underlines this, with the revisions informed by a very engaged Costing Practitioners Group (with separate committees overseeing acute and mental health strands) and by the wider costing community through an annual costing standards survey.

John Graham, chair of the HFMA Costing Practitioner Groups, says this engagement is vital. ‘We have had fantastic support from practitioners, which really adds value. What we are in effect doing is checking at every step how the standards compare with current practice and achievability with current costing systems.

‘The idea is to drive improvement, but recognise practicalities too. So for example we identify gold standard allocation methods, recognising that some providers won’t currently have the data or feeder systems to achieve them. We are showing where organisations should be heading, but

we are doing this knowing that there is consensus among the costing community that this is what we should be striving for. As we move forward, with a potentially bigger role for patient-level cost data in setting prices and in informing local decision-making, this close engagement with the costing community must continue.’

HFMA costing lead Helen Strain has implemented patient-level costing systems at two trusts – Addenbrookes and University Hospitals Coventry and Warwickshire College Hospitals – and has led the HFMA’s costing work since the HFMA assumed responsibility for the standards. ‘The standards remain a work in progress, but we have attempted to tackle key issues this year – we’ve reviewed the cost pool groups and worked with Monitor and the Department to ensure we have a consistent approach.

‘We know some organisations currently use different structures, but a common approach across the service has enormous potential to support meaningful cost comparisons. The standards, along with the “comply or explain” approach in the pilot PLICS collection, send a clear message to organisations that now is the time to review current practices against those laid out in these documents.’

As well as the review of cost pool groups, there have been tweaks to the suggested classification of costs, with a number of estates costs, such as building insurance and building related capital charges, being moved from indirect to overhead categories. A new work-in-progress standard provides a framework for organisations to assess their current approach to work that spans more than one period. A new standard (8a – an extension of the existing data integrity standard) provides support on the important task of matching resources to individual patient episodes.

Perhaps the most significant work has been on the materiality and quality score or MAQS. This self-assessment tool provides organisations with a means of scoring their current costing process. The supporting template has been completely reviewed and redesigned. Proposed methodologies for allocating costs in different cost pool groups have been reviewed along with their associated scores.

‘The MAQS has huge potential to help organisations identify opportunities for improving the costing process as well as providing assurance about existing cost data,’ says Ms Strain. ‘We’ve tested the tool with practitioners and produced a much more user-friendly template to support anticipated wider use.’ There are also plans to produce a first MAQS template for mental health organisations to support the revised mental health standards due to be published soon.



Costing links

  • Monitor’s Approved costing guidance, which includes links to the HFMA standards and the Department of Health reference costs guidance can be downloaded from www.monitor-nhsft.gov.uk
  • The HFMA standards, plus the MAQS template and other supporting material, is separately available ​here.