Feature / Marshall's plan

Patient-level cost data should inform national pricing but, says Monitor pricing director Ric Marshall (pictured), the main motivation should be local management information. Steve Brown reports



Monitor’s job of devising a new payment system for NHS services, in collaboration with NHS England, is built on a firm belief that prices, based on robust cost data, influence behaviour. And to add most value, it believes this cost data needs to be at the patient level.  Yet, according to the sector regulator’s director of pricing Ric Marshall, price-setting should not be the main reason for Monitor’s interest in, and support, for patient-level costing.

‘I see Monitor’s role in promoting with NHS England the uptake of patient-level information and costing systems (PLICS) as being primarily about giving the NHS a tool to better manage the quality of care it provides,’ he says. ‘Unless we get the value of this around the right way, it won’t work.’

Professor Marshall speaks from experience. A clinical psychologist, he played a key role in the introduction of tariff-based payment in Australia and has supported similar approaches around the globe (see box).

Casemix funding, underpinned by patient-level cost data, has now been in operation in the state of Victoria for 20 years. The system is widely regarded as one of the most advanced casemix systems to be established and the Australian payment currency, based on diagnostic resource groups, is widely used around the world (some countries even use Australian cost weights to produce tariff prices from their own specialty level costs).

Professor Marchall says there have been ‘impressive efficiency gains on unit costs’, but there have also been lessons that other systems, including the UK, can learn from, particularly about the approach to costing data.

‘What happened was that the central funding of PLICS led to a perception and culture that the data was for central use, rather than as a tool for hospitals to manage services. When the implementation seeding [funding] tap was turned off, half the hospitals discontinued patient costing and others downgraded to a cost-modelling approach using a much more normative process. That may save money on implementation but it reduces the value of the data in guiding improvements in practice.’

So he is pleased the UK approach to patient costing has been voluntary, encouraging providers to recognise the local benefits and to invest in systems. ‘In this way, the costs of operating the systems are appropriately assigned to the costs of services they support. This is where they add most value,’ he says.

He expects Monitor’s cheerleading and standards facilitating roles alongside the HFMA – which produces clinical costing standards to support patient-level costing – to continue.

He suggests this buy-in by providers is important as patient-level cost data holds the key to service improvement. Average HRG costs, typified by top-down produced reference costs, provide little information and no opportunity to drill down into data. But analysis of patient data – if used in discussion with clinical service managers alongside an understanding of the model of care delivered and the outcomes – can be a powerful tool. Patient-level data can help organisations understand service provision and identify opportunities for service and cost improvement.

Provider returns

And he says the existence of a national tariff based on provider cost returns has driven improvements in cost and activity data. This benefits providers directly, hopefully ensuring the prices they are paid reflect actual costs and improving the quality of local cost and activity data used to inform local decision-making. Professor Marshall highlights Germany and Hong Kong as ‘great examples of health economies that have gained a strong connection between their costing, pricing and service quality accountability mechanisms’.

‘The existence of a tariff is always a good discipline,’ he says. ‘It is always useful to see what the norm is for the cost and value of a particular type of care and then get a line of sight between that and the costs you actually incur. That is useful for management purposes and using it for payment provides an imperative to take an interest in how costs of care and the way they are delivered compare to those norms.’

Monitor and NHS England have set out high-level objectives for their future tariff system, including greater links to outcomes (see page 17). But Professor Marshall adds his voice to those warning against expecting a tariff to do too much.

‘In some ways, it is a blunt tool and really just a starting point for the important next steps, such as starting to look if services could be provided more innovatively or in different settings.’ He cites the contrast between US pricing penalties and Canadian performance incentives approaches as useful lessons in developing the use of pricing signals.

Patient cost potential

However, he believes using patient costs to inform tariff prices opens up huge potential. If average HRG costs/prices are being distorted by small numbers of high-cost patients, there may be opportunities to pull out those patients into a separate HRG or use a different payment mechanism. This would simply not be seen in the current HRG-level reference costs.

The more detailed cost data could also provide other insights. For example, Professor Marshall believes it could lead to prices that are more sensitive to hospital size. ‘It could lead to a general set of standards for economies of scale, for example,’ he says. ‘Where services have to be provided at a lower than optimal scale, it may be possible to put in the guidance what variation is the norm.’

In other words, there could be the potential for differential tariffs to reflect different circumstances. This approach has been taken up as a key design feature in a number of large health systems such as Turkey’s, and in successful smaller ones such as Sweden. In England, this may already be achievable through the proposed rules on local variations for 2014/15. In future years, instead of working on a case-by-case basis, there may be opportunities to provide more systematic advice to commissioners at a national level.

Professor Marshall believes there is a chance to drive improvement by sharing component costs to facilitate benchmarking. Submission of reference costs by cost pool group was optional for 2012/13 costs, but this breakdown (by prescribed cost pool groups) is a fundamental part of the patient-level costing approach.

There is clear potential to use patient costs to refine tariff prices. But Professor Marshall is adamant that better prices should not be seen as the main goal of patient costing. The real benefits lie in the ability to understand how costs are driven by individual patient needs and interactions, understanding how those costs are built up, and comparing the costs, alongside relative outcomes, with other providers.