Blinded by the average...

Blog post

Published: 20/09/2012

Earlier this year, Dr Phillip Lee MP proposed that patients should be sent an annual NHS ‘bill’ by their GPs, setting out the exact cost of the care they had received over the previous twelve months.

The idea was that it would help people understand the value they get from the NHS and reduce the chance of our free-at-point-of-use service being taken for granted.

The proposal remains an idea and, whatever people think for and against it (e.g. not least that cost and value are clearly not the same thing), at a practical level the NHS would have a rather hard time working out exactly what an individual patient costs.

The NHS is better at recording basic information on activity – for example a single database covers every hospital stay in England – but tracking the cost of those stays is an altogether murkier affair. Your local hospital can tell you the average cost of a treatment like yours, but probably not how much your individual treatment actually costs.

This is changing. Patient-level costing is being adopted by an increasing number of NHS trusts, and offers a more accurate technique for deriving the costs of care.

Usually costs are calculated by dividing the running costs of a department by the number of patients it treats, but patient-level costing tracks the cost of each element of care that a patient receives (which may span over many departments).

Our new report analyses the impact of these computerised information systems, finding patient-level costing is a powerful tool for health care organisations.

Why does that matter? Well, in these chastened times the NHS desperately needs to make efficiency savings (famously in the order of £20 billion by 2014). One major lead in the search for inefficiency is unwarranted variation – where similar patients are treated differently for similar conditions.

Many studies (e.g. NHS Atlas of Variation or the Dartmouth Atlas) have shown unwarranted practice variation certainly exists.

If a hospital only knows average costs then it is blind to this variation. For example, for a treatment with an average cost of £2,000 there could be ten cases all costing £2,000 each or nine cases costing £1,000 and one costing £11,000. Patient-level costing provides a way to reveal this variation.

When implemented well it makes accessible a vast array of useful and accurate data on distributions of expenditure and profitability against income.

However, just knowing the costs doesn’t by itself save any money. The provider must make use of this information in terms of influencing practice to become more efficient.

Here they will need to exercise a great deal of caution and tact. As we demonstrate in the report, it should not be a case of simply declaring consultants with high costs ‘wasteful’; the reasons for cost differences have to be understood as they may be perfectly valid.

Clinical engagement in this process is crucial and linking costs to individual patients helps describe resource use in terms that clinicians can relate to. In this way patient-level costing has the potential to help doctors and managers to work together to make the best use of NHS resources.

So far there is limited evidence for cost savings as a result of patient-level costing, and those that are documented involve relatively small amounts. It would seem that patient-level costing is a long-term investment rather than a short-term saving.

Despite this, trusts without access to high-quality cost information will find it challenging to ensure their efficiency savings are cutting waste, not care.

This article also appears on the Public Finance website.

Suggested citation

Blunt I (2012) ‘Blinded by the average...’. Nuffield Trust comment, 20 September 2012.