#2913 - Topic 2 Reading The Average Hospital - Accounting in the New Public Sector

Acute care in hospitals is particularly costly and an explosion in medical technologies, associated with the rapidly growing science of genetics, looks likely to make it more so

Mapping costs on to the highly differentiated activities of health care to create averages is difficult and problematic

• Yet in the UK there is a strong political will to use the average cost both as a specific measure to compare hospital performance and, generally, as a benchmark to control activities

Walgenbach and Hegele (2001) point out a central paradox of benchmarking

• Through benchmarking, organizational processes become increasingly similar (DiMaggio & Powell, 1991)

  • This erodes competitive advantage

Differential efficiency in cost performance can arise in 3 ways:

• 1) From differences in the unit cost of resources used in hospitals (e.g. direct costs such as salaries and consumables)

• 2) From differences in the running costs for hospital facilities (e.g. infrastructure costs and overheads)

• 3) From variations in the clinical practices that drive cost (e.g. the skill mix employed in patient care, the use of diagnostic tests, the allocated theatre time etc.)

Northcott and Llewellyn identified 10 different influences on reported costs and grouped them into four categories:

• 1) Differences in costing approaches

• 2) Variations in underlying clinical activities ‘legitimately’ related to patient need but not adjusted for in HRGs (Healthcare Resource Groups)

• 3) Differences in the counting of activity and variations in the data collection capacity of Trusts’ information systems

• 4) the “efficiency” differences above

‘measurement muddles’ (real or intentional) obscured the efficiency question:

• “were some hospitals wasting resources” / were there “unacceptable variations in performance”

National Reference Costing Exercise (NRCE)

National Reference Costing Office (NRCO)

• To prescribe cost measurement protocols

• To calculate cost results

• To publish information on relative cost efficiency of hospitals

Once a cost average is published it becomes the visible standard against which institutions compare themselves

The benchmarking of British hospitals via the NRCE compares their performance against a standard, in this case the average cost

Publication of the average cost encourages hospitals to aim for the average

• This ‘encouragement’ is now backed up through ‘standard tarriff’ for HRGs since 2002, UK hospitals must ensure that their activities take account of the average as they are now funded on the basis of the average cost

1998 publication of the results of the first UK cost benchmarking exercise

• The government emphasized ‘comparison’ rather than ‘competition’ (DoH, 1997)

Advent of New Labour intensified the political emphasis on benchmarking for informing and assessing multiple aspects of health care performance

• Through league tables and standards

• Webster (2002) says this was the principle way to differentiate itself from the New Public Management policy thrust of the Conservatives

  • He argues this was continued under New Labour

New Labour criticized the market, as a regulatory mechanism in health care, because it led to variability in standards

Standards and standardization are as much a form of regulation as markets or organization (Brunsson & Jacobsson, 2000)

Distinguishing feature of the New Labour policy on health governance is the centralized focus on comparative performance metrics (or measurement standards)

When the cost index was introduced, it indicated that intervention in public services would, in future, be in inverse proportion to their (comparative) success (Blair, 1998)

Hospitals can now ‘win’ the right to autonomy through benchmarking

• The status of independent ‘foundation Trusts’ is to be bestowed on the top performance

• ‘failing’ trusts will be franchised out to new management teams, with bids from the private sector allowed

Hospitals are now expected to improve their performances while operating on the basis of average funding

“Hospitals will be offered financial incentives, paying them by results to achieve higher standards”

Reforming the NHS Financial flows (DoH, 2002) – “the tariff will be based on the average reference cost for the relevant HRG”

The NHS possesses the capacity to swallow up resources without yielding the advantages of improved services – Webster, 2002)

Shift from a “markets” governance approach to a “metrics”

Castells (2001) posits information as pivotal to modernization

• Governing through metrics to identify cost averages has an absolute reliance on incoming information (Robson, 1992)

The NRCI ranks hospitals on their relative cost efficiency by presenting a single figure for each Trust that “compares the actual cost for its case-mix with the same case-mix calculated using national average costs

Douglas (1982) – A single number on a comparative Index has the power to represent the complexity and ambiguity of the external “reality” of patient episodes, clinical procedures, activity costs and hospital performance

Porter (1995) – concurs with Latour (1987) that cost accounting systems could not “take-off” until production was standardized

• “Accounting systems and production processes are mutually depedent”

The NRCO makes ‘facts’ about the NHS transparent (Ham, Hunter and Robinson, 1995)

Standards create similarity and homogeneity between organizations (Brunsson and Jacobsson, 2000)

The practice is not exclusive to the clinical realm

• Edwards, Ezzamel and Robson (1999) also found that average expenditures were being promoted as ideals in schools

Hospitals encompass three spheres of human activity: regulation; management; and medicine

• Mintzberg (1997) has argued that these three have constituted fragmented worlds whose members have “talked past each other” and hence systemic problems reliant on inter-group dialogue, have not been resolved

Structural units – More than 40 clinical specialties are recognized with little co-ordination between the specialists who rule them as a collection of workshops (Hogg, 1999)

Difference (with little information on the nature of that difference) rather than commensurability, has characterized hospitals

Internationally, average length of stay for the same clinical...