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Topic 2 Reading The Average Hospital Notes

Accounting Notes > Accounting in the New Public Sector Notes

This is an extract of our Topic 2 Reading The Average Hospital document, which we sell as part of our Accounting in the New Public Sector Notes collection written by the top tier of LSE students.

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The average hospital - (Llewellyn and Northcott, 2005)

THE AVERAGE HOSPITAL - (LLEWELLYN AND NORTHCOTT, 2005)

INTRODUCTION

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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 o 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 o Through benchmarking, organizational processes become increasingly similar (DiMaggio & Powell, 1991)
? This erodes competitive advantage Differential efficiency in cost performance can arise in 3 ways: o 1) From differences in the unit cost of resources used in hospitals (e.g. direct costs such as salaries and consumables) o 2) From differences in the running costs for hospital facilities (e.g. infrastructure costs and overheads) o 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: o 1) Differences in costing approaches o 2) Variations in underlying clinical activities 'legitimately' related to patient need but not adjusted for in HRGs (Healthcare Resource Groups) o 3) Differences in the counting of activity and variations in the data collection capacity of Trusts' information systems o 4) the "efficiency" differences above 'measurement muddles' (real or intentional) obscured the efficiency question: o "were some hospitals wasting resources" / were there "unacceptable variations in performance" National Reference Costing Exercise (NRCE) National Reference Costing Office (NRCO) o To prescribe cost measurement protocols o To calculate cost results o 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

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