#2918 - Topic 4 Reading Acute Health Clinical Costing Standards 2011 - Accounting in the New Public Sector

Good costing information is key to day-to-day management, but it will be absolutely vital during this coming period to inform decision-making to improve both the quality and cost-effectiveness of services

The data needs to be derived in a uniform way, ensuring cost variations result from differences in clinical practice and the costs of treating patients, and not simply as a result of different costing approaches

Acute Health Clinical Costing Standards are compatible with the NHS costing manual

First draft published in 2009

Standards refer to clinical costing rather than just patient level costing

Previous approaches to costing in the NHS have been dominated by a top-down approach

• But can only produce information about high-level costs or average costs

• Would not show you how those costs had arisen

Clinical costing represents a change to this process by aiming to identify the resources consumed directly by individual patients

• Once identified, these individual patient costs can be aggregated to provide HRG level costs or specialty costs with the added advantage that these higher level costs can be drilled into to provide full detail of how they have been derive

• i.e. a bottom-up approach

Not all costs can be easily attached to an individual patient

• In the NHS we do not typically record all of the specific interventions that are involved in each patient’s care

Indirect or overhead costs – such as the costs of payroll etc. can be divided among all patients based on appropriate allocation and apportionment methods

This information can be reliably used to inform decisions around patient services and help improve quality and cost performance

Adhering to these clinical costing standards should lead to an overall improvement in the quality of the underlying cost data used to produce reference costs and in the quality of costing in general in the NHS

All general ledger costs need to be classified as direct, indirect or overhead

There may be occasions when costs need to be classified in different ways for specific reporting purposes

• For instance, Monitor guidance suggests a different approach to classification for service line reporting

  • E.g. the standards classify pathology as a direct cost but Monitor’s guidance reports it as an indirect cost

Wherever practicable costs should be allocated on an activity basis rather than treated as overheads

All service costs or fully absorbed direct costs (direct costs inc. allocated indirect and overhead costs) need to be grouped into associated cost pool groups

Will enable the comparison of costs at the individual and accumulated patient level for benchmarking purposes

Will provide useful and informative groupings by which to analyse and report costs

Will facilitate the audit of cost allocation and information systems

Cost pool groups are an accumulation of individual direct cost departments that have been incurred in the treatment of patients

Cost pools provide a level of granularity that organisations will require when applying cost drivers to different types of costs

It is advised the costs of stock drugs should be allocated to the drugs cost pool group rather than be included within a number of other cost pool groups eg. Wards and outpatients

• This will ensure greater consistency in clinical cost data

All indirect costs and overhead costs need to be allocated to direct cost centres

All direct costs must be allocated to patients

Where possible, an actual usage methodology should be employed or a methodology that closely relates to actual usage by individual patients

• This may mean allocating resources based on time spent with an individual patient and/or the actual consumption of a resource

• E.g. Physiotherapy – cost driver is actual number of therapy minutes a patient received

Organisations may find value in classifying costs into variable and fixed categories

They are encouraged to do so where a business benefit can be attained, and in classifying costs in this way, IFRS should apply

However, at this stage no standard will be issued

• Because the fixed/variable classification is largely dependent upon timescales and materiality of changes in activities

Organisations are encouraged to cost at the lowest possible level of a patient’s care

Best practice has identified this as episodes of care (based on FCE) but with the ability to identify particular treatments within each episode

Work in progress has been identified as an area of difficulty in clinical costing within the NHS

Costs start to arise as soon as a patient starts to be treated or assessed, however, for costing purposes the costs can only be attached to the patient once the episode of care has ended and an FCE is assigned

Whatever approach is taken there needs to be...