Reference Costs 2015-16 - GOV.UK

Reference Costs 2015-16December 2016

Reference costs 2015-16ContentsForeword. 3Chapter 1: Background to reference costs. 5Background . 5Chapter 2: 2015-16 reference costs collection – headlines and analysis . 7Headlines . 8Acute services . 9Mental health . 13Community services . 16Ambulance services . 17Sub-contracted data . 18Chapter 3: Introduction to the 2015-16 data . 20Introduction to the data. 20National schedules of reference costs. 20Reconciliation statement . 23Database of source data . 25Chapter 4: Efficiency metrics . 26Reference costs index . 26Weighted activity unit and cost per weighted activity unit . 28Chapter 5: Quality . 29Costing . 29Collection . 30Resubmissions of data . 31Glossary. 32Annex A: Weighted average unit costs for a selection of common procedures . 35Annex B: Self-assessment quality checklist . 38Annex C: Reference costs 2015-16: A Guide to using the data . 40Introduction . 40Chapter 1: Analysing the costs of NHS Services . 40Chapter 2: Analysis by trust, setting, service and currency. . 43Chapter 3: Source data . 542

Reference costs 2015-16ForewordThis document supports the publication of 2015-16 reference costs, which give the mostcomprehensive picture available about how 237 NHS providers (86 NHS trusts and 151NHS foundation trusts) spent 64.2 billion delivering healthcare to patients in 2015-16.Reference costs are the average unit cost to the NHS of providing defined services to NHSpatients in England in a given financial year and have been collected annually by theDepartment of Health (the Department) since 1997.These 2015-16 reference costs are produced under the arrangements put in placefollowing the Health and Social Care Act (2012), which transferred responsibility for theNational Tariff Payment System in England from the Department to NHS Improvement(formerly Monitor and the Trust Development Authority who were brought together on 1stApril 2016) and NHS England. NHS Improvement is accountable for the reference costscollection, with the Department collecting reference costs on its behalf.The reference costs collection is the nationally mandated collection of cost data from NHStrusts and NHS foundation trusts for delivering services in the NHS. It is an incredibly richdata source and has many different uses, from informing local price setting to publicaccountability to parliament.The data can be used to understand:a) the total cost of delivering activity by key service areas;b) the unit cost of specified activities, andc) relative efficiency and assessment of productivity.The quality of the data that informs the collection is, therefore, extremely important.It is the responsibility of NHS providers to improve their internal costing processes andsystems to help them better understand the cost of delivering services, leading in turn toimproved reference cost data submitted. National bodies have a responsibility to ensurethe costs collected are fit for purpose, complemented with comprehensive and clearguidance. Nationally, there is an ongoing collaborative process to support providers toimprove their costing and to improve the cost collection process. This is led by NHSImprovement with support from the Department and the other Arm’s Length Bodies (ALBs)through the Costing Transformation Programme (CTP).The following stakeholders supported the collection of 2015-16 reference costs: The National Casemix Office (NCO) at NHS Digital developed the HealthcareResource Group (HRG) currencies to differentiate more effectively between levelsof care complexity;The Healthcare Financial Management Association (HFMA), the representativebody for NHS finance professionals, has continued to develop the clinical costingstandards on behalf of NHS Improvement which sets out best practice for derivingcost data; andThe Reference Costs Advisory Group, with members from national bodies and arepresentative sample of NHS providers, provided advice on the design of theguidance and collection.3

Reference costs 2015-16The document covers the following aspects:(a)(b)(c)(d)Background to what reference costs are and how they are costed and collectedHeadlines and analysis from the 2015-16 cost collectionExplanation of the data that are published alongside this documentActions taken to further enhance the quality of the 2015-16 collectionIf the information you are looking for is not available in this publication or on our webpages please contact us at referencecosts@ dh.gsi.gov.ukOur shared ambition is for costing data that supports the delivery of high quality care forpatients and better value for the NHS.Department of HealthNHS England4NHS Improvement

Reference costs 2015-16Chapter 1: Background to reference costsBackground1.The collection of reference costs was introduced in 1997-98, from a desire tounderstand how hospital costs compared to each other. Reference costs are nowused to inform a number of local and national decisions.2.NHS providers and commissioners use reference cost data for:(a)(b)(c)(d)3.reporting to executive teams;benchmarking;contract negotiations; andlocal pricing of non-tariff areas.Reference costs are also used by the Department, NHS Improvement, NHS England,NHS Digital and other organisations and individuals to:(a)(b)(c)(d)(e)(f)hold the Department and its ministers to account for the use of NHS resourcesin replies to parliamentary questions, freedom of information requests and otherofficial correspondence;calculate the reference costs index (RCI), a long-standing measure of relativeefficiency and inform the development of new efficiency and productivitymetrics. More information about these metrics can be found in chapter 4;inform the design of payment currencies and prices;support implementation of the European Union cross border healthcaredirective, which requires transparent and objective mechanisms for thereimbursement of patient costs between member states;provide comparative costs to support evaluation of new or innovative medicaltechnologies; and toinform academic research.4.The NHS has always accounted for its expenditure in terms of staffing, goods andservices. Reference costs allow unit costs of healthcare in hospital providers to becompared at the level of treatments and procedures. Unit costs are simply the costsincurred in providing one unit of care. An example might be an inpatient episode ofcare for a hip replacement or an outpatient attendance. Each year, the Departmentcollects and publishes reference costs from all NHS providers of secondaryhealthcare services1 to NHS patients in England.5.Reference costs are supported each year by detailed costing2 and cost collection3guidance, designed to minimise variation caused by different costing methodologies.1With the exception of Calderstones Partnership NHS Foundation Trust as they only deliver learningdisability services which are excluded from reference ads/system/uploads/attachment data/file/497127/Reference costs guidance 2015-16.pdf5

Reference costs 2015-16NHS Improvement’s Approved Costing Guidance4 brings existing guidance into asingle framework, which is to be used by providers when producing reference costs.6.Providers cost reference costs on a full absorption basis, which means that all therunning costs of providing these services are included within the submission. Eachreported unit cost includes:(a)(b)(c)Direct costs - relating directly to the delivery of patient care, e.g. medicalstaffing costs;Indirect costs - indirectly related to the delivery of care, but cannot always bespecifically identified to individual patients, e.g. catering and linen; andOverhead costs - costs of support services that contribute to the effectiverunning of the organisation, and that cannot be easily attributed to patients, e.g.payroll services.7.The HFMA produces costing standards, which set out costing principles that shouldbe applied to all NHS costing exercises. All providers submitting reference costs arestrongly encouraged to apply the standards when preparing their submission. Thecosting standards standardise costing processes where possible allowing bettercomparability between provider costs.8.Although reference costs are collected at a currency level, in recent yearsorganisations have been encouraged to cost at a patient level as part of the move toimprove:(a)(b)(c)9.data quality;clinical engagement, andorganisational understanding of the cost of delivering care.As part of the 2015-16 reference costs survey, 149 organisations reported that theyused patient level information and costs (PLICS) to underpin some part of theirreference costs return. Use of PLICS is most prevalent in core Admitted PatientCare5 (APC) with 79% ( 21billion) of the total APC costs being underpinned bypatient level data.10. Meaningful unit costs cannot be derived simply by dividing total expenditure by thenumber of patients. Reference costs use casemix adjusted measures where they areavailable, in which the care provided to a patient (case) is classified according to itscomplexity (mix). These classifications are referred to as currencies; there aredifferent currencies for each service area (acute, mental health, community andambulance).11. The currency measure for acute care in England is HRGs6. HRGs are maintained bythe NCO at NHS Digital, and provide standard groupings of similar treatments thatuse similar resources. The current version, HRG4 , has been used since the 201213 reference costs collection. The HRG classification system covers admitted patientcare, outpatients and emergency /approved-costing-guidanceCore APC, for reference costs, includes data from day case, elective and costing?tabid 36

Reference costs 2015-1612. Outpatient attendances are classified according to their specialty (e.g. generalsurgery or trauma and orthopaedics). Mental health services primarily use a currencycalled the care cluster that defines patient need over different periods depending onthe severity of the condition. Other services use a range of different currencies7.13. Reference costs are the average cost to the provider for each unit of currency. Theytherefore do not give any information on the variation of costs between patients in thecurrency. Nor do they usually give any information on individual diagnoses ortreatment, because HRGs are a secondary classification system based on underlyingprimary classification systems for diagnoses and procedures. Figure 1 shows showthe primary classification systems build up to currencies and reference costs.Figure 1: Flow of primary classifications to reference costs7A detailed breakdown of the units of currency can be found alongside this publication in the organisationlevel source data 4 zip file.7