Have you ever wondered how the Department of Health arrived at a price for a particular orthopaedic procedure?

In a letter to Orthopaedic community in UK, (July 2011) the Department of Health draws attention to how costs are allocated to procedures. The underlying issue as stated in the letter is that the price allocated to a particular procedure, known as the tariff, is arrived at largely on the basis of information collection undertaken on an ongoing basis. These “reference costs” make up the tariff and therefore drive the entire process. The following example cited in the letter demonstrates the extent of the problem when relying on data provided by NHS Trusts.

“RG HB21C – Major knee procedures for non trauma category 2 without cc has a
national average unit cost of £6,033 for NHS trust and PCT elective inpatient data.
One trust submitted an average unit cost of £14.82 per procedure.
The same trust submitted £28, 640.10 for the one day case they carried out in this Healthcare Resource Group (HRG)”

So the letter is a plea for clinicians to become more involved in the process. While finance departments are typically the data drivers, the key factors influencing the real cost of the procedure are incurred, influenced or even controlled at the sharp end. So the cost of a procedure may vary according to several criteria as follows:

Length of stay

Time spent in theatre

Time spent in critical care/rehabilitation

Implant/drug/device costs

Complications and co-morbidities
Costing methodology

So what’s the plan?
Well, reassuringly the starting point is that we must take variability out and put real information in, in a reproducible fashion…this seems to be at the heart of the initiative. The letter states that; “An orthopaedic specific working group has been established and will be reporting in 2011. For this group the main focus will be reviewing orthopaedic activity and cost data with a particular focus on the relationship between reference costs and patient level information and costing systems (PLICS). The group will also review the current methodology of reference cost collection, with special focus on data validation , the aim being to decrease the variation that currently exists between trusts.”
Orthopaedic surgeons are encouraged to engage with their finance departments in order to become “fully engaged in the process of improving the quality of reference costs within your organisation”.
The ultimate intention must be based on the principle that measuring performance improves performance, but quite rightly the starting point seems to be the creation of some standard practices in data collection and cost modelling. It will also be interesting to see how medical devices employed by clinicians to do their job will come out of this. It’s already well accepted wisdom that clinicians are making do with cheaper technology rather than employing “luxury” new devices, and “cost effectiveness” doesn’t yet feature as prominently as “cost” in the decision making process. Clearly the industry has a job to do here if it is to support use of its “luxury” items.
The only mildly surprising thing in all this we suppose is that an organisation with the resources of the NHS doesn’t already have more robust, standardised cost collection and analysis practices already established.
Source: medlatest staff

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