TRANSPARENCY AND THE AVERAGE HOSPITAL

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TRANSPARENCY AND THE AVERAGE HOSPITAL

• Presentation prepared for Vrije Universiteit,
  Amsterdam
• 12th September 2007
• Sue Llewellyn,
• Manchester Business School, UK

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Aims of the presentation

• To introduce the concept of transparency.
• To illustrate what transparency means in the
  context of making the costs of medical
  interventions visible in an acute hospital
  setting.

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Why transparency in hospitals?

• Deteriorating financial situation-what are we
  getting for the money, can we do it less
  expensively and should we allocate resources
  differently?
• New organizational arrangements (such as primary
  care commissioning) have given rise to a demand
  for more detailed information on products
• Patients rights for comparative data on
  providers
• Information for knowledge transfer, quality
  development and benchmarking
• Linked to good principles such as democracy and
  accountability

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Transparency and change

• Accounting and audit can change the way we think
  and talk about the things that are accounted for
  and audited
• Changing how people think and talk can lead to
  new logics that become embedded as new practices
  in the organization
• These new logics and practices can transform a
  whole field such as healthcare

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The Potential of Transparency to Transform a Field

• Transparency (through classification, accounting
  and audit) can create new ideals, and standards
  that can transform a field through
• making the (variable) performance of individual
  providers (eg clinicians) visible
• ranking the (variable) performance of
  organizational units (eg hospitals) and
  publicizing the results
• allocating resources on the basis of these
  results

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Three ways of making things more transparent

• Regulating- introducing new laws, guidelines,
  instructions and/or standards
• Demanding information on the practices of
  individuals and/or organizations
• Monitoring- create new models for best practice
  and ranking individuals and/or organizations
  against these

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Making the Costs of Medical Interventions More
Transparent

• In the UK in 1998 the New Labour Government
  introduced the National Reference Cost Exercise
  (NRCE). This exercise imposed a mandatory
  requirement (by law) on all British Trust
  hospitals to report their reference costs (a
  demand for information) for a comprehensive range
  of health care interventions (based on Health
  Resource Groups (HRGs))

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Monitoring and Ranking

• The Reference Cost Index aggregates all HRG
  categories and monitors hospitals through ranking
  their relative cost efficiency. It presents a
  single figure for each hospital that compares,
  the actual cost of its case-mix with the same
  case mix calculated using national average costs
  (DOH, 1998). On this Index the Average Hospital
  has a score of 100 (new standard).

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What is the Impact of Measuring Cost Efficiency
on Activity in Hospitals?

• Differential cost efficiency can arise from
• (1)differences in direct costs (e.g. salaries and
  consumables) or
• (2)differences in running costs (e.g.
  infrastructure and overheads) or
• (3)differences in clinical practices (e.g. use of
  diagnostic tests, allocated theatre time, and
  designated length of stay in hospital
  post-procedure).
• The first two are more difficult to control in
  the short to medium term, so changes become
  focussed on the third- what clinicians do.

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But Cost Differences also arise from Data
Collection and Aggregation

• Varying cost allocation practices
• Different methods for the costed care profiles
  that aggregate to the HRGs
• Scope for variability in the counting of activity
• Scope for defining the same clinical procedure
  to different HRGs
• Differential accuracy in hospitals information
  systems
• Unaccounted for differences in length of stay
  and case mix

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The Early Results of Cost
TransparencySurgical HRGs NSRC example 1
surgical HRG H02(primary hip replacement
elective inpatient) average HRG
cost 3,755 range of HRG costs 213 -
19,960 variation across range
9,270 Compiled by the authors from data in
DoH (1998b) DoH (1999c
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The Early Results of Cost
Transparency Medical HRGsNSRC example 2
medical HRG D15(bronchopneumonia
non-elective) average HRG cost 1,211 range
of HRG costs 96 - 13,443 variation across
range 13,900 Compiled by the authors from data
in DoH (1998b) DoH (1999c
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The Ladder of Success

• Table 1 A ladder of success for NHS Trusts
• 
  
• 2000 index
  1999 index
• NHS Trust Score Ranking
  Score Ranking
• The top three Trusts
• North Hampshire
• Loddon Community 63 1st
  150 228th
• Moorfields Eye Hospital 71 2nd
  88 28th
• Weston Area Health 73 3rd
  80 7th
• Average Trust
• Salford Royal Hospitals 100 151st
  113 188th
• The bottom three Trusts
• Preston Acute Hospitals 148 119th
  103 129th
• Great Ormond Street Hospital
• for Children 164 220th
  117 202nd
• Birmingham Childrens Hospital
  174 221st 134
  226th

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The Problem for Regulators and the UK Government

• The early reported transparent costs and
  rankings werent robust or believable. The
  reported costs of the same medical intervention
  were too variable and the compilations of
  rankings were too unstable.
• This enabled some clinicians to argue that the
  exercise was costly, bureaucratic and meaningless

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Meanwhile What Was Happening as the Cost
Transparency Exercise Progressed?

• Walgenbach and Hegele (2002) point out a paradox
  of benchmarking in the private sector
• through benchmarking, knowledge transfer and
  quality development companies processes become
  increasingly similar (DiMaggio and Powell, 1991).
  This similarity erodes competitive advantage.
  Hence, all a company can gain from benchmarking
  is to become a good average.

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Through Transparency Hospitals Aim for the
Average.

• I think that the problem with the way things are
  being generated at the moment is that they the
  government are seeking to make everyone as
  average as they can and I, personally, dont
  think that that is a good thing. (Clinical
  Director)
• There is a sense of comfort in being in the
  middle..being cheap isnt bad but being expensive
  is going to make you a target..the standard at
  the moment is to be at 100 Index or 99/98- to be
  cosy around the middle. (General Manager)

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Costs-10 of the Average

• Key National Reference Cost Statistics  
• 1997/98 1998/99
  1999/00 2000/01 2001/2002
• NRC Index range -33 to
  -33 to -37 to -46 to
  -39 to 62
  86 74 112
  99
• of Trusts within 10 of
• the average (100 score) 60
  61 62 58
  72
•  
• Compiled from data in DoH (1998b 1999c 2000b
  2001b 2002)
•  
• All index statistics presented here are based
  on the trimmed index adjusted for market forces
  (i.e. differential regional costs).This is the
  index selected for comment in the published
  reference cost documents.

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Theories on How Cost Transparency Leads to Cost
Averageness

• Latours concepts of commensurability, centres
  of calculation and landing strips.
• Stratherns work on audit cultures where the
  norm becomes an ideal
• Sayers idea of the world as not directly
  knowable and as experienced through visible
  representations.

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How these Theories Work on the Ground

• Classification for costing makes things more
  commensurate
• No-one knows what the right cost for a
  particular medical intervention is, interventions
  dont come with the accurate cost attached, so
  the cost representation is paramount
• The average cost becomes a standard or norm for
  managers to promote and clinicians to adhere to

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Consequences of Cost Transparency in Average
Hospitals.

• Clinicians practices become less idiosyncratic
  and provider power is curtailed
• Managers power is enhanced as they can hold
  clinicians to account for standards
• Visibility, control and comparability between
  institutions are all increased- these provide
  grounds for restructuring the whole healthcare
  field, ie new resource allocations (based on
  activity x average cost), centres of
  excellence, hospital closures and transfers of
  activity from secondary to primary care