Costing in the National Health Service: from reporting to managing

• Set out more clearly the underlying philosophy of cost analysis and management in official DH documents. • Develop training for NHS staff in the roles and potentials of appropriately constructed cost information. • Develop the evidence base on the potential and effectiveness of SLR and PLICS. Executive summary The NHS faces major cost reductions in the coming years. Two new costing tools are currently being implemented in trusts. The Department of Health (DH) recommends National Health Service (NHS) Acute Hospital Trusts adopt Patient-Level Information and Costing Systems (PLICS). Monitor recommends Service Line Reporting (SLR) preferably supported by patient level data. A recent CIMA survey provides evidence that more than 70% of responding NHS trusts have implemented PLICS and/or SLR. Results from case studies and consultations with clinicians, senior finance managers, management accountants, and software suppliers 1 show that great efforts are being made to initiate PLICS and/or SLR implementation in the NHS. The next step, which now needs to be taken, is to obtain greater engagement from clinicians. Engagement is crucial for going beyond a box ticking exercise and assuring the effectiveness of these tools. Securing clinical engagement depends on a shift in the analysis of cost behaviour underlying new costing tools – from allocating costs in ever greater detail to an analysis of activity and its resource consumption, thus actively supporting the management of cost. If this shift from allocating to managing is not achieved then PLICS and SLR may become a more expensive top-down cost exercise, with little added value in comparison to traditional costing tools. Fieldwork undertaken in several acute trusts has demonstrated that effective analysis of activity and resource consumption is being developed as a part of PLICS. PLICS can produce cost information which is more meaningful and relevant for clinicians. It thus enables clinicians to consider both cost and quality of care when taking decisions. There is a potential danger that arises if trusts first implement SLR with a view to moving on later to PLICS. If this is the case then PLICS may be carried out as a top-down analysis. The benefits of improved decision making informed by cost information may not be realised. This report aims to highlight potential benefits and pitfalls of SLR and PLICS. It seeks to make clear the reasons underlying the effectiveness of such tools. To demonstrate these issues we focus in particular on the example of a …