data briefing

How will the NHS use the new information on unit costs now at its disposal, asks John Appleby

With the internal market on its way out and the efficiency index condemned and dismissed, what incentives will ensure the NHS strives for greater efficiency?

The national performance framework is an important part of the Department of Health's attempt to fill the gap. It identifies six broad areas which the DoH, through the National Institute for Clinical Excellence, the Commission for Health Improvement and traditional management processes, will monitor.

Last year's consultation document on the national framework's high-level performance indicators suggested a range of measures for each of the six areas. For the efficiency objective these included day-case rates, length of stay, generic prescribing and unit costs.

In industry, unit costs are a crucial piece of financial performance information. Such information is also important for the NHS. But for many years the NHS has struggled with an accounting system designed primarily to report on costs of areas such as nursing, telephones and heating and not on hips or cataracts.

The new national schedule and index of reference costs is the first concerted attempt to provide consistent and comparative unit cost information. The schedule details unit costs for more than 500 surgical procedures, covering 5 million patient episodes across 249 trusts.

This data has revealed enormous variations. Even for common and usually straightforward procedures, such as appendicectomy, costs appear to vary from around£470 to over£2,100 per case, even after allowing for differences in case-mix (through the use of health-related groupings). Such information is only the start of any analysis of cost variation. Why costs should vary so much will in part be determined by factors outside the control of trusts as well as differences in technical efficiency. Disentangling these determinants will not be easy.

It remains to be seen exactly how this unit cost information will be used by those in charge of commissioning healthcare. Experience from the old health service indicators was that strenuous attempts were made by providers to justify their figures rather than to do anything about it. The same problems and excuses are bound to arise with the unit cost indicators. Commissioners are going to need analytic skill and determination - first to understand the reason for their trusts' figures and second, to help them change.