Published: 04/03/2004, Volume II4, No. 5895 Page 33

Ana Paula Nacif on how secondary care should prepare for payment by results

'According to a recent Mori poll, 53 per cent of chief executives said that patient choice and funding flows had the greatest impact on the NHS, compared to an 18 per cent rating for foundation trust status.

Where on earth have the other 47 per cent been?'

The question posed by Wrightington, Wigan and Leigh trust chief executive Sheena Cumiskey to HSJ's Payment by Results conference identified a key issue in the current debate on funding methods: how to take the issues beyond the finance fraternity to the wider management team and to clinical staff in particular.

'Financial flows is not only about money, about bean counting. It is about providing healthcare, and in order to prepare for it we need to engage with clinicians, ' she said.

Clinicians were already well focused on clinical governance and service redesign, Ms Cumiskey said, but it is vital to see their work in terms of a production unit with inputs and outputs. 'We need to win their hearts and minds about the production and the financial agenda.

'Secondary care providers need to refocus their organisations' objectives, bringing clinical governance and the production of clinical care on an equal footing within the organisation.'

That means, she said, that finance managers need to have better understanding of how clinical care is delivered. 'Without having the focus of both, organisations are not going to succeed.'

It is essential that organisations understand the production unit for clinical care and take a hard economic approach to it, particularly the relationship between demand and capacity and how that might change. If more work is done in primary care, the proportion of inpatients is likely to increase, Ms Cumiskey said. 'Perhaps one might have to shift some outpatient capacity into theatre capacity.

'We need to be better at costings and understand the main drivers for expenditure.We have to have a better recording of activity numbers and casemix of everything we do. Post-1997, that went on the back burner because trust managers were looking at other things.We need to get back into it, 'Ms Cumiskey argued.

She warned that service redesign was likely to have sometimes unforeseen effects on the balance of productivity. She pointed to her trust's redesign of ear, nose and throat care which shifted more daycase work into outpatients, thereby changing the casemix. 'It is the sort of thing you can easily lose when you get wrapped up in the excitement of changing things.'

She emphasised the importance of good clinical coding skills, 'forgotten most of the time'.

'They [staff who do coding] do not have the profile they need. They should work alongside clinicians and get clinicians engaged in what they are doing so that the data we produce makes sense to people and it is visible.' Finance managers must understand the clinical implications of what they are doing.

Understanding fixed and marginal costs will become more important under the combination of payment by results and patient choice, allowing organisations to flex their capacity in relation to demand: 'We will have to get as much as possible into marginal costs so when patients choose to use our capacity we can get that money in. But when there is a reduction in patients' number we can step costs down.

'The cost of staff is 75 per cent of production unit costs.We need to ensure that we are able to flex our staff by looking at annualised hours contracts, so we have staff there when we need them, 'Ms Cumiskey explained.

Trusts whose costs are above the tariff will be faced with having to cut millions of pounds off their cost base: 'It is really important that people understand the implications of being above tariff.

You need to break down the organisation into healthcare resource groups, services and team areas.What is your HRG cost now; is it above or below the national average?

Is it above because it does cost more? Is your casemix more complex? Or are you just not counting things properly?' asked Ms Cumiskey.

This is where benchmarking against other trusts becomes useful: 'We should look at things such as length of stay, inefficient theatre utilisation and theatre scheduling.'

Some providers will have high tariff costs because they are involved in teaching and research and development, she said.Within specialist trusts and complex treatments, there is an even greater need to understand cost, activity and coding.

Complex cases may need extra time in theatre, a larger and more senior team and a more intensive rehabilitation.

'Some patients will have a higher HRG cost and if you are doing a lot of those patients, it will affect your average. And if you are being paid for the average, there are some problems ahead in terms of making that unit economic.'

Another challenge for a specialist trust is the large number of primary care trusts that may be commissioning services.

'It is important to review lead commissioning arrangements so that there is a sharing of risks, and low-volume and high-cost cases, 'Ms Cumiskey insisted. 'In this way, PCTs will not be left with a large bill and trusts will not be left without money to treat their patients. Specialist trusts need to work together and learn from each other.

'In the old days, you often had specialist trusts and other trusts not sharing because they thought they might have a competitive edge. That is not going to work in the future. Competition is not going to be an option.'