Financial benchmarking tools

Using financial models it is now possible for PCTs to utilise their data to pinpoint inefficiency in clinical areas by population segment.

The world class commissioning benchmarking tool, developed by healthcare actuaries at Milliman, uses PCT inpatient data and compares admissions and average length of stays to benchmarks representing best practice after adjusting for the demographic characteristics of the PCTs patients - i.e. if the PCT were adhering to best practice and had optimal infrastructure.

By comparing best practice with actual experience, it is possible to estimate potential savings from improvements in efficiency. The tool identifies which procedures have the most opportunity for improvement allowing those involved in strategic management to prioritise which programs will provide the best return on investment. It also allows targeting of programs to specific age groups and clinical specialties.

Milliman’s benchmarks have been developed in the US over many years from systems that use evidence based best practice protocols combined with efficient delivery infrastructure. 

The tool actuarially adjusts these benchmarks to account for a PCT’s population age/sex profile. Unlike comparisons to other PCTs, all with sub-optimal infrastructure and inefficient care, the tool highlights the true potential for improvement. Additionally a year on year analysis provides feedback on progress made by improvement initiatives over time.

Havering PCT has invested in an ongoing benchmarking investigation, and is using the results for internal management and goal setting. For 2008, the Milliman benchmarking tool identified that 4 per cent of total inpatient admissions were potentially avoidable when compared with loosely managed benchmarks, and 40 per cent were potentially avoidable when compared to well managed benchmarks.

The loosely managed and well managed benchmarks form a spectrum of improvement depending on how strictly practitioners adhere to best practice and the level of infrastructure available. PCTs can expect to improve their position in this range if they undertake initiatives to manage admissions and the length of hospital stays.

Reducing the number of unnecessary admissions translates into cost savings. Depending on the adherence to best practice protocols, Havering PCT potentially could have reduced its inpatient expenditure by 39 per cent in 2008 leaving money available to invest in other priority areas. This is an improvement from 2007 when a similar analysis identified that 50 per cent of admissions were potentially avoidable.

Looking at savings in another way, the benchmarking tool also allows PCTs to consider what savings they could achieve if the length of hospital stays (independent of savings from reduced admissions) were managed.

In 2008, the Milliman benchmarking tool identified that Havering PCT could have reduced inpatient expenditures by 34 per cent if it had achieved average length of hospital stays equal to Milliman’s well-managed benchmarks.

Table 1 compares Havering PCT’s average length of stays for medical and surgical procedures compared to loosely and well managed benchmarks in 2008. It shows that, for example, while Havering PCT is beating the loosely managed benchmark by 0.1 days for surgical procedures, there is still significant scope for even more improvement towards the well managed benchmark.

In addition, drilling down into the surgical data, it is possible to identify clinical areas with the highest number of potentially avoidable admissions (see Figure 1) and the highest potential savings (see Figure 2). These will not necessarily equate to the same clinical areas, as a large number of low cost procedures could be dwarfed by the cost of a few very high cost procedures.

Tim Woodman, clinical lead for pathway development says that using this type of benchmarking tool is a dynamic, affordable and effective way of being able to constantly monitor the PCT’s operations in a clear and concise way. Being web-based, the tool can be accessed by internal staff where needed to run reports and graphically compare clinical areas to optimal potential.

Dr John Harvey, consultant and ex-director of public health at Havering PCT says that it is vital to use the limited budgets available for monitoring and improving financial performance to identify areas which will deliver the biggest financial savings.

Benchmarking tools can help managers quickly identify which medical procedures are out of line and require further investigation, such as a clinical audit.