Healthcare executives were able to cut costs by adding beds 

This provider is making considerable deficits, yet executives felt that the organisation was already overstretched and were concerned about the potential impact of cutting resources.

We conducted a wide ranging investigation into the provider’s activity, income, resources and expenditure and made two key discoveries. Firstly, a very high proportion of non-elective activity: often underfunded and difficult to manage. Secondly, a lack of bed capacity, which was only unearthed through an analysis of in-day bed utilisation. Once we shared these findings with executives the picture became clear: the trust did not have enough beds to handle emergencies and that impacted onto all other areas: the hospital was passing well-funded electives on to other Trusts while their own surgeons waited for beds to free up.

The Trusted has now restricted access to A&E as a short term measure; and agreed funding for additional beds to meet its obligations in the medium term.

When a small District General Hospital cannot produce a viable financial forecast any longer, the first line of attack is often to look for cost efficiencies. Another obvious solution is to stop commissioning loss-making services there and provide them somewhere else.

We first investigated the provider’s nascent Service Line Reporting, agreed some key adjustments and developed a simple options analysis model on this foundation. This brought the Strategic Health Authority (SHA), Primary Care Trust (PCT) and provider closer together in accepting the validity of such analysis and its limitations.

The key discovery was that most of the provider’s services only made a loss because they helped to pay for the Trust’s overheads. Cutting them back would tend to worsen Trust finances. Once we had considered the potential for removing overheads expenditure and restricted our analysis to clinically viable scenarios, we found that there was no way of significantly improving provider financials by simply cutting back services.

Because the SHA, PCT and provider had all been closely involved, they could all now see that the Trust could hope to produce a viable forecast by looking at service configurations unless it would also investigate efficiency and shared services options in more detail. The resulting efficiency programme is now well underway.

Specialist treatment tends to be more expensive than a routine, everyday procedure and so it should receive uplift to the tariff. That is a simple and compelling argument. But how much more expensive is it? Have specialist providers been sheltering behind complexity as an excuse for inefficiency?

The obvious solution is to somehow classify procedures as specialist and general; and then investigate the difference in cost. But our clients wanted to know whether this would work.

The first discovery is that spells may be complex for all sorts of different reasons: specialist procedures; rare procedures; multiple diagnoses. So any simple classification of specialism is going to include complex patients in the general category.

The obvious response is to build up a complex classification that takes all of the different factors into account. But a second discovery is that much of the additional cost comes from a very few, distinctive, very complex, very expensive cases. So any complex classification is likely to generate tiny cohorts with average costs that vary wildly from year to year, depending on the specific spells included.

Our report demonstrates that a simple evaluation of the additional costs of complexity is likely to significantly underestimate the costs, unless sufficient allowance is made for those extremely complex spells which do not readily fit into such averages.