The problem

The patient-level tariff has traditionally been assigned on a cost-per-case basis according to site, specialty, and point-of-delivery within our service line reporting (SLR) framework. This approach facilitates the financial performance appraisal of each specialty by comparing costs against income.

During the low-activity Covid-19 period, our clinical divisions incurred a deficit of c£150m. At the same time, the Trust received a corporate allocation of the same value which it was unable to allocate effectively.

While service activity has gradually been restored, the presence of significant non-variable elements in commissioner contracts undermines the direct correlation between income and activity. As a result, a substantial financial deficit at the divisional level continues to persist.

The challenges

How might we identify a replacement financial metric so that meaningful financial appraisal can be maintained? How might we continue to demonstrate the direct relationship between cost and activity within the financial appraisal? How might we change the mindset of our strategic and operational managers so that they focus predominantly on the control of costs through operational efficiency rather than growing income through additional activity?

What were/are the outputs?

A monthly reporting package within Power BI which incorporates the summary category of ‘expected cost’ instead of ‘patient level income’ within a Trust financial outturn statement that can be filtered at any combination of division, clinical business unit (CBU), specialty and site.

The key financial metrics are:

Expected cost of expected activity – the plan

Expected cost of actual activity v actual cost of actual activity

An ‘expected cost’ statement by point of delivery showing activity and financial performance that can be filtered at any combination of division, clinical business unit, specialty and site.

An example of the output is below:

The specialty planned to make a small deficit of £234k in the reference period because its ledger costs were planned to be marginally higher (£14.36m) than expected costs (£14.126m) for the planned level of activity.

The ‘actual’ performance of the specialty is significantly worse (deficit of £2.5m) because it has expended £14.2m of actual cost in delivering actual activity that should have cost £11.7m.

What were/are the outcomes?

The intrinsic link between cost and activity within the financial performance framework has been maintained.

Managers can see a clear link between current year cost performance against what they have delivered previously for activity with the same patient variables.

Managers are beginning to understand that measurement of financial performance by simply comparing £ plan v £ actual is meaningless in that it is based on different levels of activity. By encouraging managers to read service level reports ‘downwards’, the focus has changed to an understanding that if actuals costs exceed ‘expected costs’ for the delivered level of activity, this is not desirable irrespective of performance against the plan.