Data Briefing - Cost benchmarking for foundations
By Sue Slipman

With many foundation trusts having to save 15 per cent over three years, the Foundation Trust Network joined consultant McKinsey to develop a benchmarking tool. This aims to enable trusts to analyse costs at healthcare resource group level.

A project showed that substantial savings and service improvements could be made. Seven authorised and aspirant foundation trusts took part in the project, as well as the Hospital for Special Surgery, a US orthopaedic hospital. Orthopaedics was the pilot specialty.

Data gathering and analysis took place during an intensive two months, looking at data for all trauma and orthopaedic work before moving to performance for three high-volume HRGs - primary knee, primary hip and arthroscopy.

Trusts used a cost driver ‘tree’ to build HRG costs. Having found that case complexity was similar across the groups, this approach demonstrated how substantially HRG costs differed (see first chart). Primary knee costs, for example, ranged from £4,350 to £6,222. It also revealed total cost differences of up to 50 per cent below and above reference cost index figures.

Key drivers of cost difference were identified, with theatre use, average length of stay and prosthetics at the top of the list. Procurement costs differed by as much as 50 per cent for primary knee and 60 per cent for primary hip, with costs differing by up to 40 per cent even for identical prosthetic products. Average length of stay varied from 6.1 days to 9.6 for primary knee.

Interviews with managers and clinicians revealed dramatic variations in clinical and operational practices behind some of these cost differences (see second chart).

The third chart shows that the trusts could save a total of between £150,000 and £1m a year for the three HRGs by improving their performance to the benchmarking best. If similar savings were replicated across the whole trauma and orthopaedic department, the seven trusts could collectively save around £16m a year.

The benchmarking underlined the need for changes in the way trusts gather information to achieve a better understanding of costs at HRG level. This includes better tracking of prosthetic costs, ensuring departments have a greater understanding of fixed costs and sharing data by clinician on key metrics such as average length of stay, prosthetics costs and activity.

Sue Slipman is director of the Foundation Trust Network.

More information

Driving performance improvement
Foundation Trust Network, June 2006