The average hospital

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Abstract

In 1998, the UK government introduced the National Reference Costing Exercise (NRCE) to benchmark hospital costs. Benchmarking is usually associated with “excellence”; the government emphasised the raising of standards in the 1997 White Paper “The New NHS: Modern, Dependable” that heralded the NRCE. This paper argues that the UK “New Labour” government's introduction of, and increasing reliance on, hospital cost benchmarking is promoting “averageness”. Average hospitals will be cheaper to run and easier to control than highly differentiated ones; they may also score more highly on certain measures of service improvement. The paper aims, through empirical investigation, both to demonstrate how the activities and processes of hospital life “become average” as they are transformed to comply with the cost accounting average and to indicate how the “average” is being promoted as the norm for hospitals to aspire to. To benchmark to average costs, comparisons are necessary. To compare hospital costs involves the creation of categories and classification systems for clinical activities. Empirical evidence shows that as doctors, patients and clinical practices are moulded into costed categories, they become more standardized, more commensurate and the average hospital is created.

Introduction

Health care is expensive; funding it puts a significant burden on national governments worldwide. Acute care in hospitals is particularly costly and an explosion in medical technologies, associated with the rapidly growing science of genetics, looks likely to make it more so.1 Hospitals are diverse and differentiated places, controlled by medical elites––and not readily transparent to organizational review. Yet spending on healthcare, investment in hospitals and demonstrations that illness is being “conquered” are persuasive symbols that any government “cares”. Given this situation, it is to be expected that governments would like more control over both hospital costs and the medical profession. The “average” hospital may offer a way of achieving the goals of less costly healthcare and less sovereign clinicians.

The average hospital has a cost index score of 100; this paper tracks the complex processes that create the hospital of average cost. Mapping costs on to the highly differentiated activities of health care to create averages is difficult and problematic. Yet, in the UK, there is a strong political will to use the average cost both as a specific measure to compare hospital performance and, generally, as a benchmark to control activities in health care. In this paper we aim, through empirical investigation, first, to demonstrate how the activities and processes of hospital life “become average” as they are transformed to comply with the construction of the cost accounting average and, second, to indicate how the “average” is being promoted as the norm for hospitals to aspire to.

Walgenbach and Hegele (2001) point out a central paradox of benchmarking: through benchmarking, organizational processes become increasingly similar (DiMaggio & Powell, 1991). This similarity erodes competitive advantage, hence, in the longer term, all an organization can expect from benchmarking is to become a “good average”. In the private sector, striving to be “average” is not an, obviously, advantageous strategy. However, for an expensive public sector activity like health care (which is financed from taxation and where competitive advantage between institutions for “customers” is not an issue) a benchmarking strategy that results in all hospitals becoming “more average” has political appeal. Average hospitals would be cheaper to run and easier to control than highly differentiated ones.

Before government intervention, evidence did not indicate that UK hospital costs tended to the average; rather there were some quite astonishing Healthcare Resource Group (HRG)2 comparisons. Below, two particular HRGs (one surgical, one medical) are illustrative of the range of reported cost variability. The British government proclaimed that these differences pointed to differing underlying levels of efficiency (see next section).

Differential efficiency in cost performance can arise in three ways: first, from differences in the unit cost of resources used in hospitals (e.g. direct costs such as salaries and consumables); second, from differences in the running costs for hospital facilities (e.g. infrastructure costs and overheads); and, third, from variations in the clinical practices that drive cost (e.g. the skill mix employed in patient care, the use of diagnostic tests, the allocated theatre time and the designated length of stay in hospital post-procedure). Clearly, not all of these costs are controllable; in particular, infrastructure costs are fixed. Moreover, cost reduction may impact adversely on the quality of care delivered; despite this, hospitals are considered responsible for controlling their costs. But the extent of the HRG cost variations reported initially in hospitals raised questions about the meaningfulness of the efficiency comparisons being made; there were other factors––besides efficiency––impacting upon the costs reported above.

Northcott and Llewellyn (forthcoming) identified 10 different influences on reported costs and grouped them into four categories: first, differences in costing approaches (variations in cost allocation practices and differences in how costed `care profiles' are produced); second, variations in underlying clinical activities “legitimately” related to patient need but not adjusted for in HRGs3; third, issues of information quality (differences in clinical coding, differences in the counting of activity and variations in the data collection capacity of Trusts' information systems); and fourth, the “efficiency” differences outlined above.

In sum, before government action, the reported costs of supposedly similar clinical activities across hospitals varied, dramatically. In part, this reflected the complexity of measurement but the startling extent of the variability also resulted from the hospitals' not taking the costing of medical work `seriously' (see empirical sections below). From the government's perspective, these `measurement muddles' (real or intentional) obscured the efficiency question: were some hospitals wasting resources? Put more formally, were there “unacceptable variations in performance” (see next section) in UK hospitals?

Until measurement practices were `tightened up' or `modernized' the relative efficiency of UK hospitals could not be assessed. So the government introduced the National Reference Costing Exercise (NRCE) and the National Reference Costing Office (NRCO) first, to prescribe cost measurement protocols, second, to calculate cost results and, finally, to publish information on relative cost efficiency of hospitals. But “measurement” is not only a technical issue; all measures, “…construct a commensurability that did not exist before their calibration” (Latour, 1993, p. 113). HRG costing necessitates the classification, counting and coding of clinical activities and, actually through these processes, work in hospitals becomes more standardized.

Moreover, once a cost average is published it becomes the visible standard against which institutions compare themselves––in the absence of other measures the average, by default, being the operational norm for hospital activity. The benchmarking of British hospitals via the NRCE compares their performance against a standard, in this case an average cost. The concept of the “standard” is equivocal: either an exemplary or an average performance can be implied. The “average cost” benchmark plays on this ambiguity by establishing the average performance as the one to be aimed for. The complex processes of classification, coding and counting (entailed in the measurement of the average cost) standardize hospital activities. The publication of the average cost encourages hospitals to aim for the average. This `encouragement' is now backed up through a “standard tariff” for HRGs; since 2002, UK hospitals must ensure that their activities take account of the average as they are now funded on the basis of the average cost.

This paper is structured as follows. The next section explores the policy background to the introduction of the National Reference Costing Exercise (NRCE), and introduces the theoretical underpinnings to the paper––work drawn mainly from Latour and writers in the sociology of science tradition. Then the research design is explained, before the empirical sections (“Being Average”; “Constructing Commensurability for Averages” and “Making Clinical Activities More Average”) are presented. The interview data for the study is explored through critical discourse analysis. Identified themes are: the uniformity introduced by classification; the contemporary significance of information; and the construction of commensurability. These themes contribute to a fuller understanding of standardization and “averageness”. The paper ends with a discussion on the impact of “the average” on hospitals, finally there are some concluding comments on the international interest generated by the UK's cost index for hospitals.

Section snippets

Governance, modernization and averages in health

In advance of the 1998 publication of the results of the first UK cost benchmarking exercise (see below), the government emphasised “comparison” rather than “competition”. (DoH, 1997) White Paper “The New NHS: Modern, Dependable” was a background to this commitment,

“Our new approach will tackle unacceptable variations in performance and raise overall standards across the NHS. We will achieve this…by sharing information and comparing performance; not by financial competition. The publication of

Talk and text: research methodology and design

This study relies on both text and talk to present its arguments. The question of what constitutes a text is variously defined in the literature but “text” is, generally, taken to be a communicative event of some sort. Our understanding is taken from Fairclough (1993, p. 166) who includes, as texts, both written texts and transcripts of spoken interaction between people. Thus a text could be a traffic sign, a newspaper article, an academic textbook or a transcribed conversation. We distinguish

Being average

“The normal management response is to say, “You are more expensive than other people”. To say, in very simplistic terms, “You are above average, please become average.” (CDM, T4)

The above quote is from a clinician who is reflecting on the “everyday injunctions” of the management discourse to “please, become average”. The challenge from the medical discourse is that this is “very simplistic”––implying that managers do not understand the complexities of modern medicine in the institutional

Constructing commensurability for averages

In order for HRGs to become operational and achieve commensurability hospitals have to first, count activity in the same way, second, code the same activities to same HRG categories and, third, adopt the same measurement protocols for costing. How the regulatory genre addressed the issues of comparability, visibility and control that relate to “robust and reliable” counting, coding and costing is considered in this section.

There are immense problems (both technical and organizational) attached

Making clinical activities “more average”

The government introduced casemix based `average HRG' payment on the expectation that this will “…incentivise NHS Trusts to manage costs efficiently [and]…create greater transparency…in the system” (Reforming NHS Financial Flows, 2002, p. 13); they also comment,

“In the past decade, there has been a growing trend internationally towards the use of casemix adjusted payment for healthcare…Case-based payment has led to increased use of day surgery and reductions in lengths of stay in hospital.”

Discussion and concluding comments

The key argument of this paper is that hospitals are more average places as a consequence of the introduction of HRG reference costs. The text and talk presented here support this conclusion in several ways. First, statistics gathered over the five years of the reference cost exercise show that in 2001/2002 the percentage of Trusts within 10% of the average cost jumped to 72% (having been around 60% across the first four years); this movement toward the average seems likely to continue

Acknowledgements

The authors gratefully acknowledge the support of the Chartered Institute of Management Accountants (CIMA) for funding the study on which this paper is based.

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