Reference costs and the pursuit of efficiency in the 'new' NHS

Abstract

Both the White Paper, The New NHS, and the later consultation document, A National Framework for Assessing Performance, stress the need to develop new instruments to tackle inefficiency in the NHS. Among these instruments it has been proposed to benchmark Trusts, and by association Health Authorities, using Healthcare Resource Group (HRG) costs. The NHS Executive has published plans for a system of ‘Reference Costs’ that will itemise the cost of every treatment in every Trust. These reference costs will be derived from costing HRGs and are to be used for many purposes: benchmarking cost improvement, measuring relative efficiency, identifying best practice, funding transfers and costing health improvement programmes. This paper examines the construction of reference costs, considers incentives to use the information appropriately and asks whether a single accounting construct, the costed HRG, can be expected to contribute successfully to its many intended functions of regulation and management.performance measures; costing