Estimating the costs of specialised care

The latest CHE Research Paper is now available   CHE Research Paper 61 (PDF , 342kb)

In most sectors of the economy, specialisation is associated with lower costs. Yet some specialised hospitals claim to require more generous funding than general hospitals. This claim is based on the assertion that their patients are different, and that these differences outweigh the cost advantages of specialisation. Unless the basis for this claim can be established, the financial incentives introduced by Payment by Results to encourage cost reducing behaviour will be diluted.

The following article appeared in the HSJ 

DH ignored advice to cut children's acute top-ups
17 March 2011 | By Jo Stephenson 

A report on the true cost of specialised care has provided fresh evidence that the government bowed to political pressure not to reduce funding to children’s acute services.  The research by the Centre for Health Economics at York University, commissioned by the Department of Health, found there was a case for specialist hospitals to receive extra cash through “top-up” payments.  

Top-ups are aimed at compensating specialist trusts for taking on patients requiring closer monitoring and more staff than those at general hospitals.  But the report, which has only just been made public, also found that specialist hospitals were being overpaid as many variations in costs could be assigned to the relative efficiency of trusts.  It recommended reducing the top-ups for several areas of care, including children’s acute services, for which it said top-ups should be cut from 78 to 20 per cent above tariff.

The DH ignored this advice, deciding it would only cut the top-up for specialist children’s care to 60 per cent, after first proposing to reduce it to 25 per cent.  This followed strong pressure from children’s hospitals, national media and shadow health secretary John Healey.

However, the report reveals that the DH broadly followed recommendations to reduce top-ups for other services including spinal surgery, neurosciences and orthopaedics.  The report had said that ideally the top-up should be 28 per cent for spinal services, 23 per cent for neurosciences and 21 per cent for orthopaedics.

The DH has announced that the top-ups in these areas for 2011-12 will be 32 per cent, 28 per cent, and 24 per cent respectively. Other areas, including rheumatology, will no longer be eligible for extra money.

Report co-author Andrew Street said: “Our position is that it [the children’s services top-up] should come down to 20 per cent but we recognise you’d need to have a transition towards that.”

He said: “It’s not about taking money away from sick children. It may be that some services providing non-specialist care for children are being underpaid so it’s about rebalancing funding appropriately so providers are being paid fairly for the work they do.”

A DH spokeswoman said the department’s change of heart was because it had listened to and responded to consultation.

Official guidance said the DH decided not to cut the children’s services top-up because “it would result in a significant reduction in income for some providers and may have a negative impact on the level of service provision”.