What drives the Reference Cost Index?
The Reference Cost Index (RCI) is currently the only measure of relative trust efficiency. It measures provider cost per finished consultant episode. It takes account of differences in casemix and of the inevitable higher costs incurred in different parts of the country (market forces). Few in the know would say it's perfect. Even so, there are interesting patterns emerging, and some of these are beyond what would normally be expected by chance from the inevitable inaccuracy in the data.
The effect of size on efficiency is well understood. We all know about economies of scale, where it makes sense to concentrate operations on ever larger units. Are hospitals in this category? We might expect that larger trusts would exhibit lower reference costs than their smaller counterparts.
But they don't. Quite the reverse: larger trusts tend to have higher reference costs. The result suggests that larger trusts have gone beyond the optimum size and are now being affected by diseconomies of scale - larger organisations become increasingly difficult to manage. So if you are a trust considering growth through merger or acquisition, think twice. You'll need to be doubly sure that your plans for achieving savings through such a move really stack up.
Does your private finance initiative (PFI) scheme affect your ability to stay within tariff? There's a better than evens chance. PFI hospitals do tend to be more expensive, though the result is not yet beyond doubt statistically.
What about foundation status? Given that the early waves of foundation trusts were selected partly on the basis of their efficiency it is no surprise that they seem to be slightly lower cost than average. But they would find it hard to convince a statistician that foundation trust status itself reduces costs.
The most striking result is that trusts in more deprived areas (typically in the North) have noticeably higher reference costs. Why? There are two broad schools of thought. It may simply be that having more money causes inefficiency - deprived areas have long since had more money allocated to them because of greater ill-health. On the other hand, patients in deprived areas may be more costly to treat. For example, their length of stay - which is a prime cost driver - may be necessarily longer. But the RCI is already adjusted for casemix, so any variation would have to be within individual, narrowly specified conditions, in other words individual healthcare resource groups. The search is on, and the jury is still out.