One hundred years after the founding of CIMA as the Institute of Cost and Works Accountants, the principles and practices used by cost accounting professionals at the UK's National Health Service are very similar to those used in 1919 (see "Cost Accounting Took Slow Route to Appreciation" at bottom of page). Although the cost accountant of 1919 might be confused by the technology used today, the tactics of the past have a prominent role at Nottingham University Hospitals (NUH), which provides services to more than 6 million people across the city and the region beyond and is recognised as a leader in healthcare cost transformation. Leading the charge are operational director of finance Duncan Orme and head of costing Scott Hodgson, ACMA, CGMA, both of whom are involved in healthcare costing on a national level.
A 2014 CIMA report, Building Clinical Engagement With Costing, found that costing was generally viewed by clinicians as a support function, with engagement between costing and clinical teams limited to business case development. In recent years, however, clinicians have begun to realise the importance of cost information for decision-making, and the profile of healthcare costing has seen significant promotion. Attendance at the Healthcare Financial Management Association's 2018 Clinical Forum saw doctors outnumber cost accountants for the first time, and a growing number of clinicians are speaking about costing at national conferences, further raising awareness amongst their peers.
Changing the image of cost accounting
While the raised profile of costing is welcome, Orme sees a danger that the demand for experienced cost accountants is beginning to outstrip supply. He believes cost accounting's image needs a makeover and that the way to achieve this is to highlight the importance of the cost accountant's skillset to the wider healthcare system.
"One key motivation in our roles, both as practitioners and as influencers on the national scene, is to promote interest in how you can, effectively, become a member of a clinical team, working with the clinicians in a healthcare environment to improve the value and outcomes of healthcare," he said.
Management accounting techniques that were once used in the factory setting are now being used to develop patient insights and deliver better healthcare outcomes.
Hodgson explained the impact that the growing volumes of data and information have had on his role.
"The amount of data and information we have and the meetings we attend about the information has really evolved," he said. "When we started PLICS [patient-level information and costing system] in 2010, we had two or three information feeds. We now have over 70 feeds pulled into the system, and so far we have delivered £20 million of savings."
NUH sees approximately 1.3 million individual patient contacts per year, the equivalent of 1.3 million product lines. The NHS system uses a national tariff payment approach to cost reimbursement for healthcare providers based on organisation-level average cost data. This means that for each patient contact, the team is able to create an individual income and expenditure account showing details of day-to-day care, with an average of 150 data items per subject. On any given day, staff can see how money was spent on patient care.
Hodgson explained the process. "We work hard on our visual presentation of this for the clinicians, using red or green bed days to distinguish those days when no diagnostic or therapeutic activity has occurred. Clinical teams can see what's happening at an individual patient level and the impact that delays in diagnosis or discharge have when the breakeven point has passed and the patient is making a loss for us," he said.
"We aggregate this up and take a look at pathways of care, to see how we can redesign services to promote better care pathways. And that's where the transformation comes. We are no longer cost accountants; we are transformation and cost accountants.
"Understanding cost and understanding what goes into cost is not the same as rationing. It's making sure that we make healthcare sustainable through that understanding."
Bedside data capture
NUH uses "Nerve Centre", a bedside capture system using iPads or iPhones to record interactions with patients. Each day is tagged as red or green, recording whether an activity that leads towards discharge has been undertaken. This enables bottlenecks to be identified and addressed. "It's really not the costing that does this," Hodgson said, "but the input information that we pull into the costing system that helps the users. We cost by the day so we can see the cost of a red day, the cost of a green day. We can ask, 'Why did that red day happen?' "
Red days require reason codes for delays; for example, "waiting for radiology test", "waiting for pathology results", or "waiting for a community care bed". These codes can be played back to the clinicians who are using the system. In effect, the system is a supply chain, and the information collected helps the costing and clinical teams to look not just at one aspect but how it impacts or is impacted by the services around it.
Data for diabetes
One of the ways in which hospital data are being used proactively across the healthcare system is illustrated by the work Hodgson's costing team has undertaken with local general practitioners. Data relating to a cohort of diabetes patients were shared and analysed to help medical professionals serving as consultants understand whether patients presenting at major hospitals are self-managing their diabetes effectively or will require stabilisation before their underlying condition can be treated. This work extends beyond traditional costing boundaries, Hodgson said. Linking the two systems together can ultimately save money for the healthcare system. "If we know that patients are on the diabetes register but are not managing their condition, what communication work can we do to get them to a clinic?" he said. "Do they know about clinics and support? We can target them and ensure that they get prevention support, because that is far cheaper than patching them up when they get into hospital. A lot more information is gained through combining the datasets — the sum of the two parts is far greater than the whole."
Recent developments in healthcare solutions include government investment in "social prescribing", which addresses issues such as loneliness, and by extension, better management of underlying health through therapeutic activities. But this growing focus on understanding patients at a granular level brings its own concerns for the finance professional, Orme said. "It's important to work very closely with information and governance leads to ensure that we comply with GDPR [the EU's data protection laws], that everything we do is anonymised and is only available to the clinician responsible for that individual's care," he said.
Improving data quality is a key element of the costing role. Hodgson described the process for engaging clinical teams with the process. "We will publish data early, knowing that it's not 100% correct," he said. "But as soon as we put it out there and keep publishing it, people will start looking at it and start improving the quality of data.
"In our early publishing of the red and green reason codes 80% of them were blank. But the fact that we were spending £20,000 a month on red days without knowing why soon raised awareness among clinicians. Realising that the codes would tell them where the money was going, clinicians now fill in the codes and we have 90% completion."
Skills and competences
Technology has freed up senior staff time, allowing greater engagement with clinical colleagues. Hodgson explained that while junior staff "turn the wheels", getting data through the system and out, more experienced colleagues are using those same data for transformation. The office-based bean-counter image is obsolete: Today's cost accountant needs to have communication, presentation, and influencing skills, and be able to think outside the box. "Costing used to be a first job for people wanting to go on into business partnering," Hodgson said. "But today a lot of our staff come from financial management and management accounting roles, because they're used to being part of a division in the hospital."
Technical skills are still crucial, Orme said. Cost accountants must maintain a separate cost ledger that cannot get out of balance with the general ledger, a practice that their last-century counterparts would certainly recognise. The ability to manage huge volumes of data and pick out core messages is also essential to success (see "The 5 Stages of Data Grief" at bottom of page). Hodgson agrees. "The whole point is to give the clinicians the information to make decisions, not for us to do it," he said. "We are here to guide them through the vast volumes of data."
Resilience is also a key skill for the costing practitioner. "We can't tell our colleagues they are spending too much," Hodgson said, "because we don't know enough about clinical care. But we can present the information we have, and ask, 'Does this look right to you?' Invariably they'll say something doesn't look right, and we work with them to improve it."
The pace of transformation in healthcare is accelerating, Orme said, with clinicians ever more keen to understand costs, their practice, and their patients. As a result, cost accountants are once more at the forefront of health delivery. "If you have that enthusiasm, curiosity, and desire to understand, and wish to influence and help your clinical colleagues, then this is a cracking job for you," Orme said.
Cost accounting took slow route to appreciation
A wartime yearning for efficiency and value evolved finance practices.
Although it took centuries for business leaders to fully appreciate the utility of cost accounting, the practice — once embraced — established a value that remains essential to organisations throughout the world today.
While the roots of modern cost accounting can be traced back to the 18th-century Industrial Revolution, progress towards professionalising the practice was slow. Cost Accounting Principles and Practice, a costing textbook published in 1920, a year after CIMA’s first incarnation as the Institute of Cost and Works Accountants, highlights the frustration of costing pioneers at the slow recognition of their value:
Hardly any other feature of industrial procedure has been so necessary, yet so slow in developing, as cost accounting — so rich in possibilities of usefulness for management of business, yet so widely considered for many years as a doubtfully necessary evil.
By 1937, however, the Institute had published its first “Costing Terminology”, and cost accounting was well on its way to being established as a science. World War II saw increased demand for costing professionals in government and industry to help ensure efficiency and value for money. By the 1950s, costing played a key role in the ICWA qualification, in which seven of the 16 papers focused exclusively on costing (wages, materials, overheads, and methods). By 1975, the Institute of Cost and Management Accountants, as CIMA was then known, had been awarded a Royal Charter. The focus of the qualification began to shift towards strategic accounting, and in 1986 the ICMA became the Chartered Institute of Management Accountants.
An article by Roland Dunkerley, FCWA, in The Cost Accountant, the official journal of the Institute of Cost and Works Accountants and a precursor to Financial Management magazine, dated 1946, traces the early history of the costing profession. Driven by the changed industrial circumstances and economic conditions of World War I, costing practices evolved from the factory floor rather than the finance office, with a focus on efficiency. Dunkerley, who was the ICWA’s president in 1933–1934, wrote
It was necessary for [the cost accountant] to have considerable knowledge of the factory and its products, and to keep abreast of all the developments in management technique which were becoming more widely used: time and motion study, use of tools and jigs, causes of stoppages of machinery, layout of stores, questions of transport, and — by no means the least important — the devising of methods to give the maximum of information with the minimum of clerical work.
The 5 stages of data grief
Nottingham University Hospitals’ costing team’s policy is to publish and debate results with clinicians, being mindful of the “Five Stages of Data Grief”. It has become adept at helping colleagues get across the stages very quickly and have found that peer-to-peer discussions can sometimes be key to removing barriers.
- Denial: “The data is wrong!”
- Anger: “It does not apply to me.”
- Bargaining: “I will get the correct data.”
- Depression: “There is nothing I can do about it.”
- Resolution: Acceptance and action.
Rebecca McCaffry, FCMA, CGMA, is associate technical director–Management Accounting at the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, FM magazine’s editorial director, at Kenneth.Tysiac@aicpa-cima.com.