The FT gets it wrong ago: accounting for the NHS is not as simple as they think

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The FT is shocked today. It is reporting that:

Taxpayers pay up to five times more for National Health Service operations in some hospitals than others, according to a Financial Times analysis that may fuel the healthcare funding debate.

The differences are so great that the NHS could save about £100m a year – equivalent to approximately 4,000 nursing salaries – across just three operations if it were to raise the performance of less efficient hospitals to the level of the top 25 per cent, according to an analysis of official data.

I would have thought that after the Piketty fiasco someone at the FT would have decided that it might be in their best interests to be a little more circumspect about their ability  with numbers, but that is not apparently the case.

The FT  says it has excluded the top  and bottom 5% of numbers from their samples to allow for differences in 'cost allocations'  but then says that the vast majority of cost difference depends upon how long people stay in hospital after treatment.  I am dubious in both cases.

First,  as an accountant I know only too well that there is no true cost of almost anything.  That is particularly true in a complex organisation like a hospital.  Everything in such cases comes down to the decisions made on how to allocate costs to activities.  You could load costs onto the operating theatre.  You could, just as easily, load costs onto bed occupancy. And you  could, alternatively, decide that patient throughput was  your cost allocation driver  and in that case A & E and  outpatient clinics would suddenly become very expensive. That's all because  the variable costs of undertaking any activity in a hospital,  whilst not insignificant,  are  always going to be  only a part of the total,  with that total being dominated in many cases by the cost of running the infrastructure of the hospital.

What is that infrastructure?  Let's start with the heavy burden of administration that marketisation has imposed upon the NHS.  And let's not ignore the costs of PFI:  much of the variation noted here could come down precisely to that one issue.  The cost variation could also depend almost entirely upon the decision that the government has made to allocate funds to the hospital, or not.  Well funded hospitals have higher costs  because they will spend the money that they are given to deliver potentially better outcomes  but that is not noted in this survey.

Nor is  something else of considerable significance:  where these operations take place will have an impact upon their cost.  In wealthy areas it is easy to discharge patients into the community because care is available.  In other areas that is not possible.  And some areas do, of course, have  what are called ' skewed elderly'  populations.  Think of seaside towns with large retirement populations.  In those places people  cannot be discharged as quickly as they are  in locations where the average age of the person having the operation is lower.

Maybe  the FT took all these factors into account, but there is no indication of it in this report. What it looks like is  another case of FT tabloid style  journalism when the first number that fell off a spreadsheet  is taken as a fact without considering any of the context that might explain it. If this  paper wants to be taken seriously it has to be better than that.