HEALTHCARE ESTATES 2021 PRESENTATIONS
is effectively the same thing as ‘Which hospitals should you disinvest in, and which ones should you get rid of?’ I try to use that framework to think about decisions and the way decisions are taken.” Such decisions, he stressed, could not simply be ‘intuitive’; they had to be ‘calculated decisions’. He added: “It might sound obvious, but in a career of looking at investment appraisal, including in health, very often the answer was largely intuitive, and drove the analysis from that point on, and so the decision was always implicit in the original thoughts; these were often that ‘We have some old buildings, and we need to replace them’.”
Failings of investment appraisal models
He told the audience: “The criticism we would make of many of the investment appraisal models we’ve seen is that they are often very short-term, or use a snapshot coefficient. One of the classics is – in the case of number of beds in a hospital – the amount of admission avoidance you can engage in. That’s put in as a number, and that drives the situation for the hospital appraisal model all the way through its life. The other problem,” Stephen Wright continued, “is that many of these models don’t capture the physical processes; things like patient pathways, model of care, education, and the economic issues – the value and cost. There’s no causal explanation buried in these models, and they’re almost invariably oriented towards the facility, rather than the system – which is something which even the UK, with its current big move towards integration of care, is still doing.” Focusing next on ‘What matters in hospital development?’, Stephen Wright showed ‘a spider diagram’, based on the use of an appraisal model, focusing on ‘What’s making the biggest difference to the total cost, i.e. the lifetime cost?’ He said: “Here we are concerned with the things that really make a difference to the amount of costs the hospital incurs. You’ll see that what I’ve called there ‘plateau expenditure’ – i.e. the amount of money you spend on building the facilities and putting in the equipment upfront, and what I’ve called ‘operating expenditure’ – which if you like is facilities management, make absolutely no difference to the long-term cost. You can forget about them; they’re utterly unimportant. What matters is what I’ve called on the graphic ‘the medical expenditures, the clinical expenditures’.”
Low operating costs for medicine While the speaker said it was ‘no great surprise’ to find this, he noted that ‘we still try to build hospitals with minimum first cost, when it doesn’t matter’. He said: “What instead matters is whether you’ve arranged the facility so that your
22 Health Estate Journal January 2022
‘What matters in a hospital development’.
operating costs of medicine over time are low, and whether preferably, they get lower.” He added: “What we propose in the book, and also to an extent in the Wolfson proposition, is the use of optimisation models.” Here he said the ‘objective function’ was the minimisation of through-life costs. Stephen Wright said he was using costs here to as they key to make a decision, not because he believed that the economics of health were ‘all- important’, but rather because this gave ‘a common language to describe one option versus another’. He said: “If you decide you prefer another option, which is more expensive, that’s absolutely fine, but you need to be fairly sure that you’re getting out of it what you want.”
Optimisation models
Such optimisation models were – he emphasised – used in plenty of other process industries, and did capture both physical and economic flows. He added: “There’s an easy balance between the initial capital expenditure versus recurrent costs, which, as I showed you on the previous graphic, have very different magnitudes. It also makes explicit – because we’re talking about the system model – the trade-off between the single facility and the wider system, and you have to compute that system model with or without a given facility, which could be an existing one, or could be one you’re proposing to build. “So, what I’m proposing here,” he continued, “is the economic evaluation of a system-wide model of care, which has to be consistent with a given business model. We can look, using this sort of model, at the choices between ‘centralised – build, again what we’ve got now’, or ‘decentralised’ – which involves splitting the hospital up, cascading a certain amount of care to private care,
for example, and building hubs as ‘health stations’ to the existing hospital. We can look at these decisions in a way that isn’t just intuitive, and incidentally that sort of modelling will, in its own right, determine what the hospital’s capacity is within its wider system; its ability to do its work.”
‘Intensive bits of the wider health system’
Nearing the end of his address, Stephen Wright said: “So, I’ll just conclude – hospitals are nothing more or less than the capital-intensive parts of the wider health system. The business model is critically important; what value is the place trying to add? The key business case evaluation should be the embodied model of care, but at the system network level, not the facility level. Hopefully this is asking the right questions, because at the moment, a lot of the questions, for example in the UK, are not right ones. “So within the New Hospital
Programme, what hospitals are saying is: ‘Please just get ours built before the Department of Health & Social Care or the Treasury says ‘no’. So,” he added, “we hope – as the group which came together for Wolfson – to use a bit of this in the work that we’re doing in the next stage. I’ll leave you there with some questions, which look at variation, and at the way you trade off effort at various levels of the healthcare system. Just leave the following question out there: ‘What are the business models which an institution thinks it is following?’ Then there is the question about the centralisation or decentralisation. How would you make a judgement on that?” With these interesting questions left to ponder, Stephen Wright closed an interesting conference address, and invited questions from the attendees. hej
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