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Costs and Performance of English Mental Health Providers

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Publication details

JournalJournal of Mental Health Policy and Economics
DateAccepted/In press - 3 Apr 2017
Original languageEnglish


Background: Despite limited resources in mental health care, there
is little research exploring variations in cost performance across
mental health care providers. In England, a prospective payment
system for mental health care based on patient needs has been
introduced with the potential to incentivise providers to control
costs. The units of payment under the new system are 21 care
clusters. Patients are allocated to a cluster by clinicians, and each
cluster has a maximum review period.
Aims of the Study: The aim of this research is to explain variations
in cluster costs between mental health providers using observable
patient demographic, need, social and treatment variables. We also
investigate if provider-level variables explain differences in costs.
The residual variation in cluster costs is compared across providers
to provide insights into which providers may gain or lose under the
new financial regime.
Methods: The main data source is the Mental Health Minimum
Data Set (MHMDS) for England for the years 2011/12 and 2012/13.
Our unit of observation is the period of time spent in a care cluster
and costs associated with the cluster review period are calculated
from NHS Reference Cost data. Costs are modelled using multilevel
log-linear and generalised linear models. The residual
variation in costs at the provider level is quantified using Empirical
Bayes estimates and comparative standard errors used to rank and
compare providers.
Results: There are wide variations in costs across providers. We
find that variables associated with higher costs include older age,
black ethnicity, admission under the Mental Health Act, and higher
need as reflected in the care clusters. Provider type, size, occupancy
and the proportion of formal admissions at the provider-level are
also found to be significantly associated with costs. After
controlling for patient- and provider-level variables, significant
residual variation in costs remains at the provider level.
Discussion and Limitations: The results suggest that some
providers may have to increase efficiency in order to remain
financially viable if providers are paid national fixed prices (tariffs)
under the new payment system. Although the classification system
for payment is not based on diagnosis, a limitation of the study is
the inability to explore the effect of diagnosis due to poor coding in
the MHMDS.
Implications for Health Care Provision and Use: We find that
some mental health care providers in England are associated with
higher costs of provision after controlling for characteristics of
service users and providers. These higher costs may be associated
with higher quality care or with inefficient provision of care.
Implications for Health Policies: The introduction of a national
tariff is likely to provide a strong incentive to reduce costs. Policies
may need to consider safe-guarding local health economies if some
providers make substantial losses under the new payment regime.
Implications for Further Research: Future research should
consider the relationship between costs and quality to ascertain
whether reducing costs may potentially negatively impact patient

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