Will closing hospital beds save money?

March 17, 2017 • Reading time 4 minutes

The NHS deficit in 2015/16 was £1.85bn, so it is understandable why there is pressure to improve finances. Many of the Sustainability and Transformation Plans (STPs) being developed involve projected savings from the closure of hospital beds. The following post outlines why these saving opportunities can be vacuous unless the economics behind them is taken into account.

The supposed saving “opportunity”

Staffing and maintaining an average hospital bed costs approximately £220 per day . That’s £80,300 per year. Or £2m for a 25 bed ward.

This high cost translates into a high potential “saving opportunity” closing beds has thus been a tempting way to make savings. Since 2010/11, the total number of beds has fallen by 10% – this may equate to a saving of £1.1bn.

The non-financial benefits of closing beds

There could be a number of good reasons for bed closures:

  • Caring for people outside of hospital can be preferential for both patients and staff
  • Improved care can often mean shorter length of stay
  • Closing beds on a ward can support infection control and improve the quality of care for the remaining beds/ patients

There are also situations where bed closures may happen as part of a reconfiguration of care in an area (e.g. consolidation of hyper acute stroke care onto one hospital site).

The challenge

The challenge with delivering bed closures besides the operational difficulties lie with the economics. There are two particular areas where the misunderstanding of the economics of hospital bed closures is particularly relevant:

  1. Demand for hospital beds versus capacity of beds
  2. The exchange rate between care in a hospital bed and the alternative

1) Demand for hospital beds versus capacity

On average, a ward of hospital beds may be occupied 85% of the time. This ‘average’ often drives decision making. But occupancy fluctuates (see chart below for an example of specific group of patients).

When there are fluctuations in bed occupancy, planning for enough beds “on average” is akin to planning to have over occupied beds for a certain number of days. This can lead to patients being sent to other wards “outlying” or having bed occupancy above safe levels.

From the perspective of the staff, this situation can be hard to manage and frustrating. Doctors may need to walk between wards located at different parts of the hospital and ward nurses may find staffing levels or competencies are not matched to patient need. This can contribute to increased length of stay and the need for even more beds in the long run. Cost savings evaporate.

So any plan that does not take into account the nuances of actual demand and capacity is unlikely to win support from clinical and operational staff.

2) The exchange rate between care in a hospital bed and the alternative

The second economic factor relates to activity “exchange rates”. Many plans to transform care are driven by anecdotal evidence that there are a large number of patients in expensive hospital beds that could be treated at home for a fraction of the cost. Unfortunately this does not always work like this in practice.

Care at home can consist of four daily visits. This means an activity exchange rate of ‘4 home visits to 1 hospital bed’ (4:1). Unless the home visits only cost a quarter of the hospital bed the alternative is unlikely to reduce cost.

The economics get more challenging if there is poor targeting of these services. Some patients may be discharged from hospital to have out of hospital care. But in some situations, the patient may have gone home anyway – so the out of hospital care is additional care, not alternative. If services are effectively targeted only 70% of the time, the 4:1 exchange rate in the example above would drop to 5.7:1 – this would require the alternative care cost to to be £38.5 per visit for this alternative service to offer better economics than the care provided in hospital.

At £38.5 per visit, the cost is too low for realistic and legitimate provision. Five visits per day (reasonable if drive time is included) would generate only £49k per year – not significantly higher than the average salary and excludes any other costs, such as overheads.

Conclusion: don’t be misled into planning bed closures without a clear understanding of the evidence

While there can be legitimate reasons to close hospital beds it is important to understand the economics behind such a move – especially if it is hoped that the proposed closure will release financial savings. Average bed occupancy is not sufficient to reconfigure or close beds, since health is rarely evenly spread throughout the week the month or the year.

Edge Health

Edge Health are a specialist UK healthcare analytics consultancy that use data and insights to improve the delivery of health and care services, so that better outcomes can be delivered more efficiently.