Public value and pricing in English hospitals: Value creation or value extraction?

Value creation happens when hospitals provide new services or clinicians deliver existing services in better or more cost efficient ways. On the other hand, those who deliver healthcare can extract financial value from the system. Cost-based prices are now potent measures of financial value for profit centres in English hospitals. Here, we focus on the ramifications of these cost-based prices for creating or extracting value in the health care system. Our empirical data is drawn from: first, semi-structured interviews with Clinical Directors who head up profit centres in English hospitals; and, second, documentary sources which reveal how accounting drives costing for health treatments. From these data sources we identify three valuing activities which mobilise cost-based prices: ‘‘bubble” charts; ‘‘up-coding” and business cases in the context of a joint venture. We conclude that cost-based pricing can create public value because it incentivizes clinical activity and can be used to enhance health care quality. But the traditional accounting mode for cost-based pricing advantages standardised care while disadvantaging complex care, this generates opportunities for value extraction for those, including some private sector providers, who deliver standardised care. Our analysis encompasses three different levels: the profit centre based on a specialty, the hospital and the entire health care system. This broad appraisal reveals that value creation at the level of the individual profit centre can become value extraction for the hospital and the health care system as a whole.