Cost accounting on steroids for new era

New payment models link costs to clinical outcomes

With the rise of value-based payment and care models, long-term hospital viability may depend on not only getting a better handle on costs, but also being able to link them to outcomes. To achieve this, hospitals need cost accounting on steroids.

In the past, cost accounting was mainly used to tell hospitals if they were making money on a specific DRG, procedure, specialty, doctor or payer. This information was also useful when negotiating contracts.

“For 60 years, healthcare providers did not really care about measuring their costs,” said Barry Chaiken, MD, chief medical information officer at Infor, a business application software provider. “If they guessed wrong, they were free to add to their charges and make it up. Those days are gone and any organization that wants to survive has to accurately measure costs and then relate them to outcomes.”

What is needed is essentially cost accounting on steroids.

“It is cost accounting, but it looks at an episode of care to see what is actually being done for the patients and the resources needed to provide that care,” said Chaiken. “Sure we need to attach costs, but we really are monitoring an episode of care on a continuing basis to provide the best possible outcomes at the most reasonable cost.”

“Healthcare is getting to the point where we can use cost information to influence the clinical operations,” said Linda Burt, chief financial officer for the Nebraska Methodist Health System in Omaha. “We now have tools available to link cost and outcome information. We are starting to utilize that information to establish and eventually monitor standard clinical protocols to meet our goals.”

With new payment methods, come new information needs. Now it is imperative that hospitals not only have a better handle on where the money is going, but also how effectively it is being spent.

Computer programs are available that follow the costs of an episode of care more closely than was possible in the past. The advent of electronic health records helps hospital financial administrators link this cost information to clinical quality indicators. With these data streams, both administrative and clinical leaders are able to see what is working, or not, and make changes in practice that increase efficiency.

An example of how Nebraska Methodist is working toward this is in the way it is structuring its ACO, said Burt. Nebraska Methodist is organizing its ACO so that it will have multiple service line-specific work groups, led by physicians, to look at processes. They will then work to define protocols for various procedures and diseases using both cost and outcomes measures. Doctors joining the ACO will pledge to follow these protocols.  

“To be successful under an ACO model, you have to be able to find not only the most cost efficient, but also the most effective, way to take care of your patients,” she said. “To do this you have to have data. In addition, you need to commit the resources to update cost and utilization data and maintain your systems as new doctors, procedures and methods come on line.”

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