Financial & Clinical Success Through Activity Based Costing

Advanced Costing Methods to Derive Data-driven Insights for Informed Decision Making

Prior to March 2020, America’s hospitals were facing extensive financial pressure due to shrinking revenues, rising costs, or both. In 2016, the Congressional Budget Office projected that between 40-60% of U.S. acute care hospitals would have negative margins by 2025. Hospitals were already on shaky ground.

With the development of the COVID-19 public health emergency, in the timeframe of March to June 2020 alone, the American Hospital Association estimated a loss of $202.6 billion for America’s hospitals and health systems, an average of $50.7 billion per month. Between June 2020 and present day, the supply chain has decimated, inflation skyrocketed, and staffing expenses increase while resources decrease.

As a result, financial transformation is a key area of focus for healthcare executives, transitioning from fee-for-service to value-based care and implementing those changes in accelerated Merger & Acquisition (M&A) strategies.

Having clarity into the proper metrics to optimize care delivery and financial performance supports this transition. Specifically, understanding the total cost of care and the associated resource and cost drivers. An Activity-Based Costing (ABC) strategy will provide details on who, what, where and when within the organization could most benefit from these insights.

In comparison to historical charge-based costing methods, such as Ratio of Cost to Charge (RCC), ABC captures the details of the patient journey, giving a comprehensive view of resource and cost drivers. By connecting clinical, operational and financial data points, ABC identifies clinical inefficiencies and provides an accurate total cost of care—across the care continuum.

This white paper presents both how and why implementing an Activity Based Costing (ABC) strategy can improve your organization’s financial and clinical performance:

• Understand how ABC differs from historical costing methodologies
• Obtain greater precision using the patient care detail
• Gain improved insights into cost and resource drivers
• Obtain higher accuracy for cost of care
• Read case study examples of how insights gained from ABC were put into practice, resulting in reduced cost and improved utilization management

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