From our Sponsor, Kaufman Hall
Before you can address costs, you must know what those costs are. While this statement seems obvious, it defines a problem for many healthcare finance professionals. In a recent survey of healthcare finance executives, more than 70% of respondents said they did not have a high degree of confidence in the accuracy of results from their existing cost accounting solution. Almost 50% said they had no or very limited use of cost and profitability reports to support strategic decision-making and influence financial and tactical planning (2018 State of Cost Transformation in U.S. Hospitals and Health Systems: Time for Big Steps, Kaufman, Hall & Associates, LLC).
A lack of actionable cost data is a particularly acute problem with respect to physician costs. Costs associated with the physician enterprise are a significant driver of patient care costs and service- line profitability, and health systems’ need for accurate and trusted physician cost data has only intensified. Physicians continue to migrate from independent to system-owned practices. New payment models push health systems to identify and remove unwarranted variations in the cost of care to realize savings against historical cost benchmarks or keep costs below a bundled price paid for episodes of care. Yet many health systems maintain a hospital-centric cost accounting structure that fails to provide actionable insights into physician costs across the care continuum.
Overcoming challenges to effective cost accounting
To gain insights into physician costs, finance leaders must be willing to move beyond traditional cost accounting methods to a cost accounting solution that addresses the following limitations:
Use of overly simplistic methods. Reliance on ratio of cost to charges (RCC) will never provide the granularity needed to accurately capture physician labor costs. A solution that can incorporate relative value units (RVUs) and micro-costing (e.g., to determine time spent at different sites of care) is essential.
Time- and resource-intensive processes. Time and resources will always be limited. A cost accounting solution must be efficient, with repeatable processes.
Lack of timely results. Reliance on data that is six months old — or older — restricts an organization’s ability to respond in a timely manner.
A hospital-centric focus. As more care moves beyond an acute setting, finance leaders must have the ability to accurately identify costs across the continuum of care.
Lack of buy-in from executive leaders and physicians. Combined, the limitations described in the preceding bullet points generate data that lack the specificity needed to build trust in the data’s ability to inform decision-making. Stakeholders need a transparent process that identifies data sources and assumptions made in analysis of costing data.
The goal of physician costing is to complement existing hospital-based accounting processes by identifying physician-specific costs, notably labor, in cost structures and more accurately assigning these costs to patient-specific encounters.