6 key steps in a strategy to manage healthcare costs

  • August 24 2016, 4:00am EDT

6 key components of a strategy to manage the cost of healthcare

Analyzing data, finding variances are among the components of consultancy’s approach.

Consultancy pushes for a new methodology steeped in data to rein in healthcare prices

Quality care has become unaffordable for most consumers. A new report from Chilmark Research seeks to change how providers think about costs by using data to lower costs, a process it calls True Continuous Costing, or TCC.

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What is TCC?

True Continuous Costing uses data providers already have to determine the actual costs of providing medical services at a detailed and actionable level, Chilmark explains. “It is remarkable, given the availability of data and technology, that every provider does not have a system of measuring, managing and monitoring its true costs of providing care.”

1. Early success

A few providers that use detailed analytics of their true costs have succeeded in identifying places to reduce expenditures and have actually reduced their cost of care, Chilmark contends. These providers are more likely to survive economic pressures and avoid being consolidated into larger entities. They also can pass some savings to patients and better reward their staffs.

2. No excuses

Few providers know their costs of providing care, beyond what shows up in the general ledger, Chilmark contends. But the providers have the data to know what every patient encounter costs; data integration and analytics are mature, so there is no technical barrier preventing analysis; and there is a demonstrative need to cut costs, which must be examined and reduced in the current healthcare environment.

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3. The tenets of TCC

Six core principles govern TCC, according to Chilmark. They are:

* Use the data you already have.

* Look for cost variances in similar procedures, such as surgeries and MRIs.

* View TCC as an ongoing process and not a one-time activity.

* Understand and appreciate the difference between costs, charges, RCCs and RVUs.

* Engage the CFO and the clinical team to drive down delivery costs.

* Borrow concepts and business strategies from other industries.

4. A caveat

While encouraging wider use of the concept of TCC, Chilmark acknowledges it does not see it as a replacement for what is now referred to as cost accounting systems in healthcare. “Many of these systems serve the important function of financial budgeting and planning, and are used in regulatory reporting. They can give some insight and warning when departments or entire facilities have swerved into fiscal danger, but they are ill-suited to address the future grinding needed to lower provider costs.”

5. Objections

The most common objection to TCC is that physicians won’t like it and will be unwilling to change how they practice medicine. Every physician Chilmark interviewed for the report knows the payment system must change. “Not all immediately grasp TCC, but they know that costs are a problem that needs to be dealt with. We simply do not buy the stubborn-doctor meme as an excuse for the status quo. Doctors will likely favor TCC, if presented transparently, to more obscure costing methodologies such as RCCs, RVUs or substituting charges for costs, as all doctors know that costs and charges are rarely related.”

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6. Arguments against TCC

Argument 1: Doctors are unwilling to change. Rebuttal: Doctors know costs are a problem.

Argument 2: Lack of resources. Rebuttal: TCC provides ROI.

Argument 3: Administrative staff will lose jobs. Rebuttal: Staff will be used more efficiently.

Argument 4: Healthcare has too many variables, must look at average costs. Rebuttal: Analytics tools can handle variability and identify individual costs.

Argument 5: It’s too complex, there’s too much else on our plates. Rebuttal: Start small with one department, DRG or a problem area like bundled payments.