Moving to an entire new reimbursement model is scary enough. Having that system partly based on the savings you achieve, without really feeling certain of your costs, is downright frightening.
Healthcare providers have typically struggled to detail their expenses, and that is expressed in a variety of areas. But with the move to value-based care and other new reimbursement mechanisms, it’s becoming clear that providers need to get better at getting a grip on their financial determinants in order to thrive.
A variety of reasons exist for explaining why the accounting piece of healthcare is, well, complicated. It’s a very complex system, with a number of distinct, separate providers and insurance mechanisms that are just as complicated. IT systems have provided some automation, but the complexity has not been wrung out yet.
The problem is, some of the new reimbursement mechanisms are assuming a level of simplicity that doesn’t exist in healthcare. Providers will need to advance their ability to come to grips with financial factors, and quickly, to avoid making catastrophic contract mistakes.
Results of a recent HIMSS survey on cost accounting show some progress in providers’ ability to determine costs, but also suggest that the underlying complexity is still an issue.
Results of the survey, released earlier this month, found that 90 percent of respondents claimed their organization was able to determine the costs involved in the services they provide, with about three-quarters saying they have a formal process. However, only 39 percent reported that their organizations review costs on an ongoing basis.
The scary part is the other respondents; 32 percent don’t regularly review costs; 9 percent don’t evaluate costs; 11 percent don’t know; and 9 percent provided a response classified as “other.”
The complexity of determining cost is well-known. There are staff costs, overhead, equipment costs, professional fees, administrative costs, and more, not to mention the costs of services provided by outside organizations. Despite the complexity, healthcare organizations will need to improve their understanding of costs if they are ever to make prudent decisions on how they can contain them without negatively affecting patient care.
The flip side of the equation is organizations’ ability to communicate a cost to patients. Costs that vary to the extent that they do in healthcare have long been a source of frustration and anger for consumers, insurers, and state and federal officials. While some strides have been made in publishing prices for services, consumers will be raising expectations, particularly as they come to grips with paying larger portions of their bills as a result of high-deductible plans.
The HIMSS cost accounting survey found that more than a third of respondents have a price transparency strategy, with another third planning to address transparency “in the future.” Key factors in determining price include margins needed to maintain profitability (mentioned by 75 percent); actual costs incurred by the organization (73 percent) and the chargemaster (65.5 percent).
These reasons may not play well with consumers for the long haul. They may not care about your margins; they may wonder what your actual costs are (especially if you have trouble explaining it: and chargemaster sounds a bit mysterious and open to gaming. God forbid they go to Wikopedia to see a description of a chargemaster: It “usually contains highly inflated prices at several times that of actual costs to the hospital. The chargemaster typically serves as the starting point for negotiations with patients and health insurance providers of what amount of money will actually be paid to the hospital.”
Respondents to the HIMSS survey listed a number of areas where they need help in transitioning from fee-for-service to value-based payment, and at the top of the list is tools to track and evaluate the quality of care delivered, mentioned by nearly 80 percent. Other responses include things like improved communication, better ways to define and measure value, and improved ways to automate cost accounting aspects of the payments. Clearly, much work needs to be done on the financial infrastructure that will support the shift to value-based care.
No one said this is easy, but it is dangerous work. Whenever organizations begin to transition to new modes of handling finances, there’s little margin for error when financial margins are thin.
I worked on a story several years ago on a provider that was shifting to a central billing office and revamping its business office, with the intent of achieving a single understandable bill for patients. I interviewed one of the IT staff working on the project, and he described the challenges of achieving this between multiple facilities and with a chargemaster contained tens of thousands of charges.
It was a bridge too far. The organization struggled with the transition, lost millions in charges and the CIO eventually left the organization.
These are high stakes games that shouldn’t be ignored. Your organization’s financial strength and reputation are at stake. With all that’s going on, don’t underestimate the challenge.
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