There is an excellent article in the September 7, 2015 issue of the New York Times by Gina Kolata entitled, “What Are a Hospital’s Costs? Utah System is Trying to Learn.”
The article describes how the University of Utah Health Care System and their CEO Dr. Vivian Lee have spearheaded a Radical Innovation for Hospitals.
Are you ready for it…?
Know What Things Cost.
…That’s it. (Sorry for the sarcasm)
As the New York Times article points out, the vast majority of hospitals in America do not engage in Cost Accounting. That means, most hospitals don’t know what it costs them to perform hip replacement, treat a patient in the ICU or scan a brain with an MRI. How can a hospital expect to control costs if it doesn’t even measure them?
Well, the University of Utah is different. Their CEO Dr. Vivian Lee and her colleagues set out to find out exactly how much it costs to deliver each and every service that they provide. In doing so they were (1) able to identify variation and waste and (2) implement changes that resulted in their overall costs going DOWN by 0.5%, while costs at other hospitals in the area rose by 2%.
According to Wikipedia, Cost Accounting “is a process of collecting, analyzing, summarizing and evaluating various alternative courses of action… All types of businesses, whether service, manufacturing or trading, require cost accounting to track their activities… Modern cost accounting originated during the industrial revolution, when the complexities of running a large scale business led to the development of systems for recording and tracking costs…”
Sarcasm aside, Cost Accounting has been a best-practice in business for over 100 years, as it allows businesses to determine (1) how to set prices, (2) which products or services are making or losing money and (3) what changes need to be made to cut costs.
As the old sayings go, ‘What you can’t measure, you can’t manage.’ Or ‘What gets measured, gets done.’ Or ‘Measure to improve.’ Well you get the point.
The University of Utah has developed software that allows them to measure and report on costs and as a result, they have received acclaim ranging from the Mayo Clinic to the Secretary of Health and Human Services.
Bravo, University of Utah Health Care!
What does this mean for employee benefits professionals and healthcare consumers:
— In my opinion, the LACK of cost accounting at hospitals is the result of ‘sloppy’ fee-for-service reimbursement that has contributed to bloated healthcare spending by employers and their employees.
— It is likely that more hospitals will adopt cost accounting in the future as the Centers for Medicare & Medicaid Services and private insurance carriers move to value-based reimbursement and away from fee-for-service.
— To the extent that hospitals are successful in preventing or minimizing value-based reimbursement, they will be less likely to implement cost accounting.
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