3 key features of modern cost accounting solutions that drive accurate patient-level costs

Lowering healthcare costs begins by understanding the actual cost of delivering care. This is particularly difficult for Surgery Departments, where variations in physician preference items (PPIs), poor availability of low-cost, high-efficacy alternatives for implants and other surgical needs, and evolving surgical techniques complicate the calculation and management of costs.

An ideal approach to solving these challenges and accurately accounting for surgical costs involves standardizing and limiting the wide variation of similar procedures, supplies, equipment, medications, and instruments used in surgical suites. However, most hospitals and health systems have found this approach to be unrealistic and difficult to implement.

That’s because hospitals lack the tools needed for complex surgical cost accounting calculations. Nearly 90% of American hospitals report either not having a cost accounting system or having one that lacks data interoperability, is outdated, and inadequate to address value-based care, according to Black Book Market Research.

Traditional costing solutions simply aren’t equipped to manage surgical suite data—which come in many different forms from many different sources.

To improve the validity of cost information from the Surgery Department, hospitals need a modern cost accounting system that is extendable, configurable, and transparent.

1. The benefits of an extendable data model

Traditional cost accounting systems rely on billing or charge information and require data to be supplied in a structured way based upon a rigid data model.

By contrast, a modern cost accounting system with an extendable data model allows data to be captured from any number of care systems and sources. This is particularly valuable in gathering complete cost information from a surgical or operating room system and other sources.

Kaufman Hall Axiom Cost Accounting, a modern cost accounting system designed for healthcare, provides a far greater level of detail when compared to traditional systems. Information captured by Axiom includes cost data related to medications, supplies, implants, instruments, and surgical providers for each operation at the picklist (i.e., the list from which a user can make a selection) line-item level. Detailed tables with these data can be used in a variety of ways that take advantage of the extendable data model.

Axiom’s extendable data model helps make sense of direct and indirect costs down to the encounter level with a single source of truth.

2. Configuration is key to meeting your specific costing needs

To deliver accurate costing data, a modern cost accounting system must also tailor the costing design and calculations to meet the organization’s specific needs. A system that is configurable can use any type of data, from any source, to create encounter cost items or cost objects to store variable and fixed costs by category.

Configuring a system to use surgical data to improve the validity of costs may include:

  • Using actual implant information, documenting items wasted and those charged
  • Capturing and costing chargeable and non-chargeable supplies and medications used during surgery
  • Using surgical minor equipment data to allocate depreciation and maintenance to only those cases that used the equipment
  • Using the instrument data to directly apply disposable and non-disposable instrument costs, and to allocate surgery support costs
  • Calculating labor costs based on provider information, which generally includes hospital staff, such as nurses and operating room technicians
  • Using actual time data to calculate costs beyond direct labor costs. For example, operating time data can enable more equitable allocation of major equipment and environmental services costs; actual visit time data for physician offices can enable more equitable allocation of costs for pre- and post-operative care required for costing bundled surgical case rates.

This is not a comprehensive list but should give healthcare leaders an idea of what to look for when determining whether a solution supports multiple costing methodologies and can be configured to their unique needs and processes.

3. Build confidence in results with transparency

Extending the costing data model and configuring a system to leverage non-traditional source data require a high degree of transparency. Costing professionals and end-users depend on this transparency to validate costing calculations and deliver reliable results.

A high level of costing accuracy is particularly critical to gaining support within the physician community for cost- and quality-related change-management initiatives. Physician leaders will not accept “black box” calculations with cost data from standardized inputs, and invisible calculations or intermediate results are frequently scrutinized. A transparent system allows all inputs and intermediate calculations to be validated. For example, it is vital to identify at the patient level within the costing calculations the actual invoice costs for supplies, medications, and instruments, as well as surgical times based on actual procedure start and stop times.

Transparently reconciling and validating costs also creates an efficient and repeatable process that can be supported by well-defined data. Efficiency is improved by identifying errors and omissions early in the costing process and reducing the likelihood that those errors will be repeated.

Transparency also allows the cost accounting model to evolve and improve as new and more detailed data become available to the organization.

Not all cost accounting systems are created equal

In today’s cost- and outcomes-focused environment, hospitals and health systems must deploy a cost accounting system that is supported by a data model that can be extended, configured and validated by end-users without vendor intervention.

Using feedback gathered from 1,140 healthcare CFOs, financial management and business unit software users, Black Book Research determined Axiom Cost Accounting is the #1 solution most likely to meet the increasing demand for accurate, accessible, and actionable information on the cost of care delivery.

Axiom Cost Accounting empowers hundreds of Surgery Departments to determine accurate patient-level costs and improve financial performance through an integrated, efficient process that supports data-driven analysis. Request a demo to see how Axiom’s sophisticated cost assignment methods provide transparency into performance across patient populations and service lines.

 

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