HIT Tool Needed to Measure True Cost
By Barry P. Chaiken, MD, FHIMSS, CMIO for Infor
Infor will be exhibiting at HIMSS14 in Orlando
Visit them in booth #3049
During the dot-com boom in the late ‘90s, many new companies based their business plans on the volume of website visits. This revenue model assumed that by capturing the attention of users as measured by clicks on the company website, the organizations would generate wild profits; however; when these companies went public, they assumed very high valuations without generating revenue. These companies never thought through their business models, nor understood their real costs.
For more than a half century, the healthcare industry applied the same confidence in similarly flawed models. Volume-based reimbursement tied revenues to volume, so organizations that maximized volume, in turn maximized profits. There was little incentive to focus on costs because organizations just inflated their charges to account for what they calculated as a rough estimate of their costs. If their calculations proved wrong for a particular line of business, they just upped the fees the following year to make up for it.
The passage of the Affordable Care Act (ACA) dramatically changed the healthcare marketplace and the economics driving it. No longer could provider organizations indiscriminately raise prices to increase revenue and cover their costs. The ACA set rules strongly encouraging provider organizations to take on risk and deliver measurable quality of care.
Recent reports from New York State Health Department, detailed in a December 9, 2013, article by journalist Nina Bernstein in The New York Times, show how variable and out of control healthcare costs are. The report listed hospitals with their charges and costs for a variety of conditions from 2009 to 2011. According to Bernstein, prices ranged from an $8 bill for treating a case of gastritis (cost: $2) to a $2.8 million charge for a blood disorder case that cost $918,462.
Without even knowing the details of the case, it is hard to believe the $8 bill for gastritis is correct when the cost of the treatment was only $2 – same must be said for the blood disorder case.
How does an industry survive—and how can our society expect healthcare costs to be reasonable—when hospitals do not know their costs of production or reasonableness of the bills they send to patients and insurance companies? How do organizations realistically set prices, compete in the marketplace, and accurately plan for their own survival and growth?
Without knowing the actual costs of care and the quality of clinical outcomes delivered, organizations fly blind in their effort to deliver affordable, high quality healthcare.
Although supply chain software improved our ability to track supplies used in patient care, the ability of existing applications to track staff members, who represent upwards of 60% of the cost of care, uses research assumptions rather than actual data to measure staff costs.
Similarly, if you bring your car into the repair shop to replace a broken bumper, the shop uses an industry built standard that estimates the average hours required to replace the bumper, rather than the actual time invested by each shop employee to repair your car.
Hospitals historically utilized similar estimates of staff time required in patient care. These estimates derived from interdisciplinary expert panels that brought together best guess estimates of clinical staff time required to deliver various levels and types of care.
As we move to value-based reimbursement, measuring actual staffing costs becomes significantly more important. Guessing labor costs rather than accurately measuring it could lead to significant financial losses as organizations accept risk without knowing their true cost of care.
First-and second-generation applications that incorporated estimated labor costs offered the best available approach at the time. Third-generation cost accounting tools, now critical to thrive as reimbursement rules change, require a much more sophisticated approach that takes advantage of existing data sources, such as electronic medical records, to more accurately measure the impact of professional services on the cost of care. A third-generation system tool effectively leverages existing data sets created through the use of transactional systems and produce results that represent the actual cost of care.
Healthcare organizations need a reliable, third-generation healthcare information technology tool that allows them to measure the true cost of care while linking it to their clinical outcomes. Only then will they be able to deliver the highest quality of care at a reasonable cost to a deserving American public.
About the author: Dr. Barry Chaiken is board certified in General Preventive Medicine and Public Health and Health Care Quality Management, and served as a board member, chair and continues his involvement as a fellow of HIMSS. He’s been in the healthcare industry for 20 years, having previously been the CMO at DocsNetwork, Ltd, and now helps design, build, implement and support the healthcare sector at Infor as the company’s first-ever CMIO.