Giving Providers Hospital Cost Accounting Data Will Lower Costs

July 05, 2018 - Engaging physicians with hospital cost accounting data will be key to lowering costs under accountable care organizations (ACOs) and other population-based reimbursement models, Stanford researchers recently explained.

Population-based reimbursement requires providers to internally control their costs or face a financial loss, researchers from Stanford Hospital and Clinics and the Clinical Excellence Research Center at Stanford School of Medicine wrote in a Health Affairs blogpost.

But providers have struggled to realize efficiencies and lower costs under the new payment model.

“The new payment mechanisms that CMS has introduced have largely focused on reducing reimbursement that is, revenue, to providers by incentivizing the reduction of unnecessary utilization,” the researchers wrote. “However, it has proven challenging for the models, which focus on costs from the payer perspective, to achieve the desired effect of reduced Medicare spending.”

Hospitals can overcome the challenges of population-based reimbursement and reduce their internal costs below payment levels by leveraging hospital cost accounting data.

READ MORE: Giving GA Hospitals Healthcare Cost Data to Lowering Spending

“A lever that has not received much attention in the new payment models, and that may be a fruitful avenue given the modest results of utilization reduction, is the management of unnecessary costs incurred in the delivery of individual care episodes,” the blogpost stated. “Fundamental to such efforts is the analysis of detailed internal cost data.”

More than 1,300 hospitals use sophisticated cost accounting systems, according to data from the Healthcare Information and Management Systems Society (HIMSS).

Yet hospital leaders rarely engage their providers with internal cost accounting information despite the fact these cost measurement systems create cost estimates for each billable step during care delivery.

“While provider administrators have used such cost accounting systems for some time, we are only now beginning to see them being used by interdisciplinary teams involving physicians to restructure clinical processes,” the researchers elaborated.

“Such use requires the collaboration of physicians in cost-management activities, which traditionally has been very difficult. However, physicians have started to be more open to collaboration on these issues due to the increased pressure from ongoing payment reform efforts to control rising health care costs.”

READ MORE: Hospital Utilization Management Can Reduce Denials, Improve Care

Provider administrators should be putting hospital cost accounting data into provider hands so doctors, nurses, and other care delivery leaders can identify and create more efficient clinical processes that drive down total episode costs.

“One means of doing this is variation analysis, in which total episode costs (that is, the sum of the care-step–level costs) for the same type of care are compared across individual physicians, care teams, or locations,” researchers advised.

“Once positive outliers are identified, detailed analysis that combines physicians’ clinical expertise and administrators’ insight can uncover ways in which clinical processes can be restructured to deliver high-quality care at lower total episode cost.”

Hospitals should restructure clinical processes by removing unnecessary steps during care delivery or substituting or resequencing care steps, they continued.

Providers should first advise hospital leaders about which care delivery steps may be unnecessary and redundant. Providers should recommend the elimination of medications or procedures that do not add health benefits to the patient, such as blood transfusions for surgical patients that exceed recommended thresholds.

READ MORE: Higher Hospital Costs Stem from ICU Overuse for Some Conditions

Hospitals leaders should then use provider feedback to substitute care steps with more cost-effective options. For example, hospitals can shorten recovery in the post-anesthesia care unit by substituting for general floor recovery for qualifying patients undergoing predetermined surgeries.

Leaders may also modify the sequence of steps in an episode to reduce total costs of care episodes, the blogpost stated. For instance, starting rehabilitation therapies for intensive care unit patients earlier during the episode could significantly decrease the length of stay, and therefore, episode costs.

Hospitals are already seeing significant cost savings by modifying clinical processes based on the internal cost measurement information, researchers pointed out.

Partners HealthCare in Massachusetts told researchers that the health system analyzed total episode costs for a group of patients undergoing elective lumbar fusion surgery. The health system gathered cost data for every step in the episode and separated the internal cost accounting data into several categories, such as supplies and impacting, nursing, and operating room.

Project leaders at Partners then aggregated the data into total episode costs and averaged the costs across all surgeons who perform elective lumbar fusion surgeries.

A team of spine surgeons reviewed the averages and identified variations in clinical processes by provider. Pinpointing the clinical variations helped the health system to reduce their costs per episode.

New York University Langone Health also used hospital cost accounting data in their value-based management initiative.

As part of the initiative, the hospital implemented a dashboard for providers that showed average costs for each physician performing a specific procedure. The dashboard allowed providers to compare their costs against their peers and external benchmarks, resulting in clinical process restructuring and cost reductions.

Leveraging hospital cost accounting information will become more important to organizations as they engage in higher risk alternative payment models, researchers explained.

“New payment models from both public and private payers are increasingly pushing providers toward risk sharing, which will require improved care coordination and waste reduction. To make high-quality care affordable to the greatest number of patients possible, the onus is on physicians to first understand the true cost of care that they deliver and then to find ways to reduce spending per patient while maintaining quality,” they concluded.

“Fortunately, detailed internal cost accounting systems are already in place in a large number of provider organizations to help physicians and hospital administrators work together to accomplish the first task,” they continued. “To ensure sustainability of our health care system and, consequently, access to care for many Americans, providers must now translate this underused data resource into meaningful cost savings.”