Healthcare Costing Survey Results Released at HFMA ANI Conference

June 26, 2014
Most healthcare provider executives see cost management as a high priority, but half are dissatisfied with their current cost information, according to a survey released this week by Kaufman Hall.

Most healthcare provider executives see cost management as a high priority, but half are dissatisfied with their current cost information, according to a survey released this week by Kaufman Hall, a Skokie, Ill.-based financial consultancy and software provider (the company acquired Axiom EPM, a performance management solutions provider, in April).

Overall, the survey results highlighted the importance of accurate, patient-level costing data to enable more comprehensive performance management, according to the company. Among its key findings:

  • Sixty-five percent of respondents agree that developing and maintaining patient-level activity-based costing is a high priority.
  • Forty-six percent of the respondents say they do not have reliable and valid activity-based costing information at the patient level. Forty-seven percent of respondents indicate plans to initiate a patient costing project within the next three years.
  • Service line performance and cost-reduction lead the uses for patient-level costing data. Three of the top 10 uses are related to contracting or global payment performance. Population health analysis is in the top 10 for future uses for patient costing data, nearly tripling in frequency of expected use.

Kaufman Hall distributed the survey to its clients in March, to gain insight about their organization’s current and future costing practices and uses of accounting data. It received responses from 48 organizations in 22 states, and ranging from independent community hospitals to academic medical centers and specialty hospitals. Sixty percent of the respondents identified themselves as being at the director or manager level within their organization’s finance department. “These survey results highlight the importance of reliable cost information to achieving a level of performance needed to be competitive in a highly cost-conscious environment,” said Wayne Ziemann, Kaufman Hall senior vice president who leads the firm’s Strategic Cost Management practice, in a prepared statement.

While most organizations indicate they have knowledgeable and experienced cost accounting internal resources, internal staffing is a concern for one in five organizations and another 20 percent are neutral regarding their organization’s current resources. 

Of current methods used in the costing process, the ratio of costs to charges ranked highest, with more than 80 percent of respondents using this method to some degree. Three in 10 also use some form of activity-based costing as well as some form of micro-costing. The survey also suggested that more accurate methods will be used in the future: the ratio of cost to charges will decline by more than 25 percent, while the use of activity-based costing and time-driven activity-based costing will nearly double.

Nearly a third of those using activity-based costing methods currently use direct observation at some level to collect relevant data. Data mining against departmental systems and electronic medical records (EMRs) is less common at 26 percent and 22 percent, respectively. The most common data collection method is departmental staff or management providing estimates, which is used by 78 percent of organizations using activity-based costing.

A shift toward activity-based costing and time-driven activity-based costing is planned by about 80 percent of respondents, who indicate a variety of data collection methods to support this approach. Nearly 60 percent of those planning to use activity-based costing in the future intend to use some direct observation by staff. Half of respondents will do some level of data mining against either departmental systems or EMRs to support activity-base costing methods. Staff estimates will still be the most common data collection method, used by nearly three-quarters of the organizations.

Functional areas with the largest opportunity to use costing data include health plans, medical groups and ambulatory surgical centers. Lab and pharmacy were also suggested as areas where cost accounting data is used

Data warehouses are the primary target for cost accounting data and the primary reporting source for cost information in nearly half of responding organizations. However 36 percent disagreed that their data warehouse was the primary source for costing data. The top sources for data as part of their organization’s costing process are: general ledger, patient billing, materials management, decision support, and payroll.

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