Determine your costing methodology through big-picture strategy, coupled with granular data views

A costing methodology that complements health care’s landscape — current and future — requires eyes on the big picture and hands-on data details.

The key is perspective. Your organization’s well-being depends on both a view of the marketplace and a vision of alignment between your care delivery protocols and financial bottom line. A zoom-in will show cohesiveness within your organization, including readying for change, and the importance of complete, accurate and detailed data.

The marketplace view comes from an understanding of changes in payor mix, reimbursement models, market integration and patient expectations. Comparative analytics that show variability in the cost to deliver care across your network is critical. This is invaluable for conversations between clinical and financial teams, with the teams meeting to discuss equivalency of outcomes and cost-effectiveness of care, and how to reduce clinical and financial variability. Discussions will rely on facts in the underlying data, accurately representing the components of care delivered and associated costs, enabling realistic comparisons while achieving credibility with the clinical team. For example, in an orthopedic procedure, data related directly to surgery will be separate from data related to follow-up. The granularity of the data yields insights for questions, analysis, agreement and decision-making.

The process represents a cultural shift in how to manage care delivery. While providers cannot focus on finances at the expense of quality care, they must pay much more attention to their costs; an effective costing solution can be a tremendous catalyst to improved operating results. For your organization’s well-being, establish an economically efficient care delivery process so that all service areas may prosper.

With agreement on a vision and shared commitment to change, you can take the steps to creating effective costing capabilities.     

Begin with the end in mindStart by aligning your costing initiatives to the strategic goals of the organization. This requires collaboration with the finance, clinical, operation and technology teams. Priorities have to be aligned, sources of information examined, materials and tools researched, and processes revised or defined. Most importantly, expectations need to be managed. Starting with the end in mind ensures resources are focused on the right targets.

Collaboration must be led from the most senior levelTypically, the development of the costing methodology starts in the hands of the finance team. However, for initiatives to stick, executive sponsorship must lead the way. The entire staff will be affected, so while wide collaboration in planning is necessary, success of the project will depend on senior leaders’ acknowledgment of its significance and their engagement. Executive sponsorship at the start motivates cooperation from all stakeholders.

Step 1: Assessment — Where are we today?Assess your current capabilities. Take an accounting of the four essential components of a costing solution — data, staff, tools and processes.  

Work across teams to evaluate the quality and completeness of current data. Do you have a data governance process in place to keep data consistent? Is your data complete, will it need to be enriched, or will new sources need to be considered? Document dependability and comprehensiveness, as well as weaknesses and gaps. Take the same approach in assessing staff, business processes and technology.

With the assessment drafted, meet with leadership for review and acceptance, and build consensus among teams. Only with a common understanding can goals be set and achieved.

Step 2: Forward thinking — Where do we want to be?A view of the future-state vision of your costing methodology must emerge from the expertise of the finance team engaging with clinical and operational teams. Set goals for understanding costs consistently across the system, addressing direct patient care, as well as overhead and administration. Align clinical and business processes, data governance, purchasing and supply chain practices, and all other cost-originating elements.

Plan carefully, but remain flexible. Your current environment and access to data will help determine the model(s) you employ. You’ll likely leverage a series of models that allow you to drive to cost visibility based on care provided and tools available, e.g., one for the acute care setting, another for physician practices and a third for home health. Each model may require unique data based on specific requirements. Having strong data governance will foster a common understanding across your organization.

Your assessment should inform but not portray the solution; don’t allow the identification of strengths and weaknesses to limit your goals. Instead, apply the assessment knowledge in decision-making about your goals. As you utilize costing models over time, your understanding of the underlining data will evolve. Your model may change as a direct result of data governance or cost-reduction efforts.

Move from concept to actionWith your model(s) in place, leadership must remain engaged through implementation; success is predicated on operational teams’ buy-in and use of the information to target cost improvement. Keep in mind that no two implementations look alike — choose a service line or area that needs prompt attention rather than tackling all costs in every facet. Build out from there. The process is iterative; one solid costing model guides the next one.

Roll up data and reportingBoth big-picture and granular views aid in reporting at the enterprise-wide as well as the service-line level — capturing both views is instrumental. At that point, the best determination can be to use customized installations to meet unique challenges. Whether leveraging relative cost to charge (RCC) or relative value units (RVUs) in conjunction with some form of activity-based costing (ABC), your success depends on agreement on the formula and methodology deployed to achieve your goals.  

Learn more about establishing a costing methodologyRead Community Health Network: Anatomy of Finance Transformation to see how Grant Thornton’s solutions-focused professionals can help uncover your organization’s current status and discover its potential to meet tomorrow’s challenges.

Bryan Wiggins

Principal, Health Care Technology Solutions
T +1 513 345 4630