By Jeremy Fisher, Definitive Logic Corporation
In light of the impending movements in healthcare away from “fee for service” and toward “pay for value” models of care, the importance of accurate cost analysis for healthcare providers is extremely important. Linking the financials to the operational data and down the line to patient outcomes is the key to operating an effective healthcare operation whether it’s based on “fee for service” or “pay for value”. This article provides background on the waste created by today’s fee for service healthcare cost and reimbursement framework in comparison with the new pay for value models. We also take a look at strategies, processes and tools to institutionalize cost analysis and deliver accuracy and profitability over the long term.
To address this glaring flaw in the current model, the healthcare industry has been evaluating many options for new models of care and appears to be gravitating towards “pay for value” frameworks. One particular variation of the “pay for value” frameworks that is gaining momentum is population based payments which provides a fixed dollar amount per person to cover all health care for a period of time which is modified for each patient’s needs based on their specific health profile with consideration for special conditions. This fixed amount would be determined based on statistically calculated amounts based upon a population of patients with similar profile. This model of care incentivizes healthcare providers to attack waste internally and optimize care regimens to exactly what is needed to produce a positive outcome for the patient. Using this approach, not only would the providers be incentivized to eliminate wasteful and unnecessary procedures but they would also likely adopt more innovative methods of providing quality care. In order to provide innovative methods of quality care, the healthcare providers would logically invest in research and development activities to drive additional innovation to drive their costs down and improve outcomes.
So, how does cost analysis play into this discussion?
Most every healthcare provider does some level of cost analysis on their costs and reimbursements to understand at a basic level if they are profitable, and at an advanced level to identify methods for optimization or cost avoidance without degradation in the quality of care. When implemented effectively, a good cost analysis program provides a basis for decision making over several key aspects of the future of the enterprise such as strategic planning, capital investment planning, budgeting, insurance contracts negotiation, coding, and reimbursement strategies, etc.
Effective tracking and profiling of direct costs per procedure, patient, physician, department, and facility leads to the ability to link that cost data to indirect costs and other key operational data such as nursing units, pharmaceuticals, and durable medical goods. Once the linkage between financial and operational data is made, the outcomes from each procedure can be derived from the information stored in the electronic health records system. Together, this data provides an end to end decision support system for effective executive and business line decision making based on the data currently available in most enterprises.
Jeremy Fisher is a founding partner of Definitive Logic Corporation (DL) and continues to manage the company’s operations and growth. As a co-founder, Mr. Fisher oversees all aspects of DL’s business and has led the growth of the company from its inception to today a 105+ employee $20M/year revenue business providing Health IT, Financial Management, and Real Estate Solutions to Federal and DoD clients. DL’s Health IT Practice delivers insight, time savings and optimization to clinical operations using advanced data management and analytics techniques.
Definitive Logic Corporation (DL) is a privately-held management consultant and systems engineering firm located in Arlington, VA, with multiple project locations across the country. Our highly-skilled, technology-focused professionals provide Information Technology (IT) services to federal Government and Commercial organizations. We specialize in the design, development, implementation and maintenance/sustainment of business process-enhancing software and database applications. We focus on understanding the operational context of information systems in order to fully support current and future needs and to anticipate the environmental impacts on enterprise systems from evolving interfaces, technologies (hardware/software), security and standards. We provide our customers with the full range of our services including consulting, process management, application development, system integration, software engineering, network administration, business intelligence and reporting. Our business processes and practices are guided by industry best practices for Quality Assurance (QA) such as ISO 9000:2001, CMMI and Lean Six Sigma (LSS).