Having a firm grip on costs may seem like a fundamental practice, but after working within a reimbursement-based business model for so long, it hasn’t been a high priority for many healthcare provider organizations. Now, under value-based payment, knowing costs is critical to strong financial health, according to Robert DeMichiei, CFO and executive vice president for the University of Pittsburgh Medical Center.
“Healthcare has been a reimbursement-based industry for too many years,” DeMichiei said. “Fee-for-service is a cost-plus model that discourages reducing costs because more costs add up to more revenue. With CMS bundles and capitation, it is now going in the opposite direction and cost is much more important. The only way to be successful in this new world is to understand costs and manage them – if you can’t manage your costs you won’t survive.”
The journey toward UPMC’s adoption of activity-based costing, otherwise known as ABC, started in 2012, when as DeMichiei described it, the health system wanted to do more than merely reduce costs.
“We wanted to understand the variation between cost and quality,” DeMichiei said. “When you see that level of variation, the costs look like a piece of forensic evidence.”
In its infancy, UPMC’s ABC concept focused on quantifying specific tasks, assigning values to them based on a set of criteria. And DeMichiei and his team looked holistically at operations, studying the variations for procedures, lab work, inpatient stays and other related activities.
“The idea is to have pristine data that allows for discussion with clinicians based on facts and no debate over whether the data is good,” he said. “If we have clean data around cost and quality, we can sit down with physicians and explore how their cases compare versus their colleagues.”
DeMichiei said the ABC approach is a measuring process the team can use over time to track productivity and efficiency that has proven to be very powerful and continues to manifest new benefits as it becomes more accepted.
DeMichiei will outline his experience developing a service-line approach to care delivery and discuss his experience with Activity-based costing – a proven method for determining an organization’s costs – during a session at HIMSS17.
His presentation, “Service Lines and Activity-Based Costing Improve Outcomes” is scheduled for Thursday, Feb. 23, at 10:30 a.m. in Room 300.
HIMSS17 runs from Feb. 19-23, 2017 at the Orange County Convention Center.
This article is part of our ongoing coverage of HIMSS17. Visit Destination HIMSS17 for previews, reporting live from the show floor and after the conference.