Specialized Cost Accounting:
Viewing Your Health System through “Special Eyes”
What does it mean to you when you hear that someone is a “specialist” in their field? Does it mean they have advanced degrees? A certain number of years of experience? A natural talent in their field? A certain way of looking at things that other people might not see?
Hospitals and health systems are well aware of the value of people who specialize in what they do – cardiologists, neurologists, orthopedists, and anesthesiologists all have specialized skillsets that make them the right person for the job. Most people wouldn’t want a sports medicine physician performing their open-heart surgery or a geneticist administering anesthesia during their surgery. I like to think of people who specialize as having “special eyes” – their years of education, experience, and expertise means that they are uniquely qualified to look at the problem in front of them in a way that I’m not, and chances are, they’ll see nuances and solutions that I won’t.
Cost accounting is no different. As someone with more than 20 years of experience helping hospitals and health systems identify and understand their costs and implement change, here are four unique considerations that I might see in a different light than your leadership team:
Zooming in and out
To really get an accurate idea of where a health system is spending, it’s important to take a high-level look at the data – then zoom in and look at the individual components. It’s also necessary to drill into the details yet be able to present it back to leadership at a high enough level to provide actionable insights for busy C-suite professionals.
For example, a high-level consideration might be which of your physicians show higher cost on average when compared to their peers. But it’s a deep dive to figure out not only what that number is comprised of (labor costs, implant and other materials cost, unnecessary readmissions, etc.), but also what reasonable, actionable steps we can take to improve it, that makes the real difference. Having a high-level number without the “So what?” and the “What’s next?” isn’t enough. A specialized cost accountant will make sure you’re aware of both the forest and the trees.
Engaging in data ‘housekeeping’
At first glance, it may seem like my job is to analyze costing data; but in reality, data analysis is often the second step. Organizing it is the first. Imagine trying to cook a Thanksgiving dinner, but you’re in a kitchen that’s not yours – you don’t know where anything is, half the pots and pans are piled dirty in the sink, and all the cabinets are filled with the equipment you need, but nothing is grouped together. You know you’re a great chef, but you’re probably going to need to clean up and organize before you get to work.
For example, it may at first seem like there’s a lot of valuable information to be gained from looking at OR minutes, and from going even deeper to see the cost per OR minute. However, if the minutes entered were not precise to begin with, then the data is rendered useless and an estimated cost per unit would be more appropriate. In a utopian world of costing, microcosting is the gold standard. However, grand ideals must be evaluated with the pragmatic and critical eye of a scientist in order to arrive at realistic and actionable information.
Considering cost per day
A specific element that often comes up in my work is cost per day, which is really the daily cost of a patient’s hospital stay for each additional day they spend beyond what is considered industry standard (based on factors such as APR DRG, or from other sources, such as Vizient). For example, the average hospital stay for coronary bypass surgery is between five and seven days.1 The “cost per day” would be the cost of the patient’s stay for each additional day beyond that. To add additional nuance, most costing tools treat room and board nursing services as if they are equal on each day of the patient’s stay, but in reality, the first day or two of most patient stays are much more resource-intensive than subsequent days.
What’s interesting from a cost accounting perspective is assessing whether we can reduce that cost per day figure without compromising on quality of care or patient outcomes. That part is important, because reducing costs at the expense of good patient care is not the goal. I may ask: What costs make up that cost per day number, besides the obvious cost of the bed for the night? What specialists are they seeing during that time? What medications are they being given? What other tests are being run? Did they need to stay additional days, or is this an operational issue? A deep dive into the numbers usually reveals something that wasn’t obvious at first glance.
Balancing cost against quality
To the point made above, improving cost efficiency for health systems should never be a “race to the bottom.” Cost in isolation is meaningless – looking at cost alongside quality measures, patient satisfaction scores, and patient outcomes (readmissions, post-op complications, hospital-acquired infections, etc.) is essential when deciding what actions to take. Health systems that keep this in mind will find success not only in increased margins, but in happier, healthier patients, and even less stressed employees.
For CFOs and other hospital leaders, some of this may seem obvious and some of it may be quite complex. Either way, the truth is that those who are immersed in a role every day may not have the time or perspective needed to identify challenges and implement changes. As is the case with radiologists, cardiologists, and neurologists, sometimes we can benefit from a set of “special eyes” and someone with specific expertise to provide us with an accurate diagnosis of the problem and – more importantly – the right treatment plan.
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