Healthcare Analytics

Understand Cost Across Care Settings with Healthcare Cost Accounting

Taking a Contemporary Approach to Measuring Cost

In the recent past, healthcare cost accounting used activity-based models that focused mainly on inpatient events. A higher census translated to more revenue. But with the transition to value-based reimbursement, healthcare organizations need to understand total program cost at the enterprise level—including non-acute settings. What happens to a patient outside of the hospital has a significant effect on total cost.

Type 2 Diabetes, for example, accounts for $174 billion in healthcare cost each year. It is 85% preventable though several cost-effective prevention methods such as dieting, weight control, exercise, and regular medical checkups. Paying for all high-risk patients in a population to receive diet and exercise counseling could reduce the need for inpatient treatments down the line and actually lower total cost to the network or hospital.

A model of healthcare cost accounting
A contemporary approach to healthcare cost accounting considers the cost across the entire continuum of care rather than just an activity-based perspective.

Timeline of Changes to Healthcare Cost Accounting

Healthcare cost accounting has evolved in phases over the years primarily due to changes in the Medicare payment mechanism. These include:

Cost-plus Reimbursement 1960s to early 1980s
Ratios of cost to charges were used to determine payment based on patient charges plus markup—a "cost-plus" reimbursement. The markup accounted for expenses such as hospital staff, building infrastructure, and operational necessities. Ratios were reported at the department level. This approach created incentives to change more for services and raise prices.
Prospective Payment System 1980s to 2010s
Medicare attempted to slow inpatient spending with fixed, per-case reimbursement. Diagnosis related groups (DRGs) were developed to differentiate payment levels. Since sicker patients cost more, the coding was expanded to support classification of patients. Hospitals were able to quantify and compare spending on services from patient to patient within a DRG and also from physician to physician.
Value-based Reimbursement Ongoing
In the current environment, Medicare uses outcome-based payment initiatives to incentivize performance improvement in healthcare. In this model, cost accounting is no longer tied to reimbursement, but it remains important for:
  • Measuring performance
  • Determining compensation
  • Transfer pricing for internal purposes
  • Quantifying opportunities
  • Valuing best practices
  • Bundled package pricing

Requirements for Program-based Healthcare Cost Accounting

  • A technology infrastructure that enables data aggregation and access across all settings of care
  • Healthcare business rules that correlate measures of cost, quality and downstream revenue projections
  • 360 degree view of physician performance though physician quality measures
  • An internal and external team including a healthcare data analyst to help "meet you where you are" and drive best practices

Make the Most of Contemporary Healthcare Cost Accounting with McKesson

McKesson Performance Budgeting™ hospital budget software can be used as a container for patient populations in a service area or capitated contract along with historical charges for patient services. External data such as competitive service area data can also be made available through this solution. In combination with McKesson Performance Analytics™, this approach opens up the ability to analyze service areas, potential population-based pricing, and the impact of investments in managing programs of care for chronically ill patients. McKesson puts your data to work for:

Patient-level Analytics
Identify drivers of key financial, clinical, and various other outcomes—without the need of a specialized developer or analyst
Unlocking the Power of Analyzed Data
Streamline health data visualization by using McKesson Analytics Explorer™ to reach directly into McKesson Performance Analytics™ data or data tables from your electronic data warehouse (EDW). These McKesson technologies empower hospitals and healthcare networks to reach a new level of access and productivity in the use of analytically enriched data
Business Modeling
Evaluate the impact of changes to your business' bottom line

Contact us today to get started with a contemporary approach to healthcare cost accounting.

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