Becker's Hospital Review

18 Sponsored by: No room for error: The role of cost accounting in hospitals' COVID-19 recovery T he COVID-19 pandemic has leveled what amounts to a full-scale attack on the nation's healthcare system. Whether it's increasing capacity and staff to handle patient surges, or canceling elective procedures and furloughing employees, healthcare organizations across the nation are experiencing adversity related to this public health crisis. The road to financial recovery for hospitals and health systems will require many leaders to truly reckon with one of the industry's most intractable challenges — understanding costs. Becker's recently spoke with Leon Corbeille, senior director of decision support with Strata Decision Technology, about the role of cost accounting in hospitals' COVID-19 recovery. Here, he answers four questions. Note: Responses have been edited for length and clarity. Question: How is COVID-19 challenging how hospitals and health systems understand their costs? Leon Corbeille: There are two parts to this. The first being the challenge of documenting the actual cost of treating the COVID-19 patients themselves. In hotspots like New York and Chicago, for example, being able to understand how much it costs to treat patients for a virus that's never been seen before is going to be important for reimbursement purposes. If you don't understand your costs, you can't know if the reimbursement you receive is adequate. The second piece of this has to do with the organizations that aren't in hotspots, where they've seen a massive decrease in volumes. If these organizations don't know what their actual costs are, they're not going to know if the extra stimulus from the CARES (Coronavirus Aid, Relief and Economic Security) Act will make up for all that lost revenue. Q: How do you anticipate cost accounting playing a role in hospitals' recovery from COVID-19? LC: Whatever stimulus an organization receives, leaders are going to have to manage finances around that figure. You can't do that if you don't know your costs. Patient volumes are going to come back eventually, but in the meantime, you must understand the margin associated with all those deferred procedures. This could also be an opportunity to renegotiate with payers and maybe change pricing strategy. If you have the right information, you can push for more significant reimbursement for costly procedures. If hospital leaders can go to their payer and offer a detailed analysis on their cost and tie it to the need for greater reimbursement, that becomes a stronger argument. Q: What are some methodologies hospitals are using to better understand their costs? LC: Time-driven costing (TDC) really comes into play here because it takes time-stamped information from the EHR, which is then integrated into the cost- accounting system and drives cost allocations. This is all automated. In the operating room, for example, if you're taking more of an RVU (relative value units) approach, it's going to give averages of how much time is spent on procedures. The time-driven costing methodology doesn't use averages at all. It uses RFID (radio-frequency identification) technology to document variance in OR time and number of staff used. For example, if a surgeon likes to have an extra nurse in the room for a certain procedure, it could be clinically necessary or could just be something the physician does out of habit and is unaware of its impact on cost. With time-driven costing, you can show that physician the data and facilitate change that way. Q: What additional advice do you have for organizations leveraging cost accounting in their recovery process? LC: This is a good time to move deeper into the world of value-based payment. By that, I mean entering into more bundled payments or capitation agreements with payers. Once you have all this detailed cost information, you might be able to get better rates from payers, which will pay off once volumes begin to return. In the past, there might have been a bit more room for error around understanding costs, but those days are gone. n Strata Decision Technology provides an innovative cloud-based planning, analytics and performance platform that is used by healthcare providers for financial planning, decision support and continuous improvement. Founded in 1996, the Company's customer base includes 1,000 hospitals and many of the largest and most influential healthcare delivery systems in the U.S. e Company's StrataJazz® application is a single integrated soware platform that includes modules for strategic planning, capital planning, operational budgeting, management and productivity reporting, decision support and continuous improvement. e Company's headquarters are in Chicago. For more information, please visit www.stratadecision.com.

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