Uncovering True Costs

Karen Minich-Pourshadi, for HealthLeaders Media , February 13, 2012
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"We found with process costing [in the supply chain] all items have to be alike; if they aren't, process-costing will give us bad results," says Dewan.

Nevertheless, Dewan and Doug Wickerham, vice president of CHI corporate finance, agree the decision to adopt this costing model has been an overall success, though they note with so many hospitals in which to put the decision-support technology into place, it does take longer.

The organization is currently transitioning to a new decision-support system throughout the network to help further the cost-processing—a large undertaking as each hospital has to be individually updated. 

"This cost accounting decision support is imperative so we can understand the value equation, and everyone in healthcare wants to be sure they are getting the appropriate value," says Wickerham.

When applied, Wickerham explains, the model can impact all areas of the organization's decision-making. For instance, after performing an analysis of the cost of services in a diabetes treatment center, CHI determined that the costs were higher than anticipated. To manage costs, the center was combined with an existing program at another nearby CHI hospital, resulting in shared costs and resources.

Similarly after another cost audit for a busy outpatient surgery center, the data made it clear to CHI's leaders that they needed to restructure outpatient services at the center. Instead of building a new facility, CHI opted to purchase an existing outpatient surgery center.

PBC has also given the organization a tool to help physicians understand the organization's costs and the expense associated with their decisions and preferences.

"Having the data helps you have a logical discussion with the clinician. Process-based cost accounting allows us to marry [cost information] with our outcome tool. So we can show the data to physicians and say, ‘This a better approach to managing care because it's a better cost/quality equation,'" says Wickerham.

"We don't want to shortchange the patients," adds Dewan. "[But] we do want to cut costs … This is a tool that helps us be intelligent about how we do it."

This article appears in the February 2012 issue of HealthLeaders magazine.

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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