They started with total cost accounting, but found the exercise too time consuming and felt they wouldn't get the full benefit unless it was taken to its fullest extent, says Dumais. So they opted for a modified approach, direct costing with a reasonable estimation of indirect expenses.
"Our big challenge is maintaining our current revenue levels; you can't re-price everything all at once," says Dumais of the multiyear project.
The organization used a relative value unit–based cost model to generate
revised prices that are closer to per-unit, cost-based prices. The process entails looking at the organization's larger departments (e.g., radiology and cardiology), areas with a high transactional activity (e.g., the laboratory), and any areas where there was more payer focus.
For instance, in the operating room, Burns and Dumais wanted to look at the global procedure basis costs, so they priced the most common procedures by factoring in salary, average number of minutes spent on a procedure, supplies, and equipment depreciation. The exercise made its cost more apparent and its prices more defensible to payers and consumers, says Burns.
"We've had discussions with our largest payers about why and what we are doing with this costing approach. We want to make sure prices are fair and in sync," adds Burns. "Our approach is to weigh transparency with the bottom line."
As Concord Hospital strives to get a better understanding of its costs, Burns and Dumais agree posting them on their organization's website anytime soon is unlikely.
"You are better off having a one-on-one conversation with the patient," says Dumais. "When a patient requests a price quote, the patient needs to understand it's an estimate and that insurance has to be factored in." Moreover, just as Dregney contends, Dumais says the patient needs to be clear about what's included in a price in order to compare it accurately.
"Unquestionably, patients that know their financial liabilities are better prepared to make a deposit, and with a high-deductible plan that can easily be $5,000. But from my perspective with price transparency," Burns says, "I want to be sure that Concord Hospital is covering its costs and that we're charging a fair price relative to our competition. Having an underlying cost knowledge is essential in order to do that."
This article appears in the November 2012 issue of HealthLeaders magazine.