Christie Scanlon may have been destined to be a healthcare cost accountant.
The healthcare industry veteran's mother worked in a hospital while she was growing up, and her father served as a cost accountant at a manufacturing plant. She herself has worked in healthcare more than two decades.
She currently serves as a healthcare cost consultant at Indianapolis-based Scanlon Enterprises, working with hospitals, consulting firms and healthcare software organizations. She has not only served clients in the U.S., but also in the Middle East and Asian markets.
Ms. Scanlon recently shared her advice for hospitals working to contain costs and her best practices for healthcare cost accounting.
Note: Responses have been lightly edited for length and clarity.
Question: What are the biggest challenges hospitals face in the move toward value-based care?
CS: I've been in healthcare more than 20 years now, and I've seen many shifts. I would say this one is the biggest shift by far, which is why it's so scary. We haven't completely figured it out yet. Healthcare administrators and providers really want to do the best for their patients and communities, but there's so much data out there, so many ideas out there, so many theories out there. How do you know which direction to go? Which data points can you trust and how do you get started? It's quite overwhelming for even seasoned healthcare professionals.
And that's just trying to understand internal costs and operations. When you get into bundled payment programs and ACOs, you're not only held responsible for your internal costs and the actions of your organization, but also the collective behavior of upstream and downstream contributors of each episode of care.
Q: What is your one piece of advice for hospitals working to contain costs amid this shift?
CS: To start. There are so many different priorities, and things like cost containment end up in the background because you don't get instant gratification with a cost accounting initiative the same way you might with a revenue cycle initiative. With cost accounting, you're not going to see results right away; you're kind of in for the long haul, but it has to be done. You just have to start day one and get it going, or as is often the case, get your existing cost accounting system back on track. It's OK, and I would argue, actually healthier to start small and then organically add complexity to a cost accounting system over time.
Q: Are there any best practices you recommend when it comes to healthcare cost accounting?
CS: With my clients, I always start with a simple model. I'll even start with cost-to- charge ratio. I know cost-to-charge ratio has a bad reputation out there and for good reason. It can absolutely be dangerous for decision making, but using it as a default during the initial data gathering phase can be a great way to get started. And from that point on you want to slowly build, you want to ask yourself questions like where are some big-impact items? Operating rooms, for example, is a high-impact department. Perhaps start studying your OR, gathering data for your OR department. Also, trust your intuition a little bit or at least follow your theories. Sometimes when I work with my clients, they'll say, "I have a feeling we could negotiate a better price for this implant" or "changes in the surgical schedule are becoming costly for us and I think this is being caused by just a physician or two." Follow those intuitions and prove or disprove your theories with the data, but always trust what the data tells you, even if it's not what you expected.
Another thing I think is a good best practice is to see how much of your cost you can assign directly to the patient. You'd be surprised how much direct patient costing you can get (actual drug cost, actual materials cost, cost per OR minute). The level of direct costing all depends on what kind of integrations you put in place between your costing software and other clinical, financial or supply-management systems. So definitely explore that. Once you're sure you trust the data, it's typically plug and play. It's always a big win when you get a greater level of precision and it's automated.
Q: What is one mistake you've seen hospitals make in healthcare cost accounting and how do they fix this?
CS: There is a mistake I see more than any other. A health system may put a cost accounting initiative in place, or resurrect an old one, spend a lot of money buying cost software, staffing up, implementing, training, etc. This goes on six months to a year, or however long, and after the excitement and novelty wears off, they stop maintaining the system, they stop feeding and caring for the system. It reminds me of someone buying a membership to the gym, seeing results, but then getting out of the habit of showing up. Of course, all the hard work will be wasted if you don't keep on a schedule and stay consistent.
Cost accounting data does get stale over time, because operations change, and a good cost model reflects the current state of both finance and operations. So on the flip side of that, it's not just maintaining and keeping it stable, but it's also not getting their cost accounting initiatives on a road map. As I mentioned earlier, it's good to start small and slowly kind of build upon. I recommend reviewing a cost accounting road map at least once a year. If you're periodically trying to improve your cost data you will find you will gain more precision over time, while maintaining or shortening the amount of time and effort needed to create and distribute cost information. Most importantly, your cost model will be more relevant and trusted throughout your health system and will more than likely be shared and discussed between financial and clinical leaders.
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