The MetroHealth SystemCost Accounting Overview JOHN SENDERAK

MBA, CMA, CPIM, CFM, CIRM, MA

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Outline

I. Hospital Cost Reduction Efforts

II. Why Cost Accounting Matters in Healthcare

III. Background of Cost Accounting in the Healthcare Industry

IV. Horizon Performance Manager

V. Cost Accounting Basics

VI. Cost Accounting Process

VII. Additional Resources

VIII. Appendix

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You Can’t Manage What You Don’t MeasureHospital Cost Reduction Efforts

• CMS reported almost one out of every five dollars in America is spent on health care (close to $3 trillion in 2014).

• IOM estimated $765 billion was lost to waste in inefficiency, redundancy, errors, overutilization and unnecessary

variation in clinical practices in 2009.

• The American Hospital Association contends that one-third of hospitals presently have a negative operating

margin.

• Number one strategic concern for hospital leadership: reducing the total cost of care while maintaining or

improving the quality of care, health outcomes, and patient satisfaction.

“The devil is in the details.”

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Why Cost Accounting Matters in Health Care

1. To understand true margins.

2. To identify opportunities to reduce cost.

3. To understand total cost of care for both inpatient and outpatient encounters.

4. To bring the financial and clinical data together.

5. To integrate EHR, ERP and EDW systems.

6. To integrate cost management with overall financial management.

7. To understand how to price right.

8. To make the data more actionable via executive and operational dashboards.

9. Service line reporting.

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Background of Cost Accounting

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Background of Cost Accounting

Pre-1983•Fee-for-service commercial reimbursement is common.

•CMS reimburses on “cost” basis.

•Calculation uses cost-to-charge ratio (RCC).

Post-1983

•Medicare introduced prospective payment system (“PPS”) in 1983.

•PPS reimbursement unveils incentive for Providers to control and monitor costs.

•Management had to determine costs with the help of costing software systems.

Today + •Providers are using business intelligence solutions to help identify opportunities to better manage costs across their organization.

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Background of Cost Accounting

Overhead Cost Pools

Patient Care Units

Procedures

Patients

Product Lines, Contracts, etc.

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Finance, Billing, Accounting, Admissions, etc.

Radiology, Cardiology, Gerontology, ENT, etc.

Cost Buckets

Patients

Horizon Performance Manager

(HPM)

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Horizon Performance Manager (HPM)

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HPM

Cost

AccountingABC Tools

FINANCIAL DATA

SOURCES

LAWSON(GL)

KEANE (Financial)

KRONOS (Timekeeping)

LAWSON (Payroll)

CLINICAL

DATA SOURCES

EPIC(Professional &

Technical

Billing)

KEANE(LTC Technical

Billing)

SQL Database

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Horizon Performance Manager (HPM)10

PERSONS

Patient Providers

OPERATIONAL OUTCOMES

BENCHMARKS

USER-DEFINEDENCOUNTERS

CLINICAL

Diagnoses

Procedures

Resources

Revenue/Expense

Contract Modeling

Dept. Costs

Encounter Cost

Utilization

Severity

Groupings/

Samples

Custom Objects

Data Elements

Resources

Outcomes

Performance

Clinical/Financial

Performance

Indicators

Satisfaction

HPM Data Domains11

Enterprise

EntityFacilityDepartmentFinancial ClassPayorChargesCosts

PatientsPractitioners

Encounters

GL Payroll Cost

Accounting

HPM DATA DOMAINS

General Ledger Dataset

GL Data PayrollCost

Standards

Encounter Dataset Patient

AccountsMedical Records

Order Entry

Other

FINANCIALPERSON

CENTEREDFOUNDATION

Overview: Cost Accounting

Process in HPM

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Financial Data from GL

Assign Expenses to Cost Components

Allocate to Cost Centers

Service Item Allocation

Summarize at Encounter Level

Summarize at Patient Level

~23,950 GL Accounts

~1,236 Cost Centers

~58 Depts.

~8 Service Lines

~59,522 Service Items

Costing Basics

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Costing Basics 14

OVERHEAD

COST POOLS

PATIENT CARE

DIRECT COST

TOTAL PATIENT CARE COST

PATIENT CARE

DIRECT COST

PATIENT CARE

INDIRECT COST

Step-down allocation

of overhead costs to

various PCU cost

centers

Before Allocation After Allocation

Costing Basics15

FIXED VARIABLE

DIRECT INDIRECT

Co

st

Typ

e I

Co

st

Typ

e II

SUPPLIES LABOR OTHER

Co

st

Typ

e III

Cost components are general categories of expense and are derived through the aggregation of GL account

data to the level of detail that is desired for costing

Management defines cost components and defines GL account mapping to cost components and any

necessary exceptions

Currently 20 cost components

Each cost component will have all three types, for example a syringe: direct variable supply cost

Discussion

CAPITAL

Costing Basics16

Costing Basics17

18Costing Basics

Costing Process

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Costing Process20

Costing Process21

Costing Process22

Costing Process23

Costing Process24

Costing Process25

Costing Process26

Costing Process: End Result27

Additional Resources28

HBR29

Any Questions?30

Appendix A:

Sample Cost Components

Component Associations

Direct

Components

Indirect

Components

DFL Direct Fixed Labor IFL Indirect Fixed Labor

DVL Direct Variable Labor IFL Indirect Fixed Labor

DFS Direct Fixed Supplies IFS Indirect Fixed Other

DVS Direct Variable Supplies IFS Indirect Fixed Other

DFO Direct Fixed Other IFO Indirect Fixed Other

DVO Direct Variable Other IFO Indirect Fixed Other

DFE Direct Fixed Equipment PC IFE Indirect Fixed Equipment PC

DFB Direct Fixed Building IFB Indirect Fixed Building

DFP Direct Fixed Physician IFL Indirect Fixed Labor

DFR Direct Fixed Resident IFR Indirect Fixed Resident

DRO Direct Fixed Revenue Offset IFO Indirect Fixed Other

DFLB

Direct Fixed Labor Benefits

PC IFLB

Indirect Fixed Labor Benefits

PC

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