The REAL Reason Healthcare Costs are Elusive

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Proprietary and Confidential
The REAL Reason Healthcare
Costs are Elusive
Health Catalyst Webinar
Dan Unger
VP Product Development
April 6, 2016
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2
Objectives
1) Understand the different types of “cost” in healthcare
2) Expand on the importance of “cost of care”
3) Sift through the various reasons (legitimate or not) that
cost is still an elusive target
4) Identify the biggest hurdle to accurate costing and
address critical areas for improved costing

3
Healthcare Cost in the News
http://www.usnews.com/opinion/blogs/policy-dose/2015/06/12/why-us-health-care-is-so-expensive
http://www.forbes.com/sites/mikepatton/2015/06/29/u-s-health-care-costs-rise-faster-than-inflation/#3ea4926d6ad2
http://http://www.huffingtonpost.com/2013/10/03/health-care-costs-_n_3998425.html
http://www.nytimes.com/2013/12/03/health/as-hospital-costs-soar-single-stitch-tops-500.html?pagewanted=all&_r=0

4
What exactly is “cost”?
MSRP: $37,045
Avg. Sold Price: $35,475*
Cost to Produce: $???
* Varies by regional pricing and buyer’s choices and ability to negotiate
Source: https://www.truecar.com/prices-new/nissan/leaf-pricing/2016
Charge Master
Allowable
Cost of Care
2016 Nissan Leaf SV
Healthcare
Translation
This is the cost
I care about

5
Poll Question #1
What “cost” do you typically think of when you
hear healthcare “cost”? 190 respondents
a) Charge Master (list price…MSRP) – 9%
b) Allowable (cost to insurer and/or insured patient) – 34%
c) Cost of care (cost incurred by the providers of care) –
53%
d) Other – 4%

Nissan Versa
6
Why does “cost” matter?
I want to lease 10,000 cars from you for 3 years
I’ll pay you a flat rate of $1,000 per car per month
Price includes all maintenance, services and repairs
If there are any recalls you will be penalized 2%
The price is non-negotiable and you must accept 
Source: https://www.truecar.com/prices-new/nissan/
MSRP: $37,045
Avg. Sold Price: $35,475
Nissan Leaf
MSRP: $18,815
MSRP: $46,230
Nissan 370Z
and…
and…
and…
and…

7
Poll Question #2
What questions do you need answered to make
this decision (select any that apply)? 206
respondents
a) How many of each type of car? – 74%
b) What is my average cost for each type of car? – 80%
c) What are the potential services I might be on the hook for?
– 83%
d) What are my actual costs for those services? – 93%

8
Poll Question #2
What questions do you need answered to make
this decision (select any that apply)?
a) How many of each type of car?
Patient Stratification (should get this via claims)
b) What is my average cost for each type of car?
Cost Accounting
c) What are the potential services I might be on the hook for?
Risk Stratification and Predictive Capabilities
d) What are my actual costs for those services?
Cost Accounting

9
Wheeeeeeeeeeeeeeeeee!!!!!

10
Why is “Cost of Care” So Important?
Scenario 1: If providers of care don’t understand their
costs, then they can’t assume enough risk to make a
difference (hence the reason we are still majority FFS).
Scenario 2: If this is forced on them without those
capabilities in place then they will not survive.
Scenario 3: If providers understand, and can take
action on, their costs…then we have a fighting chance
to change our trajectory.
In summary, providers must be able to take
on significant risk…if they don’t then the
entire economic framework of population
health fails…and they can’t (or shouldn’t)
take on significant risk without understanding
the true cost of care at an atomic level.

11
Bogus Reasons that Costing is Elusive
Not enough data Providers are hiding
somethingNot perfect, but EMRs
have LOTS of good data
for costing
Nope…I wish that was the
case

12
REAL Reasons that Costing is Elusive
Healthcare is complex Fragmentation

13
But the #1 Reason that Costing is Elusive is…
Data
Governance
Usability
Availability
Integrity
“The overall management of the availability, usability, integrity, and
security of the data employed in an enterprise. A sound data
governance program includes a governing body or council, a defined
set of procedures, and a plan to execute those procedures”
Security
Definition from: http://searchdatamanagement.techtarget.com/definition/data-governance

14
Why is Data Governance So Important?
Linking
GENERAL LEDGER
(COST)
DRIVERS OF COST
This is the key
competency for costing

15
Seems Easy Enough…
Linking
HR/PAYROLL
SUPPLY CHAIN
NOT a technical hurdle…it’s a lack
of consistency, usability and
integrity of data across systems

16
Ways to Address Data Governance Issues
1) Ignore them…you can still get cost data, just not
with any degree of accuracy or granularity
2) One off fixes, crosswalks, etc…just be ready to
hire an army of people to plug the holes.
3) Put the proper governance structure, processes
and people in place…really painful

17
Where to Start?
1) EMR data to General Ledger crosswalk: who in your organization knows which pieces of data from your EMR
and departmental sources align with which cost centers? This might seem simple…but there’s more to it than
meets the eye when you start getting into very detailed and precise costing that uses more than just charge
data. AVAILABILITY
2) Supply chain: do you have a centralized source of truth for supply chain costs? Are the correct items available
in your EMR and easily linked back to accurate supply chain data? Do you have standard units of measurement
across your health system so everyone enters the same unit of measurement for drugs for ease of costing and
comparative analytics? And the list goes on… INTEGRITY, USABILITY
3) Personnel (including Physicians and other Providers): This is a really difficult one to manage, but necessary if
want to have more direct and precise labor costs and link individual efforts to cost and quality outcomes. Make
sure you can broadly link employees from your payroll to your EMR and other departmental sources.
INTEGRITY, SECURITY, USABILITY
4) Patient: want to get a holistic view of patient and episode costs across your system? Well, you better have an
Enterprise Master Patient Index (EMPI)…and preferably an upstream process to address the issue rather than a
downstream “fuzzy logic” assignment. Also, start setting up our billing system to have the proper identifier to
link back to claims data. INTEGRITY, AVAILABILITY

18
Poll Question #3
How strong is your organization when it comes to
data governance in these areas? 172 respondents
a) Weak – 28%
b) Average – 35%
c) Strong – 14%
d) I have no idea – 23%

19
I hope you choose the hard road 

20
Q & A

The REAL Reason Healthcare Costs are Elusive

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