Why Healthcare Costing Matters to Enable Strategy and Financial Performance
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According to Moody’s Investment Service Analysis, not-for-profit hospital margins are at an all-time low of 1.6% while the American Hospital Association has found that 30% of all hospitals have negative margins. Financial pressures are continuing to increase in an environment of rising costs, lower payments, an aging population, higher patient responsibility and changing consumer demands. Now more than ever healthcare providers need to have an accurate picture of their costing information to enable precise, strategic decisions that will improve financial performance. Activity-based costing has the power to do just that. In this webinar Steve Vance, SVP, Professional Services, Health Catalyst explores different costing methodologies and discusses why activity-based costing is the preferable method to manage margins because it directly ties services to their costs. Many healthcare organizations base their costs on generalized drivers such as relative value units (RVUs) through their chargemaster rather than on specific activities associated with their services, leading to inaccurate assumptions and poor decisions. View this webinar to learn: - Why activity-based costing should be your core tool for improving financial performance. - The differences and implications between costing methodologies. - How to leverage data from an Electronic Data Warehouse (EDW) and automate processes while improving accuracy. - Ways that you can make strategic decisions using clinical and operational data when tied to costing data. - Activity-based costing use cases such as contract negotiations, pricing decisions, population health management (PHM), and process improvement efforts We hope that you will view the webinar and learn from the depth and breadth of Steve’s extensive financial experience.
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Why Healthcare Costing Matters to Enable Strategy and Financial Performance
- 1. © 2018 Health Catalyst Why Healthcare Costing Matters to Enable Strategy and Financial Performance Steve Vance, MBA, FHFMA SVP, Professional Services, Health Catalyst May 22, 2019
- 2. © 2018 Health Catalyst 2 • Texas Instruments SR-10 • $149.95 (over $800 in today’s dollars)
- 3. © 2018 Health Catalyst 3 • 9-inch amber display • 5 ¼ inch floppy drives • 256 Kb memory
- 4. © 2018 Health Catalyst 4 • 4 Mb memory • 350 Mb hard drive • 14-inch color CRT monitor
- 5. © 2018 Health Catalyst • Technology has significantly advanced • Economic environment markedly differs • Healthcare has become increasingly more complex Fast Forward 25 Years 5
- 6. © 2018 Health Catalyst What functional area do you represent? • Administration – 22% • Clinical – 6% • CFO/Finance – 18% • IT – 25% • Other – 29% Poll Question #1 6
- 7. © 2018 Health Catalyst What Is The Current State? Key Forces: Consumerism Health Reform Competition Collaboration Technology Volume to Value Payment Reduce Total Cost of Care CEO Survey: Top Concerns • Prepare for sustainable cost control • Develop innovative approach to expense control • Explore diversified revenue streams • Boost outpatient market share • Meet rising consumer demands Advisory Board Annual Health Care CEO survey 7/11/187
- 8. © 2018 Health Catalyst Closures: • Low occupancy- 2016, 32% • Poor profitability- 2016, -3% • 2016 one-third converted to outpatient facilities Rural hospitals: • From 2010- 68 closed • 273 at risk of closure • New models needed Closure of Hospitals 8 29 14 17 14 9 13 1111 16 22 30 24 24 21 0 5 10 15 20 25 30 35 2010 2011 2012 2013 2014 2015 2016 Hospital Status Open Closed
- 9. © 2018 Health Catalyst Factors associated with increases:1 • Population growth • Population aging • Disease prevalence • Service utilization • Service price Highest conditions with increase:1 • Diabetes • Low back and neck pain • Hypertension Spending 9 1 JAMA, November 2017 2PwC Health Research Institute medical cost trends 2007–2019P 3 KFF Healthcare spend 11.9% 9.9% 9.2% 9.0% 9.0% 8.5% 7.5% 6.5% 6.8% 6.2% 5.5% 6.0% 6.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018P 2019P HEALTHCARE SPENDING PRESCRIPTION SPEND 2 3
- 10. © 2018 Health Catalyst Dollars At Risk- Hospital 10 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 2013 2014 2015 2016 2017 2018 Medicare $ At Risk HAC Readmit VBP MU/Q CMS Website
- 11. © 2018 Health Catalyst Where Are We In Our Value Journey? 11 62% 43% 23% 29% 15% 28% 2 0 1 5 2 0 1 6 PAYMENT CATEGORIES FFS APM P4P 19% decrease 1Health Care Payment Learning and Action Network Report 2 Sage Growth Partners, Getting to Value Based Care: Are EHRs up to the task? • Goals for CMS/LAN APM: – 30% in 2016 – 50% in 2018 • CMS active in payment transformation • Alternative Payment Model (APM) • Over half of respondents said they had less than 10% of their revenue tied to a true risk-based contract2 1
- 12. © 2018 Health Catalyst The Problem 12 Shifting payer mix Increasing costs New competition Declining volumes Changing consumer demands Shrinking payments 1.6% Margin
- 13. © 2018 Health Catalyst In today’s complex environment, you cannot successfully manage a business on a 1.6% margin, without deeply understanding and managing your expenses. The Problem 13
- 14. © 2018 Health Catalyst • No room for error – Razor thin margins • Enable strategic decisions – Based on accurate, specific costing data Costing Importance 14
- 15. © 2018 Health Catalyst • Understandable and defendable • Need to develop trust with users • Costing data needs to be accessible Costing Need 15
- 16. © 2018 Health Catalyst • Cost-to-Charge Ratio (CCR) • CCR and Medicare Cost Report • Department Costs / Total Patient Revenue • RVU and Chargemaster approach • Activity-based Costing Costing Methodologies 16
- 17. © 2018 Health Catalyst What type of costing system do you have? • Cost-to-Charge Ratio – 11% • RVU/Chargemaster – 22% • Activity-based Costing – 9% • Other – 17% • Not sure – 41% Poll Question #2 17
- 19. © 2018 Health Catalyst Activity-based Costing: Activities 19
- 20. © 2018 Health Catalyst A Simple Tool 20
- 21. © 2018 Health Catalyst A Powerful Tool 21
- 22. © 2018 Health Catalyst 22 The Trouble With Finding Answers Today… Isolated Data Sources
- 23. © 2018 Health Catalyst • Genesis of CORUS: – Costs around clinical variation weren’t understood – Had the right platform – Saw a big gap and set out to change – Built advanced system • Have a DOS and disseminate in a broader environment • Powerful when tied to clinical/operational data Activity-based Costing - CORUS 23
- 24. © 2018 Health Catalyst The Way You Could Find Your Answers With CORUS 24 Integrated Analytics Environment
- 25. © 2018 Health Catalyst 25 Costing and activities at the patient level Adoption of standardized methodology Single cost management system across all providers Reconciliation to the general ledger Measure cost across the continuum of care
- 26. © 2018 Health Catalyst Levers 26 Cost or Expense Charges or Gross Revenue Reimbursement (Payment or Net Revenue) Volume Rate Mix Salaries Supplies Volume Rate Mix Volume Negotiations Policies Quality Metrics Regulations What is easiest lever to pull, hardest?
- 27. © 2018 Health Catalyst • Have the data – now what? • Strategic decisions – tie costs to strategy • More timely information – more focus on analysis Activity-based Costing Strategy 27
- 28. © 2018 Health Catalyst I understand my organization’s costing methodology. • Strongly agree – 22% • Somewhat agree – 13% • Neutral – 32% • Somewhat disagree – 16% • Strongly disagree – 6% Poll Question #3 28
- 29. © 2018 Health Catalyst Activity-based Costing Use Cases • Needs to be updated frequently – requires technology • Tie quality data to pricing – hospitals can’t compete on price alone • Markup from actual costs for sufficient margin Pricing 29
- 30. © 2018 Health Catalyst Activity-based Costing Use Cases • More timely information – more focus on analysis • Profit margin and contribution margin Margin Analysis 30
- 31. © 2018 Health Catalyst Sub-Service Line Report - Average Cost Per Case 31 Sample data for illustrative purposes. LAPAROSCOPIC VAGINAL ROBOTIC OPEN TOTAL HYSTERECTOMIES Cases 870 250 330 280 1,730 PerCase Revenue $ 6,207 $ 10,480 $ 5,152 $ 7,036 $ 6,757 Variable & Supporting Expense $ 5,397 $ 4,400 $ 6,803 $ 7,893 $ 5,925 Contribution Margin $ 810 $ 6,080 $ (1,651) $ (857) $ 832 2.7% 10.1% 0.3% 4.0% 18.8% 43.3% 1.4% 7.2% 6.2% 12.5% 0.0% 4.9% 8.1% 2.3% 0.0% 4.8% 6.1% 20.2% 0.4% 4.7% Complications Transfusions (IP Only) Surgical Site Infections 30 Day Returns Hysterectomy Quality Outcomes Laparoscopic Open Robotic Vaginal Total 1.38 3.51 1.63 1.18 2.10 IP ALOS IP Average LOS Laparoscopic Open Robotic Vaginal Total
- 32. © 2018 Health Catalyst Women’s Health Service Line P&L 32 Current efforts to improve quality and reduce costs Continuum of care costs and stand-alone visits Non-Cancerous Other OtherOP OtherOP Mother Baby Hysterectomy Inpatient Procedures Services Total Volume 1,730 2,500 7,500 285,000 308,830 Revenue 62,900$ 64,650$ 11,690$ 21,000$ 20,000$ 77,000$ 257,240$ Expenses Direct 2,760$ 895$ 2,590$ 2,540$ 4,500$ 6,300$ 19,585$ Supplies 590 20 2,170 1,400 3,900 170 8,250 Pharmacy 1,530 825 350 820 500 5,720 9,745 Blood 640 50 70 320 100 410 1,590 Service 23,050$ 25,950$ 3,630$ 7,440$ 5,095$ 23,885$ 89,050$ Med Surg 16,580 6,500 830 2,550 260 1,420 28,140 ICUCCUNICU 160 11,600 40 440 5 5 12,250 Laboratory 580 480 200 570 450 6,940 9,220 Outpatient Clinic 650 - - 30 20 6,430 7,130 Imaging 120 220 10 190 80 6,210 6,830 Premium Tax 1,650 3,200 130 700 - - 5,680 Operating Room 20 - 1,400 1,020 1,750 10 4,200 OtherServices 3,290 3,950 1,020 1,940 2,530 2,870 15,600 Subtotal, Variable Expenses 25,810$ 26,845$ 6,220$ 9,980$ 9,595$ 30,185$ 108,635$ Unit Supporting 14,670 14,600 4,030 5,590 5,050 13,200 57,140 Subtotal, Total Expenses less Indirect 40,480 41,445 10,250 15,570 14,645 43,385 165,775 Hospital Contribution Margin 22,420$ 23,205$ 1,440$ 5,430$ 5,355$ 33,615$ 91,465$ Women's Health Contribution Margin Hospital Deliveries 12,100 Identification of significant variable expenses ($ in 000’s) Sample data for illustrative purposes.
- 33. © 2018 Health Catalyst Activity-based Costing Use Cases • Cost of services • Lesser of language • Patient-specific data Contract Negotiations 33
- 34. © 2018 Health Catalyst OB Care Costing Application 34 Condition of interest Filtered on: average cost per case
- 35. © 2018 Health Catalyst Activity-based Costing Use Cases • MSSP • Bundling • Shared savings Payment Models 35
- 36. © 2018 Health Catalyst Activity-based Costing Use Cases • Patient level costs are key to managing the population Population Health Management 36
- 37. © 2018 Health Catalyst We believe that quality and costs are intimately connected and that one day all clinicians will make data-driven decisions using evidence- and consensus-based practices, ensuring each person receives the highest quality of care, at the best cost, improving population health. 37 Per Capita Cost Population Health Experience of Care IHI Triple Aim
- 38. © 2018 Health Catalyst Activity-based Costing Use Cases • Helps identify variability – Facility – Service Line – Physician – Procedure – Patient Process Improvement Initiatives 38
- 39. © 2018 Health Catalyst Data suggests there is potential opportunity to reduce costs by better managing GDM patients. Aligning Cost & Quality: GDM Cost Overview 39 Delivery Type Non-GDM GDM Vaginal 70% 57% Cesarean 30% 43% On average, Cesareans are more costly by approximately $12,000 per episode. On average, GDM pregnancy episodes are more costly by approximately $4,000 per episode. Potential Opportunity: Reducing the Cesarean rate for GDM patients from 43% to 37% is associated with a cost savings up to $240k annually.
- 40. © 2018 Health Catalyst Activity-based Costing Use Cases Aligning Cost and Quality 40 Per Capita Cost Population Health Experience of Care IHI Triple Aim The Value Equation Value = Quality Cost Families, providers, and payers want value. Thus, quality is a key driver.
- 41. © 2018 Health Catalyst Physician Dashboard – Cost & Quality 41 VOLUME PhysicianGroupandName Total#of Cases AvgLOS AvgORTime Avg Supplies Avg Direct AvgUnit Operating AvgDirect& UnitOp Complications IPBlood Transfusions SS Infections 30-Day Readmissions Casesw/o Incident OP Volume Caseswith Same-Day Discharge Pathway Adherence% Group-02 3 1.67 317 1,328 1,560 2,724 4,284 0.00% 33.33% 0.00% 0.00% 67% 2 50% Physician08 1 1.00 273 1,009 1,178 2,320 3,499 0.00% 100.00% 0.00% 0.00% 0% 1 0% NoPathwayData Physician09 1 4.00 449 1,868 2,330 4,825 7,154 0.00% 0.00% 0.00% 0.00% 100% 0 NoPathwayData Physician11 1 0.00 228 1,107 1,171 1,027 2,198 0.00% 0.00% 0.00% 0.00% 100% 1 100% NoPathwayData Group-04 276 1.01 192 1,108 1,292 1,644 2,936 3.99% 4.71% 0.00% 3.62% 91% 171 14% Physician13 133 0.88 164 1,109 1,296 1,455 2,750 2.26% 3.76% 0.00% 3.01% 92% 83 20% 48% Physician14 46 1.07 157 1,121 1,292 1,575 2,867 2.17% 2.17% 0.00% 6.52% 93% 26 19% 97% Physician15 57 1.23 256 1,129 1,327 1,995 3,322 7.02% 8.77% 0.00% 1.75% 86% 33 6% 88% Physician16 25 1.16 234 1,053 1,233 1,937 3,170 8.00% 8.00% 0.00% 8.00% 84% 14 0% 74% Physician17 15 1.00 238 1,067 1,227 1,706 2,934 6.67% 0.00% 0.00% 0.00% 93% 15 0% NoPathwayData Group-06 167 1.32 195 1,410 1,629 1,831 3,460 4.19% 6.59% 1.80% 1.80% 89% 117 3% Physician19 20 1.35 186 680 891 1,774 2,665 0.00% 5.00% 0.00% 5.00% 90% 16 0% 21% Physician20 25 1.40 187 3,062 3,258 1,757 5,015 4.00% 0.00% 0.00% 0.00% 96% 20 0% 50% Physician21 1 1.00 168 1,776 1,928 1,299 3,227 0.00% 0.00% 0.00% 0.00% 100% 1 0% 33% Physician22 26 1.04 176 532 756 1,585 2,341 3.85% 0.00% 0.00% 0.00% 96% 23 4% 91% Physician23 3 1.00 295 1,219 1,571 2,075 3,645 0.00% 33.33% 0.00% 0.00% 67% 2 0% 50% Physician24 2 1.00 197 1,301 1,522 1,180 2,702 0.00% 0.00% 0.00% 0.00% 100% 0 75% Physician26 1 1.00 155 76 246 1,448 1,694 0.00% 0.00% 0.00% 0.00% 100% 1 0% 50% Physician27 7 1.00 267 1,668 1,848 1,831 3,679 0.00% 0.00% 0.00% 0.00% 100% 3 0% 29% Physician28 4 1.00 245 2,780 2,945 1,885 4,830 0.00% 0.00% 0.00% 0.00% 100% 4 0% 44% Physician29 2 2.50 241 52 278 2,595 2,873 0.00% 0.00% 50.00% 0.00% 50% 0 33% COSTMETRICS QUALITYMETRICS-INCIDENTRATESCOSTDRIVERS OPINITIATIVES Sample data for illustrative purposes.
- 42. © 2018 Health Catalyst Physician Variability - Hysterectomies 42 By physician detail Laparoscopic Open Robotic Laparoscopic Open Robotic Laparoscopic Open Robotic Laparoscopic Open Robotic Physician Group 1 4.50 1.00 232 132 180 1,300$ 2,167$ 1,600$ 3,000$ 4,450$ 2,900$ Physician 1 5.00 128 2,500$ 5,300$ Physician 2 4.50 1.00 232 142 180 1,300$ 2,000$ 1,600$ 3,000$ 4,500$ 2,900$ Physician 3 3.00 130 2,000$ 3,600$ Physician Group 2 1.09 2.50 1.00 157 133 197 1,650$ 750$ 1,900$ 2,300$ 3,100$ 2,700$ Physician 4 1.25 2.67 115 178 1,200$ 550$ 2,100$ 3,300$ Physician 5 1.00 132 1,120$ 2,200$ Physician 6 1.00 2.75 224 106 1,700$ 425$ 3,000$ 3,000$ Physician 7 1.00 1.00 162 240 2,400$ 1,800$ 2,500$ 3,000$ Physician 8 1.00 175 2,000$ 2,600$ Physician 9 3.00 127 600$ 3,300$ Physician 10 1.00 1.00 244 175 1,400$ 1,900$ 1,800$ 2,500$ Physician 11 1.00 2.00 130 216 2,100$ 1,700$ 2,100$ 3,800$ Physician 12 2.00 98 450$ 2,100$ Physician Group 3 1.00 3.00 188 226 1,130$ 510$ 2,100$ 3,380$ Physician 13 1.00 188 1,130$ 2,100$ Physician 14 3.00 226 510$ 3,380$ Physician Group 4 2.00 247 1,300$ 3,200$ Physician 15 2.00 247 1,300$ 3,200$ Total 1.36 3.33 1.00 206 164 189 1,345$ 1,150$ 1,750$ 2,650$ 3,600$ 2,800$ Attending Physician Average LOS Average OR Minutes per Case Average Direct Cost per Case Average Unit Operating per Case Metrics and costs physicians can impact Sample data for illustrative purposes.
- 43. © 2018 Health Catalyst • In today’s complex environment, you cannot successfully manage a business on a 1.6% margin, without deeply understanding and managing your expenses. • An activity-based costing system tied to clinical and related data is a powerful tool. • Use Cases – Pricing Decisions – Strategy & Analysis – Contract Negotiations – Population Health Management – Strategy and Analysis – Process Improvement Efforts Summary 43
- 44. © 2018 Health Catalyst Sept. 10-12, Salt Lake City, Grand America Hotel • National Keynotes • Digital Innovation Showcase • 28 Educational, Case Study, and Technical Breakouts • 24 Analytics Walkabout Projects • Machine Learning Marketplace • Networking (bringing back ”Braindate”) • CME Accreditation for Clinicians • 5-Star Grand America Hotel Experience • 96 Total Presentations Healthcare Analytics Summit 19 44
- 45. Q & A
- 46. Thank You!