Cost & Quality

Reformed accountant alert!

Decades ago, I studied to be an accountant. Why? Because my Alma Mater told me to be a good healthcare administrator, I
needed to have a financial/numbers training. I could pick Economics, Finance or
Accounting. I called my family and adult
friends for advice. (Those in the sample
group were all CPAs.) And, surprise, their
unanimous opinion was for me to major in Accounting.

I survived after four and one half years. I still have the
third edition of Keso and Weygandt on my shelves, and I still have my plastic,
accounting, internal-control, flow-chart stencil (a “pre-historic” version of Visio). But, I graduated and became a cost accountant
in manufacturing.

Yes, working on direct overhead, indirect materials, work in
progress (WIP), burden rates, unassigned project time, I would dream about the
monthly close. But, I had a methodology
and a rigor to establish how much a widget would cost and what was involved in
its production. Then I had to allocate the
assignment of overhead (square feet, headcount, etc.). At every month’s close, I knew precisely what
my engineers had in WIP and what they had produced on the line. There were none of the nine crazy layers of
allocation methods and step-downs that we experience in the Medicare Cost

So why is this nostalgia important? Because, 25 years later, healthcare is
finally at a tipping point. It DOES matter precisely what it takes to perform
healthcare services. It is no longer
acceptable to allocate equipment depreciation to all departments based on

I’ve been at organizations where the pediatric clinic had
nearly no capital equipment, yet was taking their “fair and equal share” of
depreciation based on staff levels for the gamma knife that surgery
wanted. That is not fair!

How about the organization that doesn’t allocate
depreciation to the units/departments, but keeps it all at the top level? No one in manufacturing would ever agree to
run a unit that was disproportionately charged with expenses without the
benefits associated with the expense. But for some reason, healthcare has this crazy math. It’s been done this
way for so long that “oh well” works. Enough!

There must be a way to get to the true cost of care. This is
important in order to assign clinical
intervention decisions that produce the best outcomes in both clinical quality
and financial savings. Ghosting the
expenses with Houdini math doesn’t help anyone.

I’m thrilled to talk
about the cost & quality intersection. This collision of activity-based costing and quality events is the
marriage of Oracle’s Hyperion suite and Enterprise Healthcare Analytics.

Industry changing
decision support is valuable when one knows not only how much something cost, but also what it cost
in terms of labor/materials/overhead and what quality of outcome did it produce
on a line item patient/encounter/procedure level for a true “outcomes &
Quality” analysis.

Did the patient stay longer? But did his/her procedure require
less direct labor? Did the patient
return for three outpatient visits rather than five because of the medication
therapy prescribed? These are all great questions that are at the precipice of
the 2015 healthcare horizon.

Join me in this discussion

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