Cost Accounting for a Value-Based System

Gone are the days of traditional fee-for-service models, when hospitals could freely decide on charges and negotiate appropriate reimbursements.  Today, value-based payment models are on the rise, and corresponding price transparency requires that hospitals get a firm handle on their costs.  As Kurt Ulman of Healthcare Finance News writes, this requires “cost accounting on steroids.”

What does it mean to take your cost accounting to this next level? To start, hospitals must link costs not just to specific procedures or doctors, but to outcomes.  Value-based payments will only be sustainable if hospitals can provide quality care for reasonable costs. Doing so means that everyone must know how much materials and supplies cost – not just supply chain managers, but providers as well.

Lisa Miller, CEO & Founder of VIE Healthcare, says educating providers is key. “The fact is that many physicians don’t actually know how much the supplies they are using cost. They’ve been told that this one works better, or that this other one has better outcomes, but no one has mentioned the price.”  Providing cost information in an informational way, and discussing opportunities for switching out expensive supplies for more affordable supplies is a matter of physician engagement and negotiation, something VIE Healthcare has been doing for more than 14 years.

“It’s not a matter of telling doctors what to use or what not to use,” adds George Malik, COO. “Our process engages physicians – and other providers – in conversations, to determine what the benefits of various specific supplies are. Oftentimes, we come across expensive supplies in use that physicians admit have little or no benefit over other more reasonably priced supplies, and the switch is easy to make.”

This bolstered method of cost accounting can help to create not just price transparency, but price understanding. Costs no longer seem arbitrary, but are tied closely to the service and outcome provided, and can be justified by physicians, hospital administrators, and payers.  The reform of the hospital payment system is moving quickly towards value – and with experienced leadership, cost accounting can help to support that movement.

To take advantage of VIE Healthcare’s expertise in physician education and negotiation and other non-labor expense reduction services, visit www.viehealthcare.com or call Denise Bisogno to schedule a consultation at (732) 359-7646 ext. 500.

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