February 6, 2015

With the approach of value-based payment, hospitals will need to know what it costs to deliver care before they can offer competitive capitated and bundled prices.

In Why Understanding Your Costs is Vital, Philip Betbeze, senior leadership editor with HealthLeaders, interviews President Rita Numerof, Ph.D. on why knowing your hospital or health system’s underlying costs is critically important for your institution’s future. Otherwise, you’ll be flying blind.

Over the last several decades, says Numerof, most systems have focused on their biggest cost—staffing—as opposed to looking and rethinking care delivery processes, which is the essence of activity-based costing in healthcare.

It’s not a problem of lacking talent or skill to do these things, she says, but a lack of will.

“They haven’t had the market need to do it,” she says. “If you think about it, the systems that have been put in place have been about getting paid and adjudicating claims at the CPT code level. You’ve got a whole sub-industry segment that has been born out of the desire to optimize coding. This is the way it’s operated for the last 12–15 years.”

Do they have to now? That is the crux of the argument, after all.

“Depending on the market, some are moving faster than others,” says Numerof. “Competition will force the issue, and large employers and entrepreneurs are also forcing the issue. Together those things will make it such that you’ll see more and more moving in this direction over several years.”

Too, even if capitation is not in the cards for your organization, risk-based contracting certainly will be, and delivering and demonstrating value transparently will be a key part of that. Without knowing what it costs to provide a wide variety of services, you’ll be flying blind.

Read the entire article at healthleadersmedia.com.

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