How’s that for a future headline?
Earlier this week, a coworker passed along a link to an article with a rather bold title, “How to Solve the Cost Crisis in Health Care“. This article was written by world-renowned Harvard strategists Kaplan and Porter who are best known for the Balanced Scorecard and Five Forces, respectively. I was interested in understanding the strategist’s solution to the healthcare cost problem. I ultimately came away with the basic understanding that accounting and IT talent should work together towards this goal.
Kaplan and Porter start the article with a simple phrase that completely reframes the healthcare reform discussion, “The biggest problem with health care isn’t with insurance or politics. It’s that we’re measuring the wrong things the wrong way.” What do you think? I’d be interested to hear your comments below.
Managerial Accounting in Healthcare
Kaplan and Porter ultimately feel that there is an almost complete lack of understanding around the costs required to deliver care. Costs are currently tracked by specialty or department instead of tracking costs by patient with specific condition over the cycle of care. Under the idea of “what gets watched gets done” this can (and does) mean disastrous things in terms of escalating healthcare costs. Tracking costs using managerial accounting methods would allow providers to correct systemic cost issues by linking healthcare costs directly to process improvement. Likewise, efficient providers can be rewarded for their behavior, causing a shift in underlying motivations and financial results.
This remedy requires a new way to accurately measure costs and compare them with outcomes. You can read through Kaplan and Porter’s seven step cost measurement system in more detail, and I’d be interested to hear what you think. My general feeling is that these two are seriously smart, but their ideas do need to be considered carefully. With echoes of my accounting professor reverberating in my ear, I agree whole-heartedly that costs can be measured more usefully than they currently are. However, we must consider why costs are currently measured the way they are and what structural changes are needed to make patient-level costs matter to providers. However, I would venture to say that, with the help of Health IT initiatives currently under way, we are well on our way toward supporting these new costing methods.
Using Analytics to Support Patient-Level Cost Data
Analyzing costs at this micro level requires strong use of analytics. Analyzing costs means nothing if you are using bad data. The healthcare status quo has two main obstacles in this regard:
- data granularity in ICD-9 is sub-optimal, and
- the healthcare industry is struggling with poor data quality
However, two major health IT initiatives are underway to solve this issue. The granularity of data provided through ICD-10 will be more in line with Kaplan and Porter’s costing approach. ICD-10 compliance will provide healthcare organizations with a rich data source. Also, this increased data granularity can be optimized through the use of business intelligence and analytics tools. The time has never been better for healthcare organizations to compete on analytics in this way. Using re-worked analytic reports built around ICD-10 codes, healthcare organizations can examine the bigger picture of total costs using a “single version of the truth” in an intelligent way. There will be opportunities to build more comprehensive data marts and stronger operational reporting including digital operations dashboards. For more progressive Health IT teams, ICD-10 remediation could be an opportunity to move to a self-service model for reporting that capitalizes on a new generation of business intelligence tools.
You can learn more about this at our upcoming webinar “Opportunities Abound: Leveraging the Increased Data Granularity in the ICD-10 Code Set”. Register today
