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Customer Experience and Design

Understanding the Value of Care – It’s Not a Guessing Game

Robert S. Kaplan, PhD, writes about improving the “value of care” in this month’s HFMA magazine.

“Existing cost measurement systems in healthcare are inadequate. They typically use inaccurate and arbitrary cost allocations and provide little transparency to guide clinician and staff driven efforts to reduce costs and improve processes to enhance outcomes.

They also fail to focus on the correct unit of analysis: patients being treated for specific medical conditions over complete episodes of care.Untitled design

Unless the sector can implement better cost measurement and management systems, the promise of value-based care will remain unfulfilled.”

He goes on to write about the virtues of using Time Driven Activity Based Costing (TDABC) in healthcare by directly attributing all resources to the organizations outputs of services (therbligs). The full article can be viewed at

Recently Cleveland Clinic partnered with Kaplan to take on this daunting task. During the pilot, accurate cost data was used to help leaders understand profitability by service line, and better support clinical teams in driving efficiency. The pilot project was setup to determine whether TDABC costing and relative value unit (RVU) based costing would produce materially different results. The results uncovered significant enhancements in clinical and administrative processes for the procedures studied and reduction in expense related to direct administrative and support processes for two types of heart valve procedures.

The “bottom up” costing pilot uncovered insights about the number of personnel involved during the patient’s care cycle and identified several patient and activity flows within existing processes that could be improved. In the end, it was determined that the TDABC approach did not reveal enough value to warrant a full scale replacement of existing cost accounting systems. View the full article at

How does a typical hospital or provider organization interpret these two opposite positions on this subject? My experience tells me that costing is an evolutionary process perhaps starting with one type of procedure like the Cleveland Clinic or perhaps starting with a hybrid of costing methodology. The great news is that the beauty of technology can help realize the goal of improved costing by allowing for the use of multiple costing methodologies with full traceability and transparency to the underlying data.

Transparency and the ability to do micro-level costing are both features that are missing from most cost accounting software today. Having data doesn’t itself make a company successful; organizations must act on information and filter what is useful, appropriate and above all else, actionable. Oracle has positioned its solutions to ask and answer both administrative and operational questions with the Hyperion Profitability and Cost Management (HPCM) and Oracle Enterprise Health Analytics (EHA) and Business Intelligence solutions.

Using the HPCM tier one analytic engine, Essbase, coupled with key patient care data points, can bring powerful capacity planning to fruition. Patient volumes, outcomes and operational measures are not viewed in an independent environment. But when coupled with the financial and administrative data as they are dependencies to understanding case mix index, reasons for readmissions, and staffing mix (on a case level), among other things.

The Perficient High Performance Costing Expressway combines the power of Oracle’s OLAP engine, Essbase, via the Hyperion Profitability & Cost Management (HPCM) application, along with Oracle’s leading healthcare data model to allocate and store data. We offer design, implementation and support capabilities for the High Performance Costing Expressway.

Perficient is an Oracle Platinum Partner with an industry leading healthcare solutions team. Perficient experts will be on hand in booth #1159 at HFMA National Institute 2014 #ANI2014 in Las Vegas and booth #206 at #INTERACT14 in Orlando June 22-25.

Join us to view a demo of our costing solution.

View my recent blogs:

Following the Money Trial: An Approach to Understanding the True Cost of Care

Elevating the Role of Finance within the Hospital

Enterprise Warehouses: The Gift that Keeps on Giving

Balancing clinical effectiveness with profitability

Follow me on twitter @teriemc

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Terie McClintock

Terie McClintock is the Oracle Healthcare Practice Director at Perficient, Inc. where she is responsible for providing healthcare subject matter expertise to the Perficient Oracle National Business Unit while also cultivating and managing the partnership with Oracle’s Healthcare Vertical and Horizontal Business Units. Terie has more than 25 years of IT experience. Prior to joining Perficient, Terie contributed over 13 years at M.D. Anderson Cancer Center with the most recent title of Director, Data Management Services. Prior to M.D. Anderson, Terie worked for IBM as a Senior Consultant.

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