Due to the complex nature of hospital cost accounting, the evaluation of a best practice needs to be tied to the ultimate use of the information. When implementing the cost accounting process for a large health system, the ultimate use of information needs to be addressed for two key audiences; the corporate function which is typically focused on service line benchmarking at a high level across their facilities, and the hospital function which requires detailed analysis of their service lines at the payer, physician, diagnosis, department and procedure charge code levels, at a minimum.
In support of the corporate function, a best practice cost accounting model can be streamlined when supported by a high degree of standardization of information systems and processes across all entities. This standardized infrastructure is common within most large “for-profit” health systems and helps facilitate and simplify the implementation of the cost accounting process.
The process of implementing a best practice hospital cost accounting model for a large health system also requires standardization in approach. This would include:
- Standardized chart of accounts in use
- Standardized CDM in use
- Standardized accounting and bookkeeping practices in use
- Standardized cost categories reported from patient database
- Standardized methodologies for handling revenue offsets and expense reclassifications
- Standardized conceptual definition of fixed costs vs. variable costs
- Standardized conceptual definition of direct costs vs. overhead costs
- Standardized overhead allocation step down process and statistics
- Standardized RVU Development Process
- Standardized Update and Reporting Cycle
In support of the hospital function, a best practice cost accounting model will follow a process that benefits from the above corporate standardization, yet which produces cost data reflective of each hospital’s unique operation. The focus is centered on the details of the RVU development process. The RVU development “process” can be standardized, however the details that are unique to each individual hospital should not be. Those unique details should be reflected in the development of each studied departments procedure RVUs. The following are examples of the data collection that is unique to each hospital:
- Skill mix and staffing ratios
- Pay rates
- Physical plant layout
- Age and type of equipment
- Support services (centralized vs. decentralized transportation, registration, etc.)
- Available IT infrastructure (charge capture, order documentation and charting)
- Use of contract labor or purchased services
Attempting to standardize RVUs across facilities will not produce cost data reflective of each hospital’s operations; hence it only provides marginal value, which in turn will not foster clinical management buy-in.
In addition, when benchmarking hospitals utilizing standardized RVUs across facilities, the operational differences will not be sensitive to the hospital-specific items listed above and will not support analysis pinpointing the reasons for the operational differences between hospitals.
In Conclusion
Unlike cost accounting in industry which is very black and white, hospital cost accounting provides for many levels of complexity and variability. Implementing a “Best Practice” process requires a sound implementation strategy that will guide you through providing appropriate detail for all users of the information and provide for a process that is maintainable in the long run.
