Drivers of cost system development in hospitals: results of a survey

Hospital at Home as a Treatment Strategy for Worsening Heart Failure

Hospital at home (HaH) is an innovative care model that may be particularly suited for heart failure (HF). Outpatient visits and inpatient care have been the 2 traditional settings for HF care, yet may not match the social and medical needs of patients at all times. Alternative models such as HaH may represent an effective and patient-centered option for select patients with worsening HF. To date, limited research in HF and other disease states has supported HaH as being safe and lower cost than traditional inpatient admission. Supporting HaH are new payment structures, such as Medicare's Acute Hospital Care at Home waiver program. In combination with outpatient visits, outpatient intravenous diuretic clinics, inpatient care, and cardiac intensive care, HaH could be a core component of a comprehensive care model with the potential to match resource utilization with the needs of patients across the spectrum of HF severity, and improve patient outcomes.

How slack resource affects hospital financial performance: The evidence from public hospitals in Beijing

Background

Beijing is a city with high concentration and congestion of quality medical resources in China. While moderate slack seems to be beneficial to the improvement of medical quality. The actual relationship between hospital slack resources and their performance deserves further exploration. The study aims to analyze the slack resources of public hospitals in Beijing and investigate the relationship between slack and hospital financial performance. Finding a reasonable range of slack to optimize resource allocation.

Methods

The panel data of 22 public hospitals in Beijing from 2005 to 2011 were selected as the sample, and the DEA model was applied to measure the main variable using DEAP 2.1. Descriptive statistical analysis was performed using Excel and STATA 15. Pearson correlation coefficient analysis and variance inflation factor test were performed for each variable to avoid multicollinearity. The HAUSMAN test was used to determine the appropriate panel regression model, and then to analyze the influence relationship between the variables.

Results

From 2005 to 2011, hospital slack resource transitioned from high to low. The slack measured by the DEA model has an inverted U-shaped relationship with financial performance, with ROA increasing from 4.088 to 8.083 when slack increases from 0 to about 0.378, and then showing a decreasing trend; slack measured by financial indicators has a transposed S-shaped relationship with financial performance, with ROA increasing when slack increase from 3.772 to 5.933.

Conclusions

The slack resources of Beijing public hospitals decreased year by year from 2005 to 2011. Moderate slack resources are conducive to the improvement of healthcare quality, but when slack resources increase to a certain level, it will have a negative impact on healthcare quality. Therefore, hospital managers should control the slack within a moderate range according to the hospital operation policy and development plan to obtain the best performance.

The process of estimating the cost of surgery: Providing a practical framework for surgeons

Over the last decades, health care costs have been increasing at an alarming, exponential rate which is considered unsustainable. Surgical care utilizes one-third of health care costs. Estimating, evaluating, and understanding the cost of surgery is a vital step towards cost management and reduction. Current cost estimation studies and cost-effectiveness studies have vast disparities in their methodology, with published costs of Operating Room varying from as low as $7 and as high as $113 per minute. Costs in surgery are distinguished as direct and indirect. Allocation of direct costs involves identification, measurement, and valuation processes. Allocation of indirect costs involves the allocation of capital and overhead costs and of indirect department costs. Annualised capital costs and overhead hospital costs are then allocated to surgery by either the cost-centre allocation or the activity-based allocation frameworks. Indirect department costs are allocated to a specific surgery by weighted service allocation or hourly rate allocation or inpatient day allocation, or marginal markup allocation. The growing societal, financial and political pressure for cost reduction has brought cost analysis to the forefront of healthcare discussions. Thus, we believe that almost every single surgeon will eventually enter the field of healthcare economics by necessity. This review aims to provide surgeons with a practical framework for engaging in cost estimation studies.

Development of clinical value unit method for calculating patient costs

The objective of the study was to develop the clinical value unit method of allocating indirect costs to patient costs using clinical factors. The method was tested to determine whether it is a more reliable alternative to using the length of stay and marginal mark-up allocation method. The method developed used data from a Polish specialist hospital. The study involved 4,026 patients grouped into nine diagnosis-related groups (DRG). The study methodology involved a three stage approach: (a) identification of correlates of patient costs, (b) a comparison of the costs calculated using the clinical value unit method with the alternative methods: length of stay and marginal mark-up methods, and (c) an estimation of the cost homogeneity of the DRGs. The study showed that length of stay cost allocation method may underestimate the proportion of indirect costs in patient costs for a short in-patient stay and overestimate the cost for the patients with a long stay. The total costs estimated using the marginal mark-up method were higher than those estimated with length of stay method. For most surgical procedures, the mean indirect costs are higher using clinical value unit method than when using length of stay or marginal mark-up method. In all medical procedure cases, the mean indirect costs calculated using the clinical value unit method are in the range between marginal mark-up and length of stay method. We also show that in all DRGs except one, that the coefficient of homogeneity for clinical value unit is higher than for length of stay or marginal mark-up method. We conclude that the clinical value unit method of cost allocation is a more precise and reliable alternative than the other methods.

An investigation of the factors influencing cost system functionality using decision trees, support vector machines and logistic regression

Purpose

The paper aims to identify and critically analyze the factors influencing cost system functionality (CSF) using several machine learning techniques including decision trees, support vector machines and logistic regression.

Design/methodology/approach

The study used a self-administered survey method to collect the necessary data from companies conducting business in Turkey. Several prediction models are developed and tested; a series of sensitivity analyses is performed on the developed prediction models to assess the ranked importance of factors/variables.

Findings

Certain factors/variables influence CSF much more than others. The findings of the study suggest that utilization of management accounting practices require a functional cost system, which is supported by a comprehensive cost data management process (i.e. acquisition, storage and utilization).

Research limitations/implications

The underlying data were collected using a questionnaire survey; thus, it is subjective which reflects the perceptions of the respondents. Ideally, it is expected to reflect the objective of the practices of the firms. Second, the authors have measured CSF it on a “Yes” or “No” basis which does not allow survey respondents reply in between them; thus, it might have limited the choices of the respondents. Third, the Likert scales adopted in the measurement of the other constructs might be limiting the answers of the respondents.

Practical implications

Information technology plays a very important role for the success of CSF practices. That is, successful implementation of a functional cost system relies heavily on a fully integrated information infrastructure capable of constantly feeding CSF with accurate, relevant and timely data.

Originality/value

In addition to providing evidence regarding the factors underlying CSF based on a broad range of industries interesting finding, this study also illustrates the viability of machine learning methods as a research framework to critically analyze domain specific data.

Activity-Based Costing and Time-Driven Activity-Based Costing for Assessing the Costs of Cancer Prevention, Diagnosis, and Treatment: A Systematic Review of the Literature

BACKGROUND

A review of the literature on economic analyses in cancer (prevention, diagnosis, and treatment) using activity-based costing (ABC) or time-driven activity-based costing (TDABC) for measuring costs and to examine how these approaches have been applied to assess and manage cancer costs.

METHODS

This review followed the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) statement. We conducted a search for studies that used ABC or TDABC to calculate the cost of cancer in prevention, diagnosis, and treatment. Only English- and Portuguese-language articles were retrieved from Medline, Lilacs, ScieLO, and Embase (January 1990 to August 2016).

RESULTS

In total, 421 studies were evaluated. However, only 27 papers were included. The first publications were from the early 2000s, but most of the studies were published in 2016 (n = 10). Most of the studies were carried out in the United States (n = 6) and Belgium (n = 6). Cancer treatment was the major focus of all studies (n = 20), followed by screening programs evaluations (n = 4) and diagnosis (n = 3). Among treatment modalities, economic analysis of radiotherapy was the most common topic of study. Retrospective clinical data represented 57.6% of the studies. More than 50% of the studies presented unspecified economic analysis. The hospital perspective was the most prevalent perspective among the studies (46.1%).

CONCLUSIONS

ABC and TDABC economic analyses are a promising area of studies in oncology costs.

Maximizing Physician-Hospital Alignment: Lessons Learned From Effective Models of Joint Arthroplasty Care

BACKGROUND

With recent healthcare reform efforts focusing on rewarding value instead of volume, it has become important for orthopedic surgeons to partner and align with their hospitals. We report our experience in aligning clinical and financial incentives with 6 health systems in our geographic area.

METHODS

By managing the entire episode-of-care continuum for total hip and total knee arthroplasty patients, our standardized, evidence-based protocols have improved the quality of care for our joint arthroplasty patients. While most studies focus on cost through insurance claims data, we have been able to accurately determine the costs to our practice and each facility through time-driven activity-based costing.

RESULTS

We have also achieved measureable claims and actual cost reduction by reducing unnecessary care, inappropriate variation in care, and avoidable complications through demand matching, risk stratification, and our nurse navigator program. Our joint ventures with our hospital partners in both specialty hospitals and our ambulatory surgery centers have also been critical to our success.

CONCLUSION

Our experience demonstrates that large private practice groups can successfully align both clinical and financial incentives with healthcare systems to provide quality joint arthroplasty care at a lower cost.

Assessing the effect of standardized cost systems on financial performance. A difference-in-differences approach for hospitals according to their technological level

Promoting the improvement of standardized cost systems (CS) is one of the measures available to health policy makers for the purpose of improving efficiency in hospitals over the long-term. Nevertheless, very few studies evaluate the relationship between alternative CS and the costs really incurred. We use data from 242 hospitals of the Spanish National Health Service (NHS) between 2010 and 2013 in order to explore the determinants of the cost per adjusted patient day, using a difference-in-differences approach where the treatment is the implementation of an advanced CS. We also investigate if the association between advanced CS and unit cost is different depending upon the technological level of the hospital. Results show that hospitals with more advanced CS contained their costs better. However, the latter effect of advanced CS is lower in hospitals with a greater endowment of high technology. Results suggest that health authorities should support the development of CS, particularly in high-tech hospitals, which are usually larger and more complex hospitals that tend to accumulate a greater portion of NHS hospital sector expenditure.

Comparison Between Individually and Group-Based Insulin Pump Initiation by Time-Driven Activity-Based Costing

BACKGROUND

Depending on available resources, competencies, and pedagogic preference, initiation of insulin pump therapy can be performed on either an individual or a group basis. Here we compared the two models with respect to resources used.

METHODS

Time-driven activity-based costing (TDABC) was used to compare initiating insulin pump treatment in groups (GT) to individual treatment (IT). Activities and cost drivers were identified, timed, or estimated at location. Medical quality and patient satisfaction were assumed to be noninferior and were not measured.

RESULTS

GT was about 30% less time-consuming and 17% less cost driving per patient and activity compared to IT. As a batch driver (16 patients in one group) GT produced an upward jigsaw-shaped accumulative cost curve compared to the incremental increase incurred by IT. Taking the alternate cost for those not attending into account, and realizing the cost of opportunity gained, suggested that GT was cost neutral already when 5 of 16 patients attended, and that a second group could be initiated at no additional cost as the attendance rate reached 15:1.

CONCLUSIONS

We found TDABC to be effective in comparing treatment alternatives, improving cost control and decision making. Everything else being equal, if the setup is available, our data suggest that initiating insulin pump treatment in groups is far more cost effective than on an individual basis and that TDABC may be used to find the balance point.

Hospital acquisitions, parenting styles and management accounting change: An institutional perspective

Many healthcare scholars have applied institutional theories to the study of management accounting systems (MAS) change. However, little attention has been devoted to MAS change within groups. Kostova et al. highlight the limitations of traditional institutional frameworks in studying groups since they are characterised not only by the existence of external institutional environments but also by intra-organisational (meso-level) ones. Given this background, the research question is: how does the meso-level institutional environment affect MAS change in healthcare groups? We use a longitudinal multiple-case study design to understand the role of headquarters in shaping local MAS change. We would expect companies to adopt similar MAS. However, we argue that the relationship between external institutions and MAS change cannot be wholly understood without taking into consideration the role of headquarters. Our analysis shows how hospitals facing the same external institutional environment implement different MAS as a consequence of different parenting styles. From a scientific perspective, our article contributes to broaden traditional institutional theoretical frameworks.

Where is the pilot? The changing shapes of governance in the European hospital sector

Hospital governance refers to the complex of checks and balances that determine how decisions are made within the top structures of hospitals. This article explores the essentials of the concept by analysing the root notion of governance and comparing it with applications in other sectors. Recent developments that put pressure on the decision-making system within hospitals are outlined. Examples from the UK, France and the Netherlands are presented.

Based on an evaluation of the current state of affairs, a research framework is developed, focusing on the determinants of governance configurations within the national healthcare systems and the wider legal and socio-economic context, as well as on the impact of governance configurations on the efficiency of the governing bodies and overall hospital performance.

The article concludes with a preview of the European Hospital Governance Project, which follows the outlines of the described research framework. New techniques of data mining that are used in this project are explained by means of a real data example.

The Growing Importance of Cost Accounting for Hospitals

Management scholars have identified several cost accounting methods that provide organizations with accurate estimates of the costs they incur in producing output. However, little is known about which of these methods are most commonly used by hospitals. This article examines the literature on the relative costs and benefits of different accounting methods and the scant literature describing which of these methods are most commonly used by hospitals. It goes on to suggest that hospitals have not adopted sophisticated cost accounting systems because characteristics of the hospital industry make the costs of doing so high and the benefits of service-level cost information relatively low. However, changes in insurance benefit design are creating incentives for patients to compare hospital prices. If these changes continue, hospitals' patient volumes and revenues may increasingly be dictated by the decisions of individual patients shopping for low-cost services and as a result, providers could see increasing pressure to set prices at levels that reflect the costs of providing care. If these changes materialize, cost accounting information will become a much more important part of hospital management than it has been in the past.

How much does a diabetes out-patient appointment actually cost? An argument for PLICS

Purpose

– The national tariff system for clinical processes and procedures aims to put a discrete unit cost on clinical activity. Calculating such costs can be subject to a great deal of local variation and interpretation. Given the rising costs of diabetes the purpose of this paper is to ask the question what does a diabetes outpatient appointment in the UK NHS actually cost? This is important in a time of financial austerity and healthcare rationing because it can be difficult to decipher the attribution of costs within the acute hospital setting.

Design/methodology/approach

– Exploring this question, the author considers the present cost model and analyse in terms of the language of unit model cost; the basic tariff system and how it works in diabetes and looking at internal cost information the author attempts to unbundle the cost to provide a more accurate value for the cost object.

Findings

– One major finding is that costs and overheads are divided arbitrarily as opposed to being distributed on the basis of measured relative consumption. Alternative costing methods are appraised to demonstrate that a patient level episodic costing approach such as patient level information and costing system (PLICS) which incorporates aspects of activity-based costing (ABC) would be far more appropriate. Using time driven ABC (TDABC), a new patient appointment costs £162 for 30 minutes and a follow-up appointment costs £81 for 15 minutes.

Practical implications

– PLICS has the added benefit of greater financial and clinical transparency and this goes some way towards the holy grail of greater engagement with the doctors delivering clinical care.

Social implications

– It would appear that there are different purposes of different costing systems. One can argue that a costing system is there to both contain costs and divide overheads and demonstrate activity. Depending on how data are interpreted costing information can be an agent of enlightenment and behavioural modification for healthcare professionals to show them their direct and indirect costs, their capacity and productivity.

Originality/value

– Clinicians and health service managers can see from this practical example how the distribution of costs and resources are unfair and can impede the delivery of a service. By using alternative costing methodologies such as ABC not only do the author gets a better reflection of the true cost of the finished consultant episode but is also able to engage clinicians in understanding how costs are generated.

A new costing model in hospital management: time-driven activity-based costing system

Traditional cost systems cause cost distortions because they cannot meet the requirements of today's businesses. Therefore, a new and more effective cost system is needed. Consequently, time-driven activity-based costing system has emerged. The unit cost of supplying capacity and the time needed to perform an activity are the only 2 factors considered by the system. Furthermore, this system determines unused capacity by considering practical capacity. The purpose of this article is to emphasize the efficiency of the time-driven activity-based costing system and to display how it can be applied in a health care institution. A case study was conducted in a private hospital in Cyprus. Interviews and direct observations were used to collect the data. The case study revealed that the cost of unused capacity is allocated to both open and laparoscopic (closed) surgeries. Thus, by using the time-driven activity-based costing system, managers should eliminate the cost of unused capacity so as to obtain better results. Based on the results of the study, hospital management is better able to understand the costs of different surgeries. In addition, managers can easily notice the cost of unused capacity and decide how many employees to be dismissed or directed to other productive areas.

Improving patient-level costing in the English and the German 'DRG' system

OBJECTIVES

The purpose of this paper is to develop ways to improve patient-level cost apportioning (PLCA) in the English and German inpatient 'DRG' cost accounting systems, to support regulators in improving costing schemes, and to give clinicians and hospital management sophisticated tools to measure and link their management.

METHODS

The paper analyzes and evaluates the PLCA step in the cost accounting schemes of both countries according to the impact on the key aspects of DRG introduction: transparency and efficiency. The goal is to generate a best available PLCA standard with enhanced accuracy and managerial relevance, the main requirements of cost accounting.

RESULTS

A best available PLCA standard in 'DRG' cost accounting uses: (1) the cost-matrix from the German system; (2) a third axis in this matrix, representing service-lines or clinical pathways; (3) a scoring system for key cost drivers with the long-term objective of time-driven activity-based costing and (4) a point of delivery separation.

CONCLUSION

Both systems have elements that the other system can learn from. By combining their strengths, regulators are supported in enhancing PLCA systems, improving the accuracy of national reimbursement and the managerial relevance of inpatient cost accounting systems, in order to reduce costs in health care.

The ties that bind: an integrative framework of physician-hospital alignment

Background

Alignment between physicians and hospitals is of major importance to the health care sector. Two distinct approaches to align the medical staff with the hospital have characterized previous research. The first approach, economic integration, is rooted in the economic literature, in which alignment is realized by financial means. The second approach, noneconomic integration, represents a sociological perspective emphasizing the cooperative nature of their relationship.

Discussion

Empirical studies and management theory (agency theory and social exchange theory) are used to increase holistic understanding of physician hospital alignment. On the one hand, noneconomic integration is identified as a means to realize a cooperative relationship. On the other hand, economic integration is studied as a way to align financial incentives. The framework is developed around two key antecedent factors which play an important role in aligning the medical staff. First, provider financial risk bearing is identified as a driving force towards closer integration. Second, organizational trust is believed to be important in explaining the causal relation between noneconomic and economic integration.

Summary

Hospital financial risk bearing creates a greater need for closer cooperation with the medical staff and alignment of financial incentives. Noneconomic integration lies at the very basis of alignment. It contributes directly to alignment through the norm of reciprocity and indirectly by building trust with the medical staff, laying the foundation for alignment of financial incentives.

Equivalence of two healthcare costing methods: bottom-up and top-down

This paper compares two quite different approaches to estimating costs: a 'bottom-up' approach, represented by the US Department of Veterans Affairs' (VA) Decision Support System that uses local costs of specific inputs; and a 'top-down' approach, represented by the costing system created by the VA Health Economics Resource Center, which assigns the VA national healthcare budget to specific products using various weighting systems. Total annual costs per patient plus the cost for specific services (e.g. clinic visit, radiograph, laboratory, inpatient admission) were compared using scatterplots, correlations, mean difference, and standard deviation of individual differences. Analysis are based upon 2001 costs for 14 915 patients at 72 facilities. Correlations ranged from 0.24 for the cost of outpatient encounters to 0.77 for the cost of inpatient admissions, and 0.85 for total annual cost. The mean difference between costing methods was $707 ($4168 versus $3461) for total annual cost. The standard deviation of the individual differences was $5934. Overall, the agreement between the two costing systems varied by the specific cost being measured and increased with aggregation. Administrators and researchers conducting cost analyses need to carefully consider the purpose, methods, characteristics, strengths, and weaknesses when selecting a method for assessing cost.

Development and analysis of a nationwide cost database of acute-care hospitals in Japan

OBJECTIVES

Understanding of hospital cost is crucial to achieve an ideal balance between the assurance and improvement of patient safety and quality, and efficient use of finite resources. However, neither a standardized calculation methodology nor a large-scale database of costs in acute-care hospitals exists in Japan. This study aims to develop a standardized methodology, construct a nationwide cost database in Japan, analyse the characteristics of the database and examine the relationship between the cost and the charge from the viewpoint of an appropriate reflection of the cost to the price.

METHOD

We designed the costing framework, gathered the data for patients discharged from 139 acute-care hospitals in Japan between July 2004 and October 2004 and constructed a database containing information on 284,730 patients. The characteristics of the database and the relationship between the cost and the charge were investigated.

RESULTS

In the nationwide database we constructed, a wide range in the average cost per hospitalization and average cost per diem was observed. A wide variation of cost components was seen across major diagnostic categories. Moreover, there was a high correlation between the cost and the charge (Correlation coefficient = 0.94).

CONCLUSIONS

After designing a costing framework, a nationwide database comprised of individual case-level costs with components for acute-care hospitals in Japan was successfully developed. We hope this study contributes to appropriate decision making and helps motivate further research geared towards efficient hospital management and a rational payment system in Japan.

Time-driven activity-based costing in an outpatient clinic environment: development, relevance and managerial impact

Healthcare managers are continuously urged to provide better patient services at a lower cost. To cope with these cost pressures, healthcare management needs to improve its understanding of the relevant cost drivers. Through a case study, we show how to perform a time-driven activity-based costing of five outpatient clinic's departments and provide evidence of the benefits of such an analysis.

Costes de la calidad en Medicina Intensiva. Guía para gestores clínicos

OBJECTIVE

This article reviews the utility and applicability of available systems in order to calculate general and quality costs in clinical services settings.

METHODS

Review of techniques to calculate costs in Intensive Care Units (ICUs) according to analytical accounting approaches.

RESULTS

The methodological development is complemented with the results of its application in the ICU of the Miracle's Hospital showing the structure of costs and the results obtained with this methodology when analyzing the costs of activities related to quality improvement.

CONCLUSIONS

The effort to implement systems focused to analyze general and quality costs will result in a benefit of those participating in the healthcare system: citizens, professionals, managers, and "financials" since that which is only a legitimate demand today will be a inexcuseable commitment of the healthcare professionals from the society tomorrow.