Dive Brief:
- To find out if overhead costs could be attributed directly to activities involving patient care, Children's Healthcare of Atlanta has begun using activity-based costing in areas like environmental services, diabetes education, patient access and medical records maintenance.
- Traditional accounting in hospitals doesn't always reflect the true cost of services per patient. Activity-based costing accounts directly for the resources consumed by a single patient—for instance room cleaning is based on the area of clinical care.
- By using the new system, the organization has found that they were not allocating costs correctly and have now made changes in about half of their departments, with plans to move forward to the remainder.
Dive Insight:
A good example, according to director of performance analytics Mike Riley, is in the emergency department patient access cost category: "It was easy to re-class those dollars into the ED," Riley said. "When we re-class them, those costs were spread based on the [relative value units]. Regardless if it's a level-one or a level-five patient, the same work is being done by that access staff. So we were able to say we're going to spread this cost evenly per patient."
Unlike other industries, understanding the true cost of services provided has been somewhat elusive in the healthcare market. Providers have often had to look outside of tradition into areas like manufacturing to try and understand how each level of services—from housecleaning to nursing and food services—all contribute to the cost of treating one patient.
The biggest challenge to this kind of costing strategy shift, according to Riley, is getting department staff on board: "To get the operational buy-in on some of this is just going to take time," Riley said.