Atlanta hospital tries pegging costs to actual activities

Children's Healthcare of Atlanta has entered a new frontier in healthcare finance: equating a hospital's labor costs to the actual steps required to treat a patient, Becker's Hospital Review reports.

The facility engages in activity-based costing--essentially correlating money spent to actual activity, according to the article.

So far, the hospital has engaged in activity-based costing for environmental services, diabetes education, patient access to the emergency room and medical records maintenance. As a result, hospital officials found they weren't  properly accounting for the costs for these services.

Tthe cost of access to care is the same for a level five patient who walks into the emergency room as a level one patient who is wheeled in unconscious, according to the article. "When we re-class them, those costs were spread based on the (relative value units)..." Mike Riley, Children's Healthcare's director of performance analytics, told Becker's. "So we were able to say we're going to spread this cost evenly per patient."

Reassessing labor costs could prove critical to hospitals and they way they handle finances. In 2010, the American Hospital Association concluded that labor costs are the single-biggest driver of cost increases within the acute care inpatient setting, significantly larger than the costs of insurance, supplies, drugs or other components of hospital operation. Streamlining some labor processes could save hospitals millions of dollars.

Although Atlanta Children's has not issued any specific cost-savings figures, hospital officials say the biggest step in implementing such a strategy is obtaining buy-in from all relevant members of the hospital staff.

"Make sure you understand how their services are delivered and what services you provide…so that when you start down this process you don't realize it's not what you thought it was," Brad Webb, Atlanta Children's manager of cost analytics told Becker's. "In a large organization … they might just look at the description on the cost center and decide how to spread overhead. That description of that department in the accounting system doesn't always match what they're doing on the ground."

To learn more:
- read the Becker's Hospital Review article

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