Do You Have What it Takes?

Do You Have What it Takes?

MATT ALLEN MATT ALLEN

MATT ALLEN

Business Development Representative at RealPage

发布日期: 2019年8月13日
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My friend, Ralph Burns, is somewhat of a celebrity in the Healthcare Cost Accounting world. Recently he gave this presentation at Healthcare Financial Management Association (HFMA) Region 8 Mid America Summer Institute explaining the challenge of keeping healthcare margins positive in the era of Alternate Payment Models.

Compared to most other industries, health care is unique in that revenue (pricing) is not derived from a desired profit margin that is based on cost calculations and market conditions. Revenue is dictated and negotiated. Profit margins are primarily managed re-actively by containing and controlling cost. Ralph Burns shows a profitability analysis that demonstrates the importance of accurately defined cost elements. He also shows several scary statistics showing how many projects fail or go wildly over budget.

Here is Ralph's outstanding presentation. Let me know what you think.

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Profitability is based on time tested fundamentals. Basic accounting principles. Any organization that fails to embrace these principles is at great risk of financial ruin.
Accounting Basics, items that need to be clearly defined when making decisions throughout the process. Profitability Formula, Matching Principle, and Cost Definitions.
Compared to most other industries, health care is unique in that revenue (pricing) is not derived from a desired profit margin that is based on cost calculations and market conditions. Revenue is dictated and negotiated. Profit margins are primarily managed reactively by containing and controlling cost.
There are two factors of the profitability formula, “Revenue” and “Expenses”. APM is on the Revenue side of the equation. There are four primary levels that grow from simple to complex with increasing risk.
APM is designed to control costs incurred by those who are purchasing services. However, for the provider (hospitals & physicians) there is a risk that revenues will be reduced and cost will increase. Here is an example of additional costs incurred because of resources related to addressing Revenue models . It also demonstrates the need for an emphasis on the accurate identification and management of cost.
This is a summary of the components that make up a Cost Accounting Adoption Model. It is a list of 25 components, one building upon the other, of fundamental methods associated with health care cost accounting.
Here is a high level architecture of a costing process. Details, such as the 25 cost accounting adoption model components, are contained in the process objects shown here. This process is the foundation used for applying revenue and costing models.
Here are some deliverables that are generated from the costing process. They also include revenue. At the bottom is a payer mix scenario that demonstrates volatility and the necessity of this information for executive management.
Here is a profitability analysis example that demonstrates the importance of accurately defined cost elements. Specifically for managing the cost structure balance of fixed and variable costs.
Applied costing definition details and an understanding of Cost Accounting Definition Relationships to Cost Components is imperative. By concatenating cost center codes with the GL account codes the resulting unique records are defined as one of these four categories. The process is simple the magnitude is the challenge. Developing it is one task, maintaining it is a separate issue. Monthly review during data loading and annual cost model audits are an effective maintenance approach. In the course of a year each cost center should be reviewed at the charge code level for cost calculation and assignment rules.
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The core of the challenges from the previous slide are demonstrated here. It is important to have a clear understanding of the differences between Financial and Management Accounting when making decisions relative to the costing process.
Planning, skills, and process are what support success. Oscar Wilde – Life imitates art vs. art imitates life. So what are the rules for success if you would like to create a healthy costing environment for accurate profitability reporting. And what are some of the cautions as you proceed with this task?
Cautions against over confidence in project success. Make sure that the project budget is part of the criteria for project success.
The architecture is the foundation of the process, Agile Cost Accounting. A concept that is over 100 years old. The details will be unique to each organization. It has nothing to do with software or hardware. It is not something that you can purchase. It is the combination of the planning, skills, and process. Cookie cutter approaches do not work if you are trying to establish an efficient and accurate costing system. Final note: For this is to be successful and sustainable it must be implemented without bias of familiar processes, software or vendors. Vendors and software can offer valuable tools and resources but should not lead your business process. Great value is found in the ownership of the process by people inside the organization who possess the skills, intelligence, experience and dedication to the process. An objective focus on the mission of the organization and loyalty to the organization. Cooper: To Serve - To Heal - To Educate.
Summary: Do you have what it takes? What does it take?
Credits and references
Salutations

Matt Allen, Regional Account Executive, Harris Affinity,

Work: [email protected]

Personal: [email protected], 919-349-2113


Susan Paddack

Senior Manager, ERP Consulting

5 年

I appreciate Ralph’s explanations and examples that help me to understand the complexity of Healthcare costing.

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