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Can a True-Cost Model Save Your Hospital?

Karen Minich-Pourshadi, for HealthLeaders Media, February 13, 2012

And isn't that what drove up costs and ultimately sparked the need for legislation to begin with?
Sharp HealthCare comprises four acute care hospitals, three specialty hospitals, two affiliated medical groups, and a health plan.  Pumpian adds that with Medicare and Medicaid reimbursement cuts and initiatives such as value-based purchasing hitting this year and coming to a head in 2013, finance leaders need to adjust their priorities to keep their respective organizations in the black.

This year's survey shows that finance, leaders rank their priorities as

  1. Patient experience/satisfaction (58%)
  2. Cost reduction, process improvement (49%)
  3. Payment reform, reimbursement (39%)


This order of priorities speaks to the unsettled state of the industry. When healthcare financial leaders are more focused on HCAHPS than on cost-reduction efforts, I think something is askew.

Finance leaders who do want to get serious about cutting costs, may be interested in a different approach to cost modeling called process-based cost modeling. Finance leaders use various terms regarding costing models, so arriving at an exact definition for PBC is challenging, explains Paul Selivanoff, CPA, vice president of finance at the 150-bed St. Helena (CA) Hospital–Napa Valley, part of Adventist Health.

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1 comments on "Can a True-Cost Model Save Your Hospital?"


John Doub (2/14/2012 at 11:02 AM)
Agreed 100%. When I was in private industry manufacturing products, we tracked total materials and labor for every product we built, applied overhead, and knew exactly what our cost was. At my hospital they have a cost model that is probably not close to reality. Also performance, outcomes, and profitability of physicians must be part of the score card. Unfortunately in healthcare, we can't just raise the price to increase margins, so knowing the true cost and chipping away at multiple products to decrease cost is the only viable alternative. Great article and well timed.