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Can a True-Cost Model Save Your Hospital?

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

I spoke with Selivanoff while researching a story about PBC in this month's HealthLeaders magazine. Selivanoff has written extensively on the topic and helped implement it at Catholic Health Initiatives hospitals prior to joining St. Helena. He is putting this cost system in place across the three campuses of his organization.

Selivanoff defines PBC as a type of cost accounting that offers CFOs a tool to better understand the resources consumed by tracking all resources used in providing the organization's products and services. It tracks direct costs and allocates indirect costs of processes and services.

Overhead is spread across all billable services without regard to the relationship of the overhead within a specific procedure. Process costing is used to ascertain the cost of a product at each stage of the process.

I can already hear CFOs objecting: "This is full cost accounting; is she nuts? That's hugely time-consuming."

Indeed, PBC and similar variations of this model do require every resource in a service to be manually tallied and updated annually, including the quantity of labor, frequency, supplies used, and unit cost. So, yes, it's a large undertaking. But it is worthwhile.

Keep in mind that healthcare reform will have a big impact on your hospital costing systems regardless of whether you change or not (though not doing so could prove detrimental over time).

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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.