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Cost-Consciousness Dawning on Healthcare Providers

By Christopher Cheney  
   November 23, 2015

The lines are blurring between payer and provider perspectives on total cost of care as healthcare's payment model shifts from volume to value. Now, using a payer's methodology, providers are mastering TCOC accounting.

For decades, commercial payers have been trying to track the total medical-services "spend" of individual beneficiaries and beneficiary cohorts on an annual basis.

Providers are catching up.

The total cost of care [TCOC] calculation accounts for a beneficiary's spending in every healthcare setting along the entire care continuum, and can yield operational and competitive advantages to those who know how to apply it.

Katherine Hempstead

"Payers use [TCOC] to identify their most expensive beneficiaries. They use it to evaluate how providers are performing," says Katherine Hempstead, health insurance program director at Princeton, NJ-based Robert Wood Johnson Foundation.

Under fee-for-service medicine, providers have had far less compelling incentives than payers to focus on TCOC. "As a provider, you have to be in a risk relationship for it to be relevant," Hempstead says. Growth in risk-based contracting such as bundled payments has hospitals and physician practices focusing on costs more intensely than ever, she says.

But [providers are] "increasingly involved in risk contracts. Basically, in bundling, you are bidding jobs. You have to give a number and be able to make that number; and to make that number, you have to know your costs… You don't want to be systematically losing money on each procedure."

Now, using a payer's methodology, providers are mastering TCOC accounting.

Rooted in Insurance
Founded as a health insurance cooperative in 1957 and operating today as an integrated health system based in Bloomington, MN, HealthPartners is the national leader in measuring TCOC. HealthPartners provides medical and dental insurance to 1.5 million beneficiaries in Minnesota, Wisconsin, and the Dakotas, with a seven-hospital health system serving more than a million patients.

In January 2012, the National Quality Forum endorsed cost and resource use indexes developed at HealthPartners, marking the first attempt to standardize TCOC measurement across the country.

And in 2013, the Portland, Maine-based Network for Regional Health Improvement (NHRI) launched the Total Cost of Care Pilot program, which is designed to collect TCOC information for primary care practices. The initiative started with regional partners in five states and has added partners in six more states this year. It enables participants to share TCOC information so they can compare themselves against their peers and bear down on costly elements of their practices.

Christopher Cheney is the senior clinical care​ editor at HealthLeaders.

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