With that prior manufacturing experience background, Hernandez was "aware of activity-based costing and knowing every dollar you spend has to be accounted for," says Robert A. DeMichiei, executive vice president and chief financial officer of UPMC.
Six years ago, UPMC realized it needed to know what its costs were, like any other industry, says DeMichiei. "What does it cost to do a knee? What does it cost to do a hip? Are we being efficient?" UPMC executives at the time, including DeMichiei, a former General Electric executive, admitted they did not know.
"The revenue cycle solutions were the old solutions," he says. "They're based on reimbursement. They're not based on what every other company in every other industry thinks about, which is, 'How do I become more efficient?' I have customers that are very price-sensitive." Four years ago, UPMC kicked off its cost initiative with an eye to building service lines, as healthcare pivots from volume to value, he adds.
UPMC's tool assigns costs to specific activities, such as use of the operating room, initially developed using a tool customized within Oracle's Hyperion Profitability and Cost Management software, although the recently announced vendor partnership will see the tool migrated over to the Health Catalyst data warehouse platform for commercialization.
"We started with Oracle's infrastructure framework, but we built all the cost-management activity-based healthcare algorithms. So all the relationships, all the activity drivers, all the subsystems feeding in—we built that ourselves," DeMichiei says.
Starting in 2011, DeMichiei says UPMC proved the tool's value at successively larger UPMC hospitals, starting with UPMC Mercy in Pittsburgh, then moving on to the rest of the UPMC hospitals in Allegheny County. A larger test in 2014 resulted in UPMC being able to reduce the number of "open" hysterectomies, versus vaginal or minimally invasive versions of the surgery, by showing that the latter methods reduced complications, lengths of stay, readmissions, and costs. "For some reason we were still doing them open—generally because the specific physician had always done them that way," DeMichiei says.
Scott Mace is the former senior technology editor for HealthLeaders Media. He is now the senior editor, custom content at H3.Group.