Modern Cost Accounting
By James T. Krupienski
The cost of delivering healthcare has been rising for years, and the current cost-accounting approach may no longer be effective in the post-COVID-19 world. A more modern cost-accounting approach is needed to accurately reflect the true cost of care and improve decision making.
In cost accounting, all of the various costs incurred in running a healthcare organization are tallied and categorized. This information is then used to inform decision makers about how to best allocate their resources. Healthcare cost accounting has traditionally been a very complex and manual process, involving a lot of data entry and number crunching. However, as healthcare organizations have become more data-driven, cost accounting has had to evolve to keep up.
One of the biggest challenges in cost accounting is accurately capturing all of the costs associated with patient care. These costs can include everything from the cost of medications to supplies, overhead, and the cost of labor. Additionally, cost accounting must take into account both direct and indirect costs. Direct costs are those that can be easily traced back to a specific patient or procedure, while indirect costs exist across the entire organization and cannot be directly linked to any one patient or procedure.
Organizations must also consider cost accounting when making decisions about billing and reimbursement. In order to set billing rates that reflect the true cost of care, cost accounting must be as accurate and up-to-date as possible. The pandemic has made this even more challenging, with many new factors, such as the cost of pre-visit COVID-19 testing.
There are several reasons why a more modern cost accounting approach is needed in healthcare post-COVID. First, the pandemic has resulted in a significant increase in the number of patients requiring care, while delivering care has slowed down. This has put a strain on resources and has made it more difficult for healthcare organizations to keep track of their costs in a timely manner.
Second, the pandemic has forced healthcare organizations to rapidly adapt their operations. For example, the pandemic has resulted in an increase in the cost of some supplies and medications. Specifically, personal protective equipment is now in high demand and can be quite expensive. This has made it difficult to accurately track costs using traditional cost-accounting methods, where more time and resources are needed to fully capture all costs.
Third, the pandemic has highlighted the need for better decision making about resource allocation. Cost accounting can help managers to make informed decisions about where to allocate resources in a time of crisis.
Finally, the pandemic has resulted in a change in the way that patients receive care, such as the seismic increase in the use of telemedicine. With more patients being treated at home, there is a need for a cost-accounting approach that takes into account the cost of care delivered outside of the traditional setting.
All of these factors have created a need for a more modern cost-accounting approach that can adapt to the changing landscape of healthcare. Cost-accounting software that is designed specifically for healthcare entities can help organizations to track and manage their costs more accurately. Such software can provide real-time cost data, which is essential in today’s rapidly changing healthcare environment. Additionally, more relevant software can be used to create cost models that can help organizations to make better pricing and reimbursement decisions.
“The current cost-accounting approach may no longer be effective in the post-COVID-19 world. A more modern cost-accounting approach is needed to accurately reflect the true cost of care and improve decision making.”
The bottom line is that a more modern cost-accounting approach is essential for healthcare organizations in the post-COVID world to more accurately track their costs and make informed decisions about pricing and reimbursement. Going about this can be done in a few simple steps.
Understand cost. The first step is to understand the cost drivers of care. Aim to identify the total cost of treatment. The cost of care should be examined in order to understand the costs within the entire treatment process.
Identify cost drivers. The second step is to identify the cost drivers of care. Once cost drivers are understood, healthcare organizations can allocate cost appropriately and make informed decisions about where to allocate resources. To identify cost drivers, ask questions such as, what are the major cost components? What is the cost per unit of care? How do cost vary by patient population?
Allocate cost. The third step is to allocate cost based on clinical and business value, particularly with indirect costs. When cost is allocated based on value, decision makers can make informed choices about where to allocate resources.
Analyze cost. Finally, healthcare organizations must analyze cost data to identify trends and improve cost management. Cost data can also help decision makers understand which cost-saving measures are working and which are not, and how to appropriately bill for their services.
Adopting a more modern cost accounting approach is essential for healthcare organizations to accurately reflect the true cost of care post-COVID. This will help improve decision making, better serve patients, and, ultimately, improve the bottom line.
James T. Krupienski is partner, Auditing and Accounting, Health Care Services leader, at Meyers Brothers Kalicka, P.C.