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How Far Have We Progressed on True Continuous Costing?

by Robert Tholemeier | April 30, 2019

Three years ago, our report Making Healthcare Affordable: Implementing True Continuous Costing explored the need for, and benefits of, implementing True Continuous Costing (TCC). TCC is an analytics approach to measuring a provider’s costs of providing care for each patient encounter using the data healthcare providers already have.

Since then healthcare spending has continued its upward spiral and efforts to reduce or even control what we pay for healthcare have remained primarily focused on reducing utilization. With that in mind, we would like to take this opportunity to revisit the TCC approach to see if its need is still compelling and to review implementation progress.

Healthcare Spending Projected to Rise to $6 Trillion

CMS reports that as of 2017, per capita spending on healthcare in the United States has grown to almost $11,000. CMS projects that, despite its programs to reduce utilization, healthcare spending in the U.S. will rise 5.5% annually (many times the rate of inflation) and will hit $6 trillion in 10 years, up from $3.5 trillion in 2017.

The Need for True Continuous Costing

New payment models like ACOs, bundled payment programs, value-based care, etc., have continued to be the exclusive focus of healthcare expenditure reduction efforts. Clearly, if the goal is reducing the aggregate level of spending on a nationwide basis, or taking the sting of patient billing experiences, we are obviously failing.

In fact, bundled payments, value-based care and similar approaches to utilization reduction programs further underscore the need for TCC, because these programs increase the provider’s administrative burden and shift financial risks from payers to providers, who are woefully under-equipped to do so.

The only practical way for providers to manage this risk and get its costs under control is to migrate from a majority RCM approach of fiscal management to a cost control approach with an emphasis on increasing productivity (i.e. instead of more bucks, go for more bang for the bucks).

True Continuous Costing Adoption

Unfortunately, TCC has remained largely unimplemented in healthcare in the U.S. since our report was first published. Meanwhile, in most of the developed, and even in some emerging economies, adoption of TCC continues to pick up steam. In some countries, TCC has even become ubiquitous across the entire spectrum of providers. One thing our continuing research shows is that TCC, once implemented, has never failed to result in lower costs of care.

Roadblocks to Implementation

Barriers to TCC implementation and acceptance are largely unchanged since we first published our report on the subject in 2016. Resistance to change and the fear that accurate cost data will reveal inefficiencies that result in layoffs are still factors that need to be overcome if TCC is to gain wide acceptance. Other industries have successfully addressed the same cultural resistance to efficiency and productivity initiatives, and the need grows every day for healthcare to do the same.

Misunderstanding of the return on investment of TCC implementation has also contributed to lackluster industry engagement with this costing method. One new insight is that it is not necessary to undertake a full-on activity-based costing approach, which accounts for all spending including fixed or new overhead. Assigning a cost factor for overhead to each patient encounter is not required to identify waste and inefficiencies in designed or ad-hoc care plans and protocols. The use of direct variable cost data, which is readily available for analysis separates the signal from the noise.

Finally, the American healthcare cultural trait that assumes every provider fiscal problem can be solved with more revenue or a more robust RCM program is also untenable in this environment. However, we have yet to see a more sustainable mix of investments in financial systems and personnel from RCM and towards cost containment.

Understanding True Continuous Costing

A lot has changed since we first suggested true continuous costing as a solution to rapid cost increases for healthcare services, but the need to measure, monitor and manage the real costs of care remains the same. Until the industry does, initiatives to reduce costs will always suffer from misconstrued or invalid concepts.

To understand just what True Continuous Costing is, and how it can work to identify cost excesses in healthcare, please download our original report on the subject (now FREE).

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