We frequently hear that healthcare in the United States costs nearly twice as much as in Europe. One of the reasons healthcare in Europe costs so much less, at least in Northern Europe, is that True Continuous Costing, as we describe in or Chilmark Insight Report, “Making Healthcare Affordable: Implementing True Continuous Costing”, is very common and becoming pervasive.
Like in the United States there is tremendous pressure in Northern Europe to reduce the price paid for healthcare in addition to, but not dependent upon, improving quality and accessibility. They understand that the input costs of providing care at the individual patient encounter level must come down or there is no affordability.
Large Scale Adoption of True Continuous Costing The Nordic Countries, Netherlands, and to some extent the United Kingdom all have invested in, and use, what they call “patient level cost accounting (PLC)”, which is identical to the framework we outline in the aforementioned Insight Report. Within these countries healthcare provider organizations (HCOs) use data they already have to analyze and manage the cost of providing care.
Specifically, a number of European public and private HCOs do the following:
- Extract data from multiple clinical and administrative systems;
- Integrate the data into a cost of care mini-data warehouse;
- Create and store electronically a detailed fully costed bill of materials and labor use accounting for each patient encounter;
- Use true costs not charges, payments, RCCs or RVUs;
- Embrace variance analysis;
- Set up various automated alerts to signal when costs on a patient, department, case type, or “DRG” are trending unfavorably.
More importantly, the HCOs are culturally adapted to accept cost of care as a critical component of managing patient care. This goes from top to bottom, and from bottom to top of the organization’s structure.
The other interesting factor is that each of the various countries that use patient level cost accounting have very different healthcare systems. In the UK healthcare delivery is mostly run by the government (i.e. the National Healthcare System (NHS)) and is paid for via taxes, while in Holland there is a system much more like the US with basic care mandated by the government, but private insurance and private providers do the rest. In Sweden each county has a lot of control over how healthcare is delivered with a mix of private and public providers depending on the particular county. Amongst these various countries there is also a mix of fee for service, and various approaches to bundled payments and captitation schemes.
Many Different Motivators Lead to the Same Conclusion In some cases the initiative to implement patient level costing was due to some major outside catalyst, while in others, like in the UK it was purely voluntary. In Norway the catalyst is a government mandate that all providers must do patient level accounting. In Holland it was the challenge hospitals faced to remain competitive and viable in the face of public and private payers moving to bundled payments. Sound familiar?
TCC/PLC in the Nordic countries and the UK (source Prodacapo):
- Norway: Mandatory beginning Jan 1st, 2017
- Sweden: Not mandatory but every county has signed up to report patient level costing with some counties having used PLC since the 1990s
- Finland: Most hospital uses PLC
- UK/NHS: About 60 hospitals now use PLC and there is a project to make it mandatory within a couple of years
For these European HCOs patient level cost accounting is a critical element in all aspects of hospital, tertiary and ambulatory care in each of these very diverse delivery and payment systems. In most cases the output of patient level cost accounting is combined with outcomes analytics to determine value.
The results are also used to determine which services each provider organization is best equipped to provide. For example, a teaching hospital in Rotterdam may wish to maintain its eye clinic but a specialist eye clinic down the road may be much more efficient with the same or better quality outcomes, consequently the Rotterdam hospital decides to limit its eye care services.
HCOs Must Think Differently About Costs: Look to Northern Europe The point is, and one we have been making all along; it does not matter who owns the provider entities (government or private) and it does not matter how healthcare is paid for, the cold hard fact is that as the amount services demanded goes up and the amount of money available to pay for care comes down, the only thing left to do is to micro-manage the cost of care at the unit of care level. Simply reducing the number of X-rays is insufficient, we have to reduce the actual cost basis in the system at the micro-economic level. True Continuous Costing does that. If we are ever going to have an affordable healthcare system in the U.S. we need to follow the lead of our European sisters and brothers adopting much of the technology and best practices that are assisting them in reigning in costs of care.
For more see our Insight Report.
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