Capturing the Costs and Preparing for Recovery from COVID-19

April 13, 2020

Why Cost Accounting is Integral During COVID-19

Hospitals across the country are working overtime in the fight against COVID-19. Providing care has required somewhat unconventional methods, like converting hospital space for COVID-19 testing, purchasing specific drugs and supplies (including personal protective equipment) for COVID-19 patients, and even reassigning staff from other departments. As hospitals continue to focus their efforts toward COVID-19 patients, it will be important to track the cost of care accurately and efficiently.

Accessing reimbursement, relief, and funding programs at both the federal and state levels will require the complete and accurate accounting of costs related to COVID-19 by hospital and healthcare delivery systems.

The financial viability of many organizations will hinge on their ability to complete this process initially, while also being able to support and justify the approach that was used in any future audits. While specific requirements have yet to be released, hospital systems need to begin immediately identifying, tracking, and justifying COVID-19 related costs which will be critical in order to access these funds in the future.

The COVID-19 Cost Capture and Recovery Model provides a complete process for understanding the cost and revenue impact of COVID-19 in order to support the efforts of healthcare providers. In order to ensure that your base Cost Model is accurate and complete, we would also recommend that you access and review the HFMA-Strata L7 Cost Accounting Adoption Model (L7™). 

Steps Required to Cost for COVID-19

  1. Identify all COVID-19 patients within your health system
  2. Determine costs specific to treating COVID-19 patients
  3. Track and capture costs specific to COVID-19 in your General Ledger and Payroll
  4. Align expenses to COVID-19 related patient activity
  5. Leverage the right allocation method for the right cost category
  6. Track and document COVID-19 costs to support the application process for funding

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COVID-19 Cost Categories

The costs organizations are tracking will fall into the following categories:

Labor: If your organization had to convert or create new departments, including an operations department specific to COVID-19, or deployed non-patient care staff to help in directing care activities, you will need to reconsider how expenses are classified and to whom they are being allocated.

Medical Equipment: If your organization does not have a specific charge identifying ECMO/ventilator utilization, you will need to create activity codes that are assigned only to COVID-19 patients. You will also need to reclassify expenses using patient-driven statistics.

Supplies: Your organization will need to capture acquisition costs in your EHR for all drugs associated with COVID-19 to be able to use supply-based costing. Supply-based costing uses acquisition cost at the time of purchase of the drug as drug cost for the patient.

Room and Board: Use Time-Driven Costing (TDC) to allocate labor expenses where available, and adjust RVUs to reflect actual labor usage for departments if your organization created COVID-19 specific Room and Board codes, is using non-room space, or is repurposing existing room departments for overnight patient care.

Overhead and Other Costs: Consider indirect vs. direct costs and leverage Activity Based Costing (ABC) to treat patient registration, case management, and EVS as direct. Create new cost components for increased expense areas like security, or increased capital purchasing. For increased telehealth/virtual visits, ensure all patient activity related to these services is being brought into your Decision Support system and that the system is allocating cost to them.

To learn more about the cost categories and components most important to track during the COVID-19 virus, watch the webinar or download the full COVID-19 Cost Capture and Recovery Model below.

Download the Model