Ken Wheat, senior vice president and chief financial officer (CFO) at Eisenhower Health, describes how the nonprofit hospital managed its financial strategy during the height of the pandemic and its plans for reopening. He covers the roles that telehealth and virtual care could play going forward as restrictions on nonurgent care and elective surgeries lift and offers advice on advancing efficiency journeys through automation.

Listen to the full episode here.

Cindy Hill – Vice President of Financial Services at Arkansas Children’s Hospital

Clay Shuffield – Director of Decision Support at Arkansas Children’s Hospital

Amanda Lewis – Director of Decision Support and Supply Chain Analytics CHRISTUS Health

While StrataJazz integrates with all EMRs, within our client base, over 100+ health systems leverage Epic. Strata has collaborated with Epic to advance integration of cost data within the Epic Caboodle Data Warehouse as well the live Chronicles environment. This enables organization to expand the audience for accurate and actionable cost data and ultimately integrate this information at the point of order. Strata is the only Decision Support vendor to have a direct relationship with Epic whereby both our development teams work on collaborative initiatives to further advance our capabilities as well as create more efficient integration methods for our common clients. This two-way integration between StrataJazz® and Epic allows data to pass seamlessly between systems, improving analytics and decision making. Strata has dedicated and experienced resources to lead the integration process between Epic and StrataJazz. Additionally, Strata and Epic regularly host Special Interest Groups (SIGs) with client executives to gather valuable feedback around how to continue to drive and develop further alignment between cost and clinical information.

Healthcare providers, like the ones interviewed in this video from Nebraska Medicine, Aurora Healthcare, and OSU, have little to no access to accurate and actionable information on the cost of care. According to a recent survey, 90% of healthcare leaders are “flying blind” when it comes to understanding cost. How can you reduce variation, waste, and inefficiency in order to invest in and improve care if you don’t have any access to data?

Hear leaders from Aurora Health, OSU, and Wake Forrest Baptist Medical Center talk about their implementation process. Strata consistently implements our solution in less than 50% of the time of other companies. We pride ourselves on delivering a 98% improvement in efficiency and millions of dollars in cost savings.

Pat Nolan – VP of Finance at Advocate Health

Talks about their move to advanced cost accounting

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Executive Summary
To evaluate the financial impact of COVID-19 on U.S. hospitals and health systems, data scientists from Strata Decision Technology (Strata) used a proxy group of related patient cases to model the effect on a representative sample of health systems across the U.S.

Using the model, researchers found that, without raising the reimbursement premium on COVID-19 patient cases, the worst-case scenario will result in 97 percent of health systems losing an average of $2,800 per case, with many losing between $8,000 and $10,000 per case.

Researchers also modeled the results of the proposed 20% increase in Medicare reimbursement for COVID-19 cases contained within the stimulus bill currently under consideration in Congress. Even with this increase, the analysis shows there will be an average loss of about $1,200 per case and up to $6,000 to $8,000 per case for some hospital systems, depending on their payer mix.

Methodology
Strata reviewed research from Italy, China and the US Centers for Disease Control before selecting a proxy patient group to simulate the characteristics of COVID-19 patients. Patients were selected from 32 US health systems representing 127 hospitals with 1.2 million combined annual discharges (2019) and $45 billion in annual operational expenses—a subset of the company’s StrataSphere™ data-sharing network and platform. Patients selected for the proxy group were those who matched the eight DRGs reflecting similar conditions and complications to COVID-19, including pneumonia, respiratory infections, acute respiratory distress syndrome (ARDS), sepsis, and ECMO life support. The cost and payment metrics for these cases were adjusted based on the observed severity of COVID-19, including a 25% addition to total costs.

To model the financial impact, researchers assumed that the 32 institutions would operate at 110% of normal capacity to handle the surge and treat 225,000 COVID-19 patients over the course of 30 days.

While COVID-19 cases tend to skew toward Medicare patients (65 years and older), researchers used mean reimbursement across all payer types for each institution studied, including commercial insurance. As a result, the model may actually underestimate the magnitude of negative margin from these cases.

COVID-19 cases driving unusually high costs
Costs for COVID-19 patients are significantly higher even than their proxy DRG counterparts. The complexity of the patients is causing a decline in nurse staffing ratios as nurses and staff are required to help each other validate that their personal protective equipment (PPE) is properly fitted. Costs are also higher due to expanded cleaning regimens, PPE shortages, more frequent X-rays and CT scans, and overall higher supply and drug costs. Overall, it takes longer and requires more to care for these patients than even the proxy DRGs selected.

Loss of elective cases prevents cost shifting
Alongside the higher cost of treatment for COVID-19 patients, the model included projected revenue and margin lost from “elective” inpatient services deferred as hospitals make room for more COVID-19 patients. Elective cases are the primary source of revenue for many hospitals, allowing them to take a loss on certain other services while remaining profitable. Researchers estimate that 90% of hospitals that cancel all elective procedures will shortly begin to experience negative profit margins from COVID-19 cases.

Conclusion and Recommendation
With the predicted loss of up to $6,000 to $8,000 per case on treatment of COVID-19 patients, even with the proposed 20% increase in payment, many hospitals will not be able to survive the damage to their cash flow for longer than 60-90 days. Without additional financial relief from government or other sources, they will be forced to take decisive action to reduce costs such as dismissing/furloughing large numbers of non-clinical workers who are already overwhelmed converting hospital beds, maintaining equipment, and performing other non-clinical but essential jobs.

To help reduce the impact of higher costs for COVID-19 cases, as an initial step the federal government should provide a 35% increase in Medicare reimbursement for COVID-19-related DRGs. Even that increase in Medicare reimbursement would not solve the broader enterprise problem of lost revenue from cancelled elective procedures.  If the pandemic and correlated loss of elective cases continues into the Fall of 2020, increased reimbursement would need to come from commercial payers and Medicaid as well as Medicare.

Feb. 15—Hospitals and health systems are increasingly pushing to better identify and reduce costs of care.

As part of that effort, the HFMA-Strata L7 Cost Accounting Adoption Model, known as the L7 Model, was introduced earlier this week.

HFMA interviewed senior executives with two industry-leading providers to get insight on why cost accounting is seen as increasingly important, what barriers can prevent progress, and steps they have found to improve results.

Proving insight on this subject were Chris Bruerton, FHFMA, assistant vice president, finance at Intermountain; and Chris Donovan, executive director of enterprise analytics at Cleveland Clinic.

HFMA: The model HFMA and Strata released this week aims to help organizations assess their current cost accounting methodology, understand the level of accuracy of their cost data, and benchmark capabilities against peers. Can you tell us why each of those areas are important to your organization?

Chris Donovan: Building a common model to have something to compare against and that we’re all measured against equally will be a huge value. This is especially true not just when you are trying to communicate externally—there’s a lot of discussion about how health care doesn’t understand its costs—but being able to communicate internally to our own organization about the need to invest in this capability and having an external benchmark that other peers and organizations are participating in, and that we can show our progress against, can really help move the needle internally as well.

There’s a ton of people doing really simplistic cost accounting, which is really simplistic ratios of cost to charges (RCC), and doesn’t drive a lot of value and may lead you to make bad decisions instead of better decisions. You might be better off not doing anything, rather than doing some of these really poorly thought-out methodologies.

Benchmarking is the hardest thing to do, but if we can achieve a common understanding of how we apply this and are able to get meaningful cost benchmarks—which is the internal costs to the healthcare system, not an external measure like charges or some RCC methodology, which is typically what I have seen people trying to do benchmarking of costs with—benchmarking can be immensely valuable because everybody is looking to understand how we can take costs out of the healthcare process. Being able to look at high-performers and payers across the industry and see what they are doing and where are we out of whack will be huge for us.

HFMA: Another aim of the new model is to create a roadmap for the actions required to ensure your cost accounting approach meets your strategic needs. Can you give us an example of a strategic need that requires a better cost accounting approach?

Chris Donovan: The clearest strategic example is around care affordability. So, how are we going to drive better value for our customers and patients through high-quality, low-cost healthcare? It’s really hard to do that if you don’t have a clear understanding of what your costs are.

It’s also going to have a pretty strong influence on a lot of strategies around population health management. Again, it comes down to understanding the true costs of delivering care and moving beyond delivering care in individual, acute-based episodes to delivering care to a population.

All of this builds on each other. Being able to understand each acute-care episode cost and how we drive improvement there, and the ability to understand the true costs of treating the population over time and on a longitudinal basis, is predicated on having good cost accounting and a solid understanding of the cost of delivering that care.

It also ties into quality. We have to understand the incremental value of quality and the costs of achieving that quality so we can make smart decisions about where to invest limited resources. We have to understand what the cost is of avoiding a sepsis infection. That’s really hard to do today. But if I can understand it and quantify it, I can derive the resources that are necessary to achieve those quality goals.

HFMA: How can this type of approach to improving costs accounting help your efforts to shift to value-based payment models?

Chris Donovan: The underlying issue of shifting to value-based payment is that as a provider, we’re going to be increasingly taking on risk. Historically in a fee-for-service model we were getting paid for what we were doing, so we didn’t have to be efficient necessarily. We could negotiate rates with the insurance company and do a good enough job of delivering care at those rates to be successful in that.

But in a value-based world, we’re going to be at risk for providing care. And in order to appropriately set the level of risk that we’re willing to take, in order to achieve value in taking that risk—and not lose our shirts—we have to understand the costs of delivering that care. Otherwise, you’re going to enter into agreements that you have no idea if you can manage the risk that you are taking on.

HFMA: In the world of value-based payment, what are the limitations of using time-driven activity-based costing to get cost information for all patients and procedures that can match detailed clinical data, which allows for examining quality on every procedure and for every physician?

Chris Bruerton: This is challenging sometimes. Getting costing data on all patients and procedures and aligning it with detailed clinical data to understand the quality provided is critical in a value-based payment environment. You need to have good data so you can make the right decisions.

At Intermountain, we don’t want to provide the cheapest care; we want to provide the best-value care—the highest-quality and safest care while driving down costs. We don’t ever want to do anything to harm the patient, jeopardize quality, or negatively impact the patient experience.

Identifying unnecessary variation and understanding the cause of it is key to driving out waste and avoidable costs in the organization. If a procedure can be performed at a lower cost, without jeopardizing quality, why wouldn’t you do it that way?

HFMA: What are challenges with traditional time-driven activity-based costing?

Chris Bruerton: I have discussed this with peers around the country that have attempted to do time-driven activity-based costing. What I hear is that philosophically it is a great idea, but it is not easily scalable, is generally focused on a certain procedure or case type, and is very time-consuming. You may not get value out of it when you try to expand that across multiple areas.

If you have the capability within your electronic health record to capture time components of activities, and can then feed that data into an automated costing process, that is definitely the way to go.

HFMA: Is there a need to get more precise and timely cost information to physicians to collaborate more closely with them on the costs of care?

Chris Bruerton: Yes. In our old home-grown costing system, we would update the costing data quarterly. Having automated and more frequent costing information allows you to get it into the hands of physicians and caregivers so they can understand how much the services they provide cost, and if there are opportunities to provide better and more cost-effective care. The more accurate the data they receive and the quicker they get it, the faster that decisions can be made to go after those savings opportunities.

HFMA: Is this kind of cost accounting roadmap likely to benefit certain types of hospitals or health systems, or can even small and under-resourced hospitals benefit from it?

Chris Bruerton: If you have access to data that can improve your costing process and accuracy of costing information, then I think you should use it. If you have limitations with your electronic health record and don’t have access to this data, then you should do the best with what you have. Even progressing one or two levels on the [seven-level] L7 model can make a significant improvement.

If you are an integrated delivery system, then having costing data for different care settings, (such as hospitals, physician groups) will enable you to see the costs across the entire continuum of care. This can help the system drive patients to more cost-effective care settings.

HFMA: What other initiatives is your organization undertaking to improve your cost accounting?

Chris Bruerton: Another initiative that we are doing is called “beyond budgeting” or “dynamic planning.” It’s transforming our financial planning process by transitioning us away from the traditional budget process, which is very detailed and time-consuming, and replacing it with a more nimble and agile process to respond to the ever-changing healthcare environment.

You implement rolling forecasts, do benchmarking, and manage to metrics. A key component of “beyond budgeting” or “dynamic planning” is having good costing information so you can help leaders understand their business and empower them to continually improve their operations, drive out waste, and reduce costs. Reducing costs, without sacrificing the quality of care, is critical to being successful in a value-based, at-risk environment.

CHICAGO, IL, October 25, 2018 —Top U.S. healthcare delivery systems came together this week for Lift18—The Strata Decision Summit, the three-day Strata Decision Technology (Strata) user’s conference focused on helping healthcare organizations leverage financial planning, analytics and performance applications in support of their clinical mission.  The Summit included 650 attendees from 115 healthcare delivery systems across the country and comes at a time when hospitals are under severe financial pressure.

While hospitals represent roughly 33% or $1.2 trillion of the total $3.6 trillion spent annually on U.S. healthcare, their average net operating margins have dropped below 3% with close to 30% operating at a loss.  At the same time, less than 10% of healthcare providers have access to accurate cost data via an advanced cost accounting solution, making it very difficult for them to identify variation and waste in order to reduce the cost of care.

During the Summit, Strata announced the availability of Time-Driven Costing (TDC™) to help healthcare systems better understand their cost and margins in support of their clinical imperatives.  TDC is a feature within StrataJazz®, the market’s top-rated application for advanced cost accounting and financial decision support. Over 100 U.S. based healthcare delivery systems have or are in the process of deploying StrataJazz for advanced cost accounting, which includes the TDC capability.

“Our customers are working together to implement best practices in order to drive more value for their providers, their organization and the community that they serve.  During the Summit we discussed the playbook that top organizations are using to become a Center of Excellence for financial planning, analytics, and performance to address their most significant challenges and most important priorities,” said Dan Michelson, Chief Executive Officer of Strata Decision Technology.  “There has never been a time when physicians could do more to help patients or when administrators could do more to help physicians.  The resources are there, we just need to make sure we use them wisely.  Understanding how to leverage those finite resources as effectively as possible is why capabilities like Time-Driven Costing are so mission critical.”

The TDC capability within StrataJazz allows providers to extract time-based data from existing systems in an automated fashion, allowing for more accurate and detailed costing.  The application has included time-driven features in the past but has now expanded the coverage to include TDC for surgery, anesthesia, physician time, clinical time, emergency department, nursing, imaging as well as more traditional time-driven activity-based costing.  TDC enables organizations to understand operational costs beyond traditional cost accounting.  Issues related to capacity utilization, resource analysis in physician use of support staff time, and the associated impact on clinical outcomes can automatically be tracked.

Strata has earned top honors as the KLAS Category Leader for Business Decision Support for four consecutive years.  KLAS is viewed as the Consumer Reports for digital health and their research is based on thousands of healthcare provider surveys and interviews conducted throughout the year.

Additional highlights from the three-day event include the following:

CHRISTUS Health Wins 2018 LEAP Award

CHRISTUS Health, a not-for-profit health system based in Dallas, Texas, was named the winner of the 2018 LEAP Award.  CHRISTUS Health is comprised of more than 600 services and facilities, including more than 60 hospitals and long-term care facilities as well as 350 clinics and outpatient centers.  A Strata customer for 20 years, CHRISTUS was recognized for their work in analytics to gain a comprehensive view of the true cost and margins across episodes of care, service lines and patient populations and for their collaboration with their clinical and administrative staff in using this data to improve clinical and financial outcomes.  The LEAP Award recognizes healthcare organizations for outstanding performance in the areas of finance and strategy to benefit both their organization and the community that they serve.

Children’s Hospital of Philadelphia Receives the 2018 Development Partner Award

Children’s Hospital of Philadelphia (CHOP) is the nation’s first hospital devoted exclusively to the care of children.   As transparent pricing continues to be a priority for states and for the Centers for Medicare and Medicaid, the ongoing collaboration between CHOP and Strata will help providers understand their cost, as well as develop and communicate their pricing to patient families in a more succinct and effective way.

Keynote Highlights Bringing Moneyball to Medicine

The Keynote for the conference was Paul DePodesta the subject of best-selling book Moneyball.  His story of helping turn the Oakland A’s, the worst team in baseball with lowest payroll, into baseball’s best team revealed the stunning and hidden power of data and analytics to make a difference.  Healthcare providers have learned that data by itself doesn’t add much value.  Other industries including professional sports are decades ahead of healthcare in applied analytics, using data in a practical way to solve problems and overhaul stagnant systems.

Strata provides the healthcare industry’s leading cloud-based, modular platform for planning, analytics and performance.  With a client base of over 1,000 hospitals, Strata provides attendees the opportunity to meet with peers and discuss best practices across a spectrum of topics related to driving change in healthcare. Notable organizations presenting included Advocate Aurora Health, Akron Children’s Hospital, Anderson Regional Medical Center, Augusta Health, Baptist Health, Children’s Health in Dallas, Children’s Hospital of Philadelphia, CHRISTUS Health, John Muir Health, Maine Health, Mercy Health, OSF Healthcare and The Ohio State University Wexner Medical Center amongst others. 

About Strata Decision Technology

Strata Decision Technology provides an innovative cloud-based planning, analytics and performance platform that is used by healthcare providers for financial planning, decision support and continuous improvement.  Founded in 1996, the Company’s customer base includes 1,000 hospitals and many of the largest and most influential healthcare delivery systems in the U.S.

The Company’s StrataJazz® application is a single integrated software platform that includes modules for strategic planning, capital planning, operational budgeting, management and productivity reporting, decision support and continuous improvement.  The Company’s headquarters are in Chicago, IL. For more information, please visit www.stratadecision.com.

Contact:  Rachael Britnell, [email protected], 312.827.7711