Physician Cost Accounting
What Hospital Finance Professionals Need to Know
David J. Clingo
President
Fiscal Medics, Inc.
Cesar N. Fernandez-Mansilla
Managing Director
Integrated Medical Organization Systems, Inc.
Physician Cost Accounting
(for Hospitals)
Image(s) copyright CoolCLIPS.com
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Quick Survey
Quick Survey
• Why are you here?
• How do you plan to use the information?
• Do you want to own the solution or are you
satisfied with just having a solution?
• How segregated do you want costs to be?
- Just a “Clinic” cost … vs…
- A “Clinic and Specialty Cost” … vs…
- A “Clinic, Specialty and Physician” cost
Motivations  Drive  Requirements!
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Quick Survey (continued)
• But, what is “actionable”… especially for you?
– More requirements => More complexity
– Be aware: much tends to relate to MD
“Productivity”.
– If your arrangement is % of Revenue… you are
probably in the wrong place!
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Background
• The issue and main concept to internalize
– Cost is a Provider-Based concept
• The Speakers
– Background
– Interest in helping clear the confusion around
the subject.
• Presentation Format
– Not a lecture
– Please feel free to interact
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Cost Acctg vs. Productivity
• In the Hospital World…
– Effort alignment exists (considerable synergies)
– Without much pain
• In the Practice Management world
– Alignment is not straightforward because there is
a new component: “Provider Decision Making”
– As a result, metrics do not align (little synergy)
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Cost Accounting - Types
– Job Order
– Process
In the Healthcare Provider world they blend
We will explain
using an analogy
With the help of
our friendly
practitioner…
Image Copyright: Ljupco Smokovski | Dreamstime.com
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Provider Costing Analogy
Our practitioner goes “Shopping”
Process
Tests, DHS, etc
“Shopper”
Physician
Job Order
Patient/Case
Thus, the Hospital is both…
- “The Factory” (process)…and
- “The Assembly Plant” (job order)
Image Copyright: Ljupco Smokovski | Dreamstime.com
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Cost Accounting
The Basics
The Basic Costing Models Tenets:
• Segregate expense (Vble, Fixed, Dir, Indir)
• Segregate activity (“Volume”) to match expense
– Chargeable or not
– Obtain, if possible, metrics for non-chargeable activity (ABC)
• Then  Expense / Volume = Cost
– Direct Cost: Direct Expense /
“Activity” (RVUs, algorithms)
– Indirect Cost: Allocated according to the best available criteria
and metrics (…the value of this can be the subject of much and
unwarranted debate).
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Differences
Expense Segregation
• Hospitals G/L
– Does a pretty good job, albeit not perfect
– A good CA system will allow you to “fix” it
– CA system “is” the place to do this, not the G/L
• Clinics G/L
– Same system as the Hospital?
– COA: Hospital, MGMA, Other?
– Either way, will likely need lots of “massaging”
We will see how and why…
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Expense Segregation
Example 1
HOSPITAL EXAMPLE:
Understanding that we are talking about an
“activity” cost (not the overall “case” yet)
Cost of Daily Hospital Services in the ICU
• Direct expense is, mostly, found in the ICU Dpt
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Expense Segregation
Example 2
CLINIC EXAMPLE:
Cost of “Internal Medicine”
- In either G/L model (Hospital or MD Practice)
Depending on:
- Locations in which service is provided
- How Provider contracting is structured
- Multi-specialty status of the provider
- And how all of this is booked in the GL
…The Direct expense can be in multiple
places INCLUDING a separate G/L altogether!
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Expense Segregation
A few extra considerations
• What constitutes a fair provider expense?
Provider “is” the main part of Direct Cost so…
– Overcompensation of owners? (analyzed later)
– Transfer pricing – e.g., Medical Directorship Fees?
• Specialty “specific” expenses
– Different specialties may share a space but use
different (and more costly) resources
– E.g., OB/GYN vs. Internal Medicine vs. GI
 Nurses/Staff
 Equipment
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Expense Segregation
A few extra considerations (cont’d)
• Same specialty different cost by location…
– Depends on location cost strux and volumes
• Provider Costs creation – The steps…
1st) “find” the expense (in G/L)
2nd) “figure” how to spread it which, likely…
 Will depend on activity by location…
 Or the time spent by location…
 Or what the provider does by location…
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Differences
Activity Segregation
Hospitals - Charge Code depicts:
– Uniquely IDs: What and Where
– Tied to a Dpt (where the expense is found)
Clinics  CPTs (for the most part)
– Not unique: Same regardless of …
* Location (for the most part)
* Specialty (Dpt)
* Provider
– Not tied to a Dpt (expense, likely, not in one place)
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Differences
Activity Segregation (cont’d)
And there are different statistics to track/cost
• Hospital
– Patient Days (Equivalent Patient Days with O/P)
– Outpatient Visits
• Clinics
– What is a visit?
 Professional (MD, AHP, Non-Provider)
 Ancillary
Use/Purpose determines definition
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In Summary
– Expense:
Need to “massage” the GL to get clean expense
that matches activity
– Activity:
Need to “patch” the billing system to create a
unique chargecode (at interface) to match the
expense (at the level of detail sought)
– Stats:
Need to have a separate “engine” to define
activity which can/will be used later to:
- Allocate expense (both direct and indirect)
- Help assess part of the provider production/
productivity “conundrum”
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Provider Productivity
vs. Production
• Other things we want to know:
– How “productive” is the Physician
 Be careful: Production <> Productivity
 Issues: Churning, effectiveness, quality, etc.
– Efficient use of resources
 Depending on compensation model, … Upcoding?
 Comparison to peers?
 Structural internal cost (staff, equipment, etc.)
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Ownership Structure can
Complicate matters
How a Physician Practice is “owned” has a lot
to do on how its costs are structured
– VERY relevant to Network “Cost-Based”
Compensation
– Surpluses paid to practice owners as “regular
compensation” are to be excluded
– Market value of specialty may actually be the
real “cost”
– The rest is either an “indirect cost” or no cost at
all! (a.k.a., a “dead ended” expense) – WHY?
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The Lingo…
Lots of concepts … and confusion:
• ABC – Activity Based Costing
• TDABC – Time Driven Activity Based Costing
• PDABC – Process Driven Activity Based Cost
• RVU – Relative Value Unit
• RCA – Resource Consumption Acctg
• Microcosting
• Standard Costing
… and many, many, more…
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The Lingo (cont’d)…
But it all comes down to a few concepts …
1. In Provider Healthcare, “exact cost” is at best an
utopian concept, at worse a damaging one
2. You cannot cost what you do not measure
3. The trick is to find a reasonable balance between:
a) segregating and counting
b) the effort to do it and,
c) the diminishing results of overdoing it
4. IMPORTANT: “RVUs” are not “a type of costing” is a
tool ALL types of costing use (they really do!)
- Except “true” microcosting which goes to point 1
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Practice Costing using the
Hospital CA System- Practical Issues
• Activity
– Create a “Unique Clinic Charge Code” …
 Tells Location/Specialty/Provider (according to
your need and/or interest in detail)
 Will likely require external “massaging” of data
feed
• GL
– If expense is not segregated as required
 Create “activity” driven (dynamic) allocations
 Have to have a system that allows this
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Practice Costing using the
Hospital CA System- Practical Issues
• Statistics
– Define those that matter to you (use for alloc.)
 Clinic Visit – Provider, AHP, non-Provider
 Ancillary visits
 Have system create these stats (if possible)
• Reporting (examples provided if time allows)
– Depending on reporting sophistication of DSS,
a separate tool may be the best option
– Practice Cost and Productivity reporting can be
very complex.
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Network costing
Blending Cost Data - Considerations
• Keep in mind that how your network pays its
members may dictate how this is to be done!
– Purchased vs. Made
– Who is paying
– How is the payment made (%Rev vs. Exp)
• You are likely to need an MPI
• Likely, the network is looking for more than
just cost,
– MD Productivity is likely to be an issue just as
important as COST!
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Why is Provider Cost important?
• Because it has always been but we managed
to get away with ignoring it… until now.
• Because of ACA
– Cost assessment/mgt a critical component
– Network services contracting
• Not just a theoretical consideration
– More FFS turning to Case/Bundle/Incentive
payments
• Quality/Cost considerations
• “Comparative” advantage considerations
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Other important considerations
• No matter what you do, the GL is NOT the
place to do cost accounting. It pollutes it and
complicates its mission.
• Remember: Costing Models are provider
based… You have to choose what you will do
– A hospital has ONE provider
– An MD/Clinic Group has multiple providers
• Visit Definitions – Multiple, according to need
• Chargemasters will eventually loose
historical mission… but now have a new
important one!
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Questions?
Thank you for attending the presentation.
David J. Clingo
President
Fiscal Medics, Inc.
Off: 760-480-9587 * Cell: 760-580-2366
[email protected] * http://www.fiscalmedics.com
César N. Fernández-Mansilla
Managing Director
Integrated Medical Organization Systems, Inc.
Off: 760-936-9837 or 760-721-2400 * Cell 760-505-1366
[email protected] * www.imos.com and www.imoslab.com
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