Estimating the Cost of Care

As parts of the Patient Protection and Affordable Care Act begin to roll out, it's important for healthcare providers to understand that healthcare in the United States is becoming increasingly driven by performance. I've said this before in previous blog posts, but it's something that needs to be overstated. Although giving out both incentives and penalties for the quality of care that institutions provide is still a relatively new cost model; this is our future and healthcare organizations must be prepared for this new reality - which I'm sure most of you reading this agree you already are (at least, I hope!). How exactly will healthcare organizations be able to estimate the cost of care based on the value they deliver versus the quantity they provide? This is one of the most pressing questions boggling the minds of many healthcare executives, particularly those who work in the finance and accounting departments of these organizations.

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Patient Satisfaction

Hospitals of all scopes and sizes will have to inevitably build in improving and sustaining high levels of patient satisfaction in order to ensure that they will not only receive financial incentives from the Federal Government, but also avoid penalties as well. The Center of Medicare and Medicaid Services has built in patient satisfaction scores and how they will dole out incentives as well as slap penalties onto hospitals. Inpatient stay will be measured using randomized surveys given out to patients after their discharge.


Patients will be asked a series of questions in regards to their communication with nurses and doctors, responsiveness of hospital staff, how well staff deliver pain relief therapies, medical education, and cleanliness of the healthcare setting, discharge information and their overall perception of the hospital – which I’ve stated already in my previous blog, “The Walmart of Healthcare”. Therefore, one of the first steps that healthcare organizations should take to prepare for this innovation that will potentially disrupt their traditional cost of care model is by getting all hospital staff trained around patient satisfaction measures. Hospitals and doctors’ offices should begin creating best practices centered on improving these scores in order to avoid future penalties from the government. Again, if you already know this, great! I'm saying all the right things then.

Patient Health Outcomes

Both hospital and clinical settings will be judged on the health outcomes of their patients. The Center for Medicare and Medicaid Services will evaluate hospitals based on the number of patients that have died as a result of lifestyle-related diseases such as heart attack, stroke diabetes, how well doctors and nurses have helped managed blood sugar, cholesterol and blood pressure levels of patients (related to back to preventing lifestyle related diseases such as heart attacks, stroke, diabetes and certain forms of cancer) and how well patients recover after surgery. The cost of care model in this scenario will also change drastically now that hospitals and doctors will have to shift from being "reactive", focusing more on preventative healthcare practices. Many hospitals and physician groups have begun creating elaborate fitness centers, wellness coaching programs and other lifestyle management services that will help patients reduce their risk of being diagnosed with lifestyle-related diseases, i.e. heart disease, diabetes, stroke, etc. Have you?

Calculating Costs Based on Value

So the big pressing issue becomes how do healthcare providers accurately estimate the cost of care based on value and not the quantity of care provided? Many healthcare organizations have begun creating very robust information systems and calculators that allow them to estimate their cost of care solely related to the impact of the quality of care that they have provided on their estimated DRG payments from the Center of Medicare and Medicaid Services. Companies are developing their own calculators or partnering with companies who created their own to estimate their payments based on new measures and outcomes directed from the Government. One of the unique things about using a "calculator" is that it allows organizations to get accurate estimates of payments based on small changes in different performance scenarios. Also, small changes in other performance measures give hospitals and other settings the opportunity to make instantaneous changes in order to avoid penalties and continue to receive timely financial incentives from the government. Boy that was a mouthful.

What are you doing?

How are YOU going to estimate the cost of care based on the value delivered versus the services provided? Please share your thoughts in the comment section below.

Topics: patient satisfaction, cost protection, Estimation

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