Healthcare Industry Podcast:
How Activity-Based Costing Can Help Your Healthcare Organization Thrive
Most healthcare organizations don’t have a clear idea of how much it costs them to deliver patient care. In fact, the Healthcare Financial Management Association estimates that less than 10% of hospitals and healthcare systems have cost accounting systems that can accurately provide cost data.
But the practice of activity-based cost accounting is beginning to take hold to glean those insights. This process, which has long been used in other industries, can be considerably more accurate than traditional healthcare accounting methods.
“ABC, or activity-based costing, is basically a way of figuring out the cost of services based on the activities needed to produce them. It’s like looking under the hood of a car to see what parts are needed to make it work.”
Activity-based costing (ABC) defined
So how does ABC work? First, a healthcare organization computes the actual cost of services, supplies and other operational areas on a per-case basis. In order to calculate the total cost of care delivery, the entity doing the cost accounting would need access to data from a wide range of providers—including post-acute care and/or ambulatory care providers—and supplies, such as medication.
While ABC is much more accurate than traditional accounting methods, this method can require an enormous amount of work and data when involving legacy and manual systems. Even large providers may find this to be financially and logistically difficult using standard accounting software.
The role of technology in ABC
ABC tends to be more easily instituted among next-generation accounting and Enterprise Resource Planning (ERP) solutions, particularly as part of a healthcare digital operations platform (DOP). This platform-based approach involves a best-of-breed integration among next-generations systems to provide operational visibility across practices or long-term facilities while automating data collection and reporting processes through Artificial Intelligence (AI) and other modern developments.
Says Thornton, “One of the most beneficial features of a healthcare DOP is the ability to automate many of the manual processes using enhanced workflows. This helps reduce the time and effort required in data collection, cost allocation and reporting just to name a few.”
Learn more about incorporating the ABC methods within your own practice by downloading the whitepaper, “Activity-Based Costing’s Time Has Come.”
