New Generation Activity-Based Costing Accelerates Timeliness of Decision Support

An efficient accounting closing process delivers timely and accurate information to guide decisions and operational adjustments. Learn how UPMC implemented an analytics-driven cost management system, supporting a 50 percent reduction in the time needed to complete month-end close.

Activity-Based Costing and Clinical Service Lines Team up to Improve Financial and Clinical Outcomes

Cost challenges in healthcare are threatening the future of many healthcare organizations and their ability to effectively care for patients. Read how UPMC took on these challenges by partnering activity-based costing and service line operations to gain insight into cost and clinical variation.

A Service Line Approach Improves Women’s Health at UPMC

By the age of 60, more than one-third of women in the United States have had a hysterectomy. Healthcare systems across the country are recognizing that a women’s health service line offers a pathway to improving care and decreasing cost for these patients. Having accurate activity-based costing information is necessary to uncover opportunities for clinical practice improvement and cost reduction.
The University of Pittsburgh Medical Center (UPMC) made the decision to organize Women’s Health as a service line across the entire health system. UPMC fortified this approach with strong and collaborative leadership, an enterprise data warehouse, and an activity-based cost management system. The results:

20 percent reduction in inpatient length of stay for hysterectomies (over a three-year time period)
34 percent reduction in open hysterectomies
28.3 percent reduction in 30-day readmissions for hysterectomies

These results were obtained during a time when this clinical service saw a 25 percent improvement in its contribution margin.

Service Lines and Activity-Based Costing Reveal True Cost of Care for UPMC

Between 2007 and 2014, U.S. healthcare costs per capita increased by almost 25 percent. The way in which health systems are typically organized, managed, and budgeted (as departments and units within separate hospitals) works against them when they attempt to improve population health and decrease costs. The University of Pittsburgh Medical Center (UPMC), a large health system with more than 20 hospitals and 500 clinics, was keenly aware of this challenge as it embarked on population health and value-based care initiatives that spanned the entire organization.
The health system determined that it needed to break down the virtual walls between care centers and standardize service lines across the enterprise. By extension, this organizational change mandated the need for activity-based costing in healthcare that would deliver the insight necessary to run a service line effectively. UPMC organized six service lines within the health system, each spearheaded by clinical, operational, and financial leadership. Each service line uses the health system’s innovative, data-driven activity-based costing methodology to understand the true cost of care.
Notable, measurable results of UPMC’s service lines and activity-based costing methodology to date include:

$42 million of cost reduction opportunities (approximately 2 percent of targeted service line cost)
$5 million in supplies savings
Transparency toward identification of contribution margin variation for specific procedures
Up to 97 percent improvement in time to access information