New Generation Activity-Based Costing Accelerates Timeliness of Decision Support

In healthcare, the timely delivery of patient-activity level cost metrics to clinical, financial, and operational leaders is critical; it allows the organization to respond to internal and external shifts and challenges to positively impact financial performance without negatively impacting patient care and the patient experience.
UPMC determined that the amount of manual effort needed to overcome the deficits of a suboptimal technical infrastructure and database supporting its cost management system drove many of the delays built into its closing process. After exploring the options to enhance and commercialize its cost management intellectual property, UPMC partnered with Health Catalyst to use the Health Catalyst® Data Operating System (DOS™) to co-develop and commercialize the CORUS™ suite activity-based costing module.
The new, analytics-driven cost management system supported a 50 percent reduction in the time needed to complete month-end close:

Three-day reduction in time to close.
Monthly preliminary results are typically reviewed within one business day, affording more time for validation and analysis.
Executives receive financial data up to three days sooner.
Reduction of 3.5 FTEs needed to complete the monthly close.
Reduced 60 human touchpoints and opportunity for error.
Multiple months of data can now be run simultaneously.
Provided support for new data-driven governance structure.

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

Healthcare costs continue to increase at a disproportionate rate relative to gross domestic product, and Americans are becoming increasingly aware that they aren’t getting their money’s worth. To build a sustainable healthcare system, healthcare organizations must identify and address waste and reduce the total cost of care.
UPMC recognized that the common denominator to addressing threats to sustainability is to fully understand and effectively manage costs. It implemented activity-based costing (ABC), facilitated by the Health Catalyst CORUS™ Suite, to deliver detailed and actionable cost data across the analytics environment, and support service line reporting, contract modeling, and clinical process improvement. UPMC has used this approach to effectively drive cost savings and improve clinical outcomes in many of its service lines, including Surgical Services, Women’s Health, Orthopedics, and Cardiovascular. For example:

$3M cost savings/avoidance over 2 years through the implementation of the ERAS program.
Increased insight into cost variation and drivers of inefficiency in the operating room setting.
Improved patient outcomes and quality (readmissions, complications, patient reported outcomes, patient satisfaction, etc.) for patients undergoing joint replacement.

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