Helping Health Healthcare: Financial Decision Support

Helping Heal Healthcare:
Financial Decision Support
June 6, 2017

© 2017 Strata Decision Technology All Rights Reserved
Me…
• Tushar Pandey
• VP, Decision Support @ Strata Decision Technology

The OLD math…
Success =Quantity

REVENUE CYCLE
MANAGEMENT
INDUSTRIAL COMPLEX

The NEW math…
Value =
Quality
Cost
_____
_

Two baskets…and a new business model
Drive
Volume
Drive
Value

Projected Annual Spending on Healthcare
An Overall Perspective…
©2013 Strata Decision Technology
Annual Cost of Waste in the US HealthcareSystem according to a 2012 CBO report (not includingfraud & abuse)
~ 30% is Waste
$700BAnnually
80%, $542B is within the scope of
care providers
60%, $320B of waste is generated
in hospitals
Failure of Care
Delivery
$150.0
21%
Failure of Care
Coordination
$36.8
5%
Overtreatment
$232.4
33%
Administrative
Complexity
$157.4B
23%
Pricing Failures
$123.5B
18%
$420B in waste from over
utilization

Everyone has a target…
9
Mergers
Bundles
Price
Transparency
CCJR
Comprehensive
Care for Joint
Replacement
Market
Competition
Health
plan

$330M
$220M
$40M
$200M
$1B
$300M
$150M
$100M
Everyone has a target…

What does Healthcare need to prepare for?
Physicians
Want the Data
Data sharing will be
core to the
physician alignment
strategy
Serving the
Continuum
Systems will look to
expand &
understand cost of
services beyond the
hospital
Focus on
Quality
Quality
improvement will
be the key driver of
cost reduction
Reduce Cost of
Care
Understanding &
Reducing cost of
care is top priority
Value Based
Care
With the success of
the CMS programs.
2017 will see
expansion to the
commercial space

Bundled Payments…Taking Center Stage
Source: Harvard Business Review, The Strategy That Will Fix Healthcare (October 2013)
“The absence of
accurate cost
information in health
care is nothing short
of astounding”
“Healthcare
organizations are
flying blind in deciding
how to improve
processes and
redesign care”
“Bundled
payments
will finally
motivate
providers to
master
proper costing
practices and to
drive efficiencies
without sacrificing
good patient
outcomes.”
Source: Harvard Business Review, How to Pay for Healthcare (August 2016)

Well, that’s great…..
Why do we need Decision Support to solve this?

OLD
Department
Entity
As Healthcare Goes Horizontal…Decision Support is mission critical
NEW
Service Line
Population
Condition
Episode

Cost Accounting in our daily life 
• You bought groceries and paid
$76.59
• How do you figure out how much
each item was?
• What if you had no idea what
each item cost?
• What decisions for the future
would you not be able to make?

The Need for (Better…) Financial Decision Support @ your
workplace
• We have various business units/departments ( IT, Dev, Marketing, Sales,
Executive, DSS, FP, etc)
• How much of your salary or cost is attributed to a single client you
worked on or each time you work on a support case?
• How much of IT time is attributed to every client?
• You get it…right?
• How would we price if didn’t fully understand the above?

Where the confusion on “cost” begins…
The Need in Healthcare
17
Provider Patient Payor
Price
What the patient paid?
Charge
What the insurance covered?
Reimbursement
What the hospital charged?
Cost
How much did a patient’s care cost the hospital?
Which one are
we talking
about?

A Patient’s Bill
18

The Provider Version...An Income Statement for Radiology
19

A Patient Example
20
Steve Total Knee
Replacement
Complication &
Readmission
• How much did Steve cost the hospital?
• What was the cost of his surgery?
• What was the cost of the follow-up readmission?
• How much should we expect to get paid for this?
• Was Steve’s treatment profitable to the organization?
• What implications did the doctor’s choices have on quality and cost?
• Should our organization do more knee replacements?

What is Decision Support?
21
StrataJazz®
Continuous Improvement
Eliminates variation, waste and
inefficiency on an on-going basis
 Quality & Utilization Variation
 Staffing to Demand
 Organization-Defined
 Consulting
Decision Support
Provides true costs and margins
across continuum of care –
ranked #1 in KLAS
 Cost Accounting
 Contract Analytics
 Consulting
Financial Planning
Delivers advanced modeling,
planning and budgeting controls
 Strategic Planning
 Operating Budgeting
 Management Reporting
 Capital Planning
 Equipment Replacement
 Productivity Reporting
 Consulting

Costing Accounting
Decision
Support
EHR
ERP
EDW
Clinical & Financial

Step 1: Alignment of Expenses
• Align Accounting Practices to
Patient Care
• Reclassification – Moving/aligning
direct dollar
• Overhead Allocation – Allocating
indirect dollars ( IT, Finance)
Step 2: Attributing Costs to Patients
• Attribute High level expenses to
patient transactions
• Various methodologies based of
type of procedure/expense
/patient
High-Level Costing Process
Costs
Reclassification Overhead Allocation
Departments
Direct Costs Indirect Costs
Charges
Departments

Cost Types
Describes cost source and cost type
Fixed:
Not impacted by test
volume
Ex: maintenance, utilities
Variable:
Driven by volume
Ex: supplies, salaries
Direct:
Directly related to
patient care
Ex: lab, ICU
Indirect:
Supporting areas of
the business
Ex: IT, Finance

DIRECT METHOD SEQUENTIAL/STEP-DOWN METHOD SIMULTANEOUS/RECIPROCAL METHOD
Allocate Overhead Expenses
Increasing accuracy of costing results
Example: IS and Accounting

Cost Accounting is Not One Thing (e.g. TD-ABC)
It’s Many Things
26
RELATIVE VALUE UNIT
(RVU)
ACCURATE
FLEXIBLE
COVERS MOST COST
TYPES
REQUIRES SOME
MAINTENANCE
SUPPLY/INVOICE
BASED
VERY ACCURATE
TRACKS PREFERENCES
TIMELY TRENDING OF
COSTS
REQUIRES ADDITIONAL
INTEGRATION
% MARKUPS
ALLOWS ACCURATE
COSTING OF BUNDLED
SUPPLIES
FOR SUPPLIES ONLY
DEPENDENT ON
ACCURACY OF CHARGES
AND MARKUP SCHEDULE
RCC
EASY TO UNDERSTAND
& MAINTAIN
ASSUMES COSTS ARE
PROPORTIONAL TO
CHARGES
OUTDATED
ABC
EASY TO UNDERSTAND
IN CLINICAL SETTINGS
COMPLEX TO
IMPLEMENT
TDABC
IDENTIFIES EFFICIENCY
BASED COST SAVINGS
VERY LABOR INTENSIVE
TO IMPLEMENT
APPLICABLE TO LABOR
ONLY

The RVU approach
Charge
Direct
Labor
(Time)
Indirect
Labor
Physician
Labor
Supplies
(Cost)
Equipment
Depreciation
(Time)
CHEST X-RAY
(2 VIEWS)
22 1 0 $12 10
CHEST X-RAY
(4 OR MORE VIEWS)
27 1 0 $15 15
HIP
(1 VIEW)
18 1 0 $12 15
HIP
(2 VIEWS)
25 1 0 $24 20
What is a RVU?

Advanced Pharmacy Costing
• Cost varies significantly by patient
• Status
• Location
• Bundling of Charge Codes
28
Patient receives Drug A… Cost
at market-reported rate (WAC) 100%
at non-340B eligible clinic (WAC w/
discounts)
92%
during inpatient admission (GPO) 90%
at 340B-eligible outpatient dialysis
clinic (340B)
0.02%
0%
50%
100%
150%
Drug ADrug B
AWP
WAC
WAC w/
discounts
GPO

Cost Accounting - Key Buildings Block Across the Continuum of Care
• Clinical effectiveness & efficiency through monitoring cost, utilization,
quality
Department &
functional area
marginal cost
improvement
Analyze target
population for
financial &
clinical
opportunities
Activity-based
cost aligned
with quality &
performance
measures
Evaluate at-risk
contracts
Operational
budgeting &
long range
financial
planning
Clinical effectiveness &
efficiency through
monitoring cost,
utilization, quality
Department &
functional area
marginal cost
improvement
Analyze target
population for
financial &
clinical
opportunities
Activity-based
cost aligned
with quality &
performance
measures
Evaluate at-risk
contracts
Operational
budgeting &
long range
financial
planning
Pharmacy
Physician
Ambulatory /
Clinic
Out-of-
network
claims
Physician
specialist
Clinic
affiliate
Acute care / Hospital
Procedure-level costing

Decision Support:
Costing Methodologies
Financial
Data
Clinical
Data
Costing Methodologies & Algorithms
Cost Reduction & Better Decision Making
 Standard Costs
 Adjusted CCR
 RVU
 ABC
 RCC
 % Markup
 Supply Cost
 Time-Driven
ABC
 Cost margins by service line
 Ability to benchmark MD
performance
 Negotiate for better reimbursement
 Improve operational efficiencies
Cost Across the Continuum
 Hospital
 Professional Fees
 Outpatient
 Home Health
 SNF/Rehab
 LTAC
 340B pharmacy
 Hospice
 Reference Labs

Problem and Solution- Cost Accounting
• “How much does treating a patient cost me at all
my sites of care?”
• “Are my service lines profitable?”
• “Do I need to re-negotiate my contracts with
payors?”
• “How are my physicians performing?”
• “What should the price of our services be?”
• “Should we grow our business?”
• “What are the implications of quality variation?”
• “How will I survive under bundled payments?”
• Understanding Total Cost of Care across all sites of
care
• Accounts for variation between
patients/physicians/locations
• Brings Clinical & Financial Data together
• Provides Actionable data to entire organization
• Supporting strategic pricing
• Facilitating Margin Analysis
• Supporting marketing and business development
efforts
• Helping organizations make data driven decisions
What Problem(s) Drive Clients to Purchase Cost
Accounting? How Does Cost Accounting Solve their Problem(s)
Key Message: Cost Accounting is brings together clinical and financial
information to understand the true cost of care across the continuum.

What is Decision Support?
StrataJazz®
Continuous Improvement
Eliminates variation, waste and
inefficiency on an on-going basis
 Quality & Utilization Variation
 Staffing to Demand
 Organization-Defined
 Consulting
Decision Support
Provides true costs and margins
across continuum of care –
ranked #1 in KLAS
 Cost Accounting
 Contract Analytics
 Consulting
Financial Planning
Delivers advanced modeling,
planning and budgeting controls
 Strategic Planning
 Operating Budgeting
 Management Reporting
 Capital Planning
 Equipment Replacement
 Productivity Reporting
 Consulting

Now that I know my costs, how do I know if I’m profitable?
• Do you how much you will make in your next pay check?
• Do we know how much a client will pay us after they sign?
• Does a restaurant know how much they will get paid after you’re done
eating?
• What about a hospital? Do they know how much they will get paid after
treating the patient?

Contract with
Payor
•Health Systems receive a document detailing out how much they
will be paid for each type of patient post treatment?
•This is pretty complex! Varies by Insurance Plan, patient,
treatment choices
Post Patient
Discharge
•Hospital Revenue Cycle team submits a claim per patient to the
Insurance Company
•This is an arduous process, often requiring manual manipulation
Payment
Received…Maybe
•Insurance Company evaluates the claim data. Could decide to
deny based on bad data, “gotchas” in patient treatment,etc
•This process often takes over 60 days…Heath Systems are often in
the dark and can’t evaluate profitability.
The Reimbursement Process

Value of Contract Analytics
• Underpayment Analysis =
Increased Revenue
• Real Time Net Revenue =
Understanding Patient
Profitability without the wait
36

Negotiating a Contract
37

Problem and Solution - Contract Analytics
• “How much should I expect to get paid by
insurance companies?”
• “Which Insurance companies are underpaying my
organization?’
• “What would the impact of payor mix shift be?”
• “What would the impact of bundled payments or
alternative methodologies be?”
• “Am I breaking even for my Medicare Patients?”
• “Should I accept a new proposal by an insurance
company?”
• Easily model all common reimbursement
methodologies across all care sites
• Provides real time margin analysis – you can react
quicker
• Provides underpayment analysis
• Quickly model scenarios to support contract
negotiations
• Evaluate break even points for each payor
What Problem(s) Drive Clients to Purchase Contract
Analytics? How Does Contract Analytics Solve their Problem(s)
Key Message: Contract Analytics accurately models payor contracts to
understand real time margins and perform underpayment analysis.

DRIP!

What is Financial Decision Support? Margins

Who uses Decision Support today?
 Service Line
analysis
 Health system
performance
 Margin analytics
Finance Leadership
 Peer Comparison
 Cost reduction
 Quality Improvement
 Physician Utilization
 Contract modeling
and negotiations
 Payor
performance
 Pricing
Revenue Cycle
 Service Line
Analysis
 Patient
profitability
 Market Planning
Strategic Planning Clinicians & Operations

Tracking a Patient’s Entire Cost of Care

Financial Decision Support Components
Enterprise Profitability
by Site
Profitability by Payor Profitability by Service
Line
Bottom 10 Service Line
Analysis with Drill
downs
Payor Mix

• Key Metrics/KPIs
Efficiency: ALOS Financial: Cost Per Case Financial: Margin Per
Case
Quality: Readmission
Rates
Quality: % Quality
Variation/ Cost of Harm
Volume: ED Visits

• Key Initiatives
Medicare
Breakeven Analysis
Preparing for
Bundles
LOS Reduction
Opportunity

Medicare Payment
Would You Grow This Service?
$13,800
$14,840
$15,200
-$2,760
$1,400
Variable Cost Per Case Margin
∆$1,040
RCC Labor &
Supplies
ABC + Supply Acquisition Cost
TRUE COST
$15,200$17,960
RVU + Average Supply
Cost ∆$3,120
$15,200 $360

Medicare Payment
Would You Take 110% of Medicare in
Exchange for More Volume?
$13,800
$14,840
$16,720
-$1,240
$2,920
Variable Cost Per Case Margin
∆$1,040
RCC
ABC + Acquisition Cost
TRUE COST
$16,720$17,960
RVU + Average Cost
∆$3,120
$16,720 $1,880

Making it better for clinicians……
QualityofCare
Impact
Financial
Impact
Inpatient and
Outpatient Direct
Cost per Case
Revenue per
Inpatient and
Outpatient Case
Unnecessary
Variation in
Practice
Incidence of
Adverse Events
(PSIs/QVIs)
Readmission Rate
• All indicated areas must be focused on in order to achieve success
Must be reduced
or eliminated to
achieve success
Must be reduced to
achieve success
Must be optimized to
the current
environment
+ +
+
Labor Non-Labor

With the right data…Physicians are ready
to engage
~20%Only 1 in 5 MDs could correctly
estimate the cost for common
orthopedic devices
>80%
Over 8 of 10 MDs would
consider cost as a key criteria in
the selection of a medical device
PHYSICIANS AT SIX MAJOR HEALTHCARE SYSTEMS WERE ASKED TO ESTIMATE THE
COST OF 13 COMMONLY USED ORTHOPEDIC DEVICES
(ESTIMATES WITHIN 20% OF ACTUAL COSTS WERE CONSIDERED CORRECT)1
Physicians don’t know… …but do care about cost
n =503 MDs at orthopedic departments at Duke, Harvard, University of Maryland, Mayo, University of
Pennsylvania, Stanford, and Washington University
1Survey Finds Few Orthopedic Surgeons Know the Costs of the Devices They Implant, Health Affairs, January 2014.

Clinical and Financial Integration
50

z
Controlling Costs With Computer-Based
Decision Support
Leonard S. Feldman, MD; et al
JAMA Intern Med. 2013;():1-2.
Presented MDs cost
information on lab tests at
the point of care via
computer
Surgical Vampires and Rising Health Care
Expenditure: Reducing the Cost of Daily
Phlebotomy
Elizabeth Stuebing, MD, MPH; Tom Miner, MD
Arch Surg. 2011;146(5):524-527.
A weekly announcement to
surgical house staff and
attending physicians of dollar
amount charged to non-
intensive care unit patients
for lab services during prior
week
> 25% reduction in
dollars charged/
patient/day for
routine blood work
~10% reduction in
test volume
($400,000+ in
savings)
Cost Information in the Hands of
Physicians is a Major Opportunity

Price Transparency

How We Define Strata…
Our Mission:
Help Heal Healthcare
Drive Margin to Fuel Your Mission

Helping Health Healthcare: Financial Decision Support

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