Determining Costs, Delivering Value, and Solving Problems

You can’t solve a problem until you first acknowledge it.

This article first appeared in the June 2017 issue of HealthLeaders magazine.

Just 6% of healthcare leaders say their organization is able to determine the true cost of providing care for all the care they deliver, according to the survey in our June Intelligence Report. That sounds grim—and clearly there is room for improvement. But let’s be clear: Healthcare may be a multi-trillion-dollar industry, but providers are not producing widgets; they are caring for patients, unique human beings.

Yes, leaders are obliged to reduce variation and increase efficiency, and clinicians must embrace evidence-based care, but that should not come at the expense of the individual patient. Different circumstances will come into play—especially in the context of
personalized medicine and social determinants—and those should not be dismissed out of hand. 

Still, as industry leaders gradually abandon a fee-for-service production model in favor of a value-based system that focuses on clinical outcomes, they do need to get a better grasp on costs.

Results of our Intelligence Report on Cost and Revenue Strategies also show that fewer than one-third of leaders, just 30%, say they can determine the true cost of care for most of the care delivered, and another 51% are able to do so for some of the care they provide.

Chad A. Eckes, MBA, executive vice president of corporate services and chief financial officer at Wake Forest Baptist Medical Center in Winston-Salem, North Carolina, served as lead advisor for the report. He says leaders need to manage organizational culture as it relates to cost and transparency. 

"The biggest thing is getting people to standardize their approach to doing things and realize that cost management and reducing some of the waste is as important as the rest of their job," he says, outlining key elements to achieving cost transparency: "Having the pure, raw financial data, then having analytic systems that are able to drill down to the process level and look at it from an activity-based costing perspective, and then being able to do the same view, but at a service-line level."

Eckes also references a classic adage: "One of our key focuses is you can’t manage what you can’t measure, and we had to put those measurement systems in place."

While leaders concede that they are not yet effective at determining the true cost of care, our survey also shows that 58% recognize that lack of data on the true cost of care is among the top three barriers their organization faces in achieving sustainable cost reductions. Another adage: You can’t solve a problem until you first acknowledge it.