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Activity Based Cost Accounting and Payment Bundling

Agenda

• Introduction of Speakers

• Fast Facts about Jewish Senior Life/Jewish Home of Rochester

• Determining the need and uses for an Activity Based Cost Accounting System

• Overview of the system

• Factors considered, informational needs and challenges faced during implementation

• Current utilization & the future!

Speakers

• Travis Masonis – Jewish Senior Life - CIO

• Michael Ryan- Cost Flex – Vice President

• Patricia Hughes – Jewish Senior Life - Assistant Director of Finance

• Debbie McIlveen – Jewish Senior Life – CFO

Jewish Senior Life Background

• Long Term Care facility with 362 Beds with 68 Transitional Care beds (TCP)

• 84 Medical Adult Day Care slots

• CCRC with 90 independent living apartments; 60 Assisted Living units and 18 Memory Care beds.

• Outpatient Rehab, Physician House Calls program

• Companion Services and other community services

Please note the cost accounting system is currently utilized in the Jewish Home (nursing home) only at the present time.

Rationale

• Shift from Fee-For-Service to Payment Bundling• Preparation to negotiate Post-Acute portion of a bundle

• Utilization of historical data to understand costs based on diagnoses and other demographic data• Other operational efficiencies and analysis around non-bundled

patients

• Mitigation of uncertainty in costs and risk.

The Requirements

• A company willing to provide SNF friendly pricing

• A software company whose business IS healthcare cost accounting and understood our needs

• A product that was either built for Long Term/Post Acute Care (LTPAC) or could be modified to work with LTPAC.

• There were limited options that would fit our needs.

• Need to interface with existing billing, clinical and general ledger software packages.

The Selection Process

• Management determined what data was desired.

• Staff involved in the decision• Clinical, Financial, IT, EMR/Billing software vendors

• Interviewed a few companies

• Determine ability to interface with existing software packages

• Took over six months to identify the firm

• Final selection – Cost Flex

Necessary Electronic Information

• This information comes primarily from the Billing/Census systems• Patient Charges

• Includes charge codes, descriptions, quantities, $ amounts, posting and service dates

• Patient Cash• Posting dates, transaction codes, amounts

• Patient Adjustments

• Patient Demographics• RUG, Age, Sex, Financial Class, Insurance, diagnoses codes, procedure

codes

Challenges

• Finding the right solution

• Activity Based Cost Accounting was relatively unexplored in post-acute care

• Cost of the systems and implementation

• MS-DRG availability

• It has been difficult to obtain MS-DRG information on discharged hospital patients.

• Used hospital discharge diagnosis/post-acute admitting diagnosis instead, to evaluate patient costs.

• Using a hospital centric system in Post Acute Care

• RUGS, per diem room charges, RVU’s

Challenges (cont.)

• What data is useful to us?

• Do we look at cost per RUG? Cost per diagnosis? Cost per diagnosis with comorbidities? Are outliers skewing the results?

• The more historical data you have, the better you are able to predict and create cost trends.

• Was historical data captured the way we needed it in our current systems?

• ICD10 conversion

How Cost Accounting Works - Concepts

1. Your Expenses - money you spent that month - are your Costs

2. Cost Accounting is simply taking knownExpenses (salaries, supplies, etc) and restating them on known patients you cared for.

Concepts of Patient Costing

1. The cost of a patient is simply the sum of the cost of things we provided to the patient

2. To cost a patient we will cost the “things we did for them” – room and bed, supplies consumed, drugs consumed, therapy services, medical services, nursing, etc.

3. Maxim: To cost it you must count it

CostFlex is a Monthly Costing Process

GL: Jan

GL: Feb

GL: Mar

GL: Apr

GL: May

GL: Jun

GL: Jul

GL: Aug

GL: Oct

GL: Sep

GL: Dec

GL: Nov

WL: Jan

WL: Feb

WL: Mar

WL: Apr

WL: May

WL: Jul

WL: Jun

WL: Aug

WL: Oct

WL: Sep

WL: Dec

WL: Nov

Cost: Jan

Cost: Feb

Cost: Mar

Cost: Apr

Cost: May

Cost: Jul

Cost: Jun

Cost: Aug

Cost: Oct

Cost: Sep

Cost: Dec

Cost: Nov

Expenses:

Salaries, Supply $, Depreciation, ect.

Workload:

Room Charges, Supplies used Drugs issued, etc

Costing Application

Concept: Costs change from month to month

500600

700800

9001000

2006

0320

0605

2006

0720

0609

2006

1120

0701

2007

0320

0705

2007

0720

0709

2007

11

Months ----->

Co

st (

$)

Monthly

Due to changes in expenses and workload / census, The costs for an activity can change from month to month

500600700

800900

100020

0603

2006

0520

0607

2006

0920

0611

2007

0120

0703

2007

0520

0707

2007

0920

0711

Months ----->

Co

st (

$)

Monthly

3 Month Avg

Concept: Costs can be smoothed for patient

reporting (i.e. apply a 3 month weighted average)

Costs are “smoothed” but trends are still visible for management. Note: cost trending up!

Annual Costing just gives 1 number per year

GL: Jan

GL: Feb

GL: Mar

GL: Apr

GL: May

GL: Jun

GL: Jul

GL: Aug

GL: Oct

GL: Sep

GL: Dec

GL: Nov

WL: Jan

WL: Feb

WL: Mar

WL: Apr

WL: May

WL: Jul

WL: Jun

WL: Aug

WL: Oct

WL: Sep

WL: Dec

WL: Nov

Costing ApplicationExpenses Workload

CostsJan – Dec

Gen. Ledger

Jan – DecWorkload

Jan – Dec

500

600700

800900

1000

2006

0320

0605

2006

0720

0609

2006

1120

0701

2007

0320

0705

2007

0720

0709

2007

11

Months ----->

Co

st (

$)

Monthly

Annual

- Costs hold consistent for 12 months at a time.- Management cannot see trends to take action on

Annual Costing vs. Monthly Costing

Knowing your Annual Cost of patients vs

the Monthly Cost is like knowing the Average

Depth of the lake vs how deep it is where

you are right now.

Considerations of LTC costing vs Hospital

Costing

1. Create patients by month for costing trends2. Attaching cash to correct “monthly patient”3. “Non Patient Cash” i.e. insurance settlements

can be large.4. Get more activities from other feeds in

organization (i.e. Labs, Pharmacy, Radiology)

System Setup

• Where does the data come from?• Billing software

• Accounting software

• Online purchasing software

• Invoice detail from third party vendors

• What do we do with all of this data?• All of the data is then uploaded into Cost Flex

• Each cost is stepped down from Nursing Home to Transitional Care Unit to Patient and allocated as a direct or indirect cost

• Reimbursement is then attached to the stay to calculate a gain or loss

Costs Accumulators

• Direct Costs – related to the care of the patient

• Nursing Labor

• Therapy Labor

• Medical Labor

• Pharmacy

• Lab

• Radiology

• Direct Supplies

• Indirect Costs – overhead costs stepped down to the patient

• Support departments

• Facility Costs – utilities

• Depreciation and Interest

Reimbursement

• Reimbursement• Direct payments

• Accounts receivable balance

• Allocation of overhead revenue (Contributions, discounts, etc)

• Allocates all costs and reimbursements at a daily level• Determines daily gain/loss that provides analytical tools for

admissions and nursing management

Report Utilization

• Developed a “team” to review the data on a monthly basis:• Clinical Coordinator from TCP• Finance Staff• Admissions Coordinator• Administrator

• Several iterations of the reports that we wanted to use

• What metrics to measure that will allow us to use this data strategically?

• Determine what will provide the most useful for our partners?

Operational Challenges• Not having a dedicated position for creating the reports and analyzing

the data. “Another thing” added to the to do list! Not being able to spend as much time on it as we would like.

• Developing financial and clinical understanding for the “other” side.• Not having enough historical data to really develop trends at this point• Trying to operationalize our findings – how do we change our practices

based on this.• Not real time….looking at things after the fact. But at least now we’re

looking at it. • Not being able to benchmark yet with other facilities only to ourselves.• Will be changing clinical and billing software…will require re-working all

of the systems.

Demographic Data Used

• Length of Stay

• Financial Class – actual payor

• Admitting source

• Discharge Source

• RUG score

• ICD Admitting Diagnosis

• Number of episodes/admissions during this stay

Sample Detailed Cost Information

LOS

Nurs ing

Labor

Therapy

Labor

Medical

Labor Lab Radiology Pharmacy

Direct

Suppl ies Indirect Total Costs Dai ly Cost

Total

Reimb

Dai ly

Reimb

Gain /

(Loss)

Dai ly Gain /

(Loss)

20 $ 2,733 $ 1,534 $ 671 $ 54 $ - $ 387 $ 1,085 $ 4,729 $ 11,193 $ 559.66 $ 11,417 $570.83 $ 223 $ 11.16

17 2,278 1,256 268 66 79 560 568 3,842 8,918 524.59 9,187 540.42 269 15.84

31 4,544 2,908 254 18 55 382 838 8,975 17,974 579.81 18,323 591.08 349 11.26

14 1,848 984 287 77 - 191 539 3,137 7,062 504.43 7,554 539.60 492 35.17

Sample of Executive Summary Report

2015 / 2016

Month Average LOS Average Cost/Day Average Reimb/Day

Average

Gain/(Loss)

/Day

Average

Gain/Loss

/Stay

October 24 547.05$ 505.86$ (41.19)$ (901)$

November 21 472.36 489.78 17.42 486

December 21 467.42 477.37 9.95 707

January 22 475.67 483.87 8.20 174

February 26 549.38 475.63 (73.75) (138)

March 22 511.18 513.18 2.00 145

April

May

June

July

August

September

Rolling Average 23 503.84$ 490.95$ (12.90)$ 79$

Trends for Overall Gains/Losses

Monthly Review Also Includes:

• Top Five Losses and Top Five Gains for each month. • Discuss the impact of comorbidities…what caused each of the results for these 10

patients. What can we learn; what could we have done differently?

• Look at the average LOS, Cost, Reimbursement and Gain/Loss for Hospital Readmission Penalty Dx’s:• CHF• Stroke • Pneumonia• COPD• Joints• Sepsis What would our colleagues at the hospitals find interesting or helpful about this data?

Where do we go from here?• We need to continue to analyze and operationalize our data• As we have more historical data will be able to share the results with

our partners• Begin to share our findings and accomplishments with our partners in

preparation for bundling• More informed decisions on our admission practices• Possibly utilize the data for budgeting by nursing unit• Look at the implementation of the system in areas such as LTC and

Adult Day Care• Looking at adding some additional hours to support this system as we

move forward.