So You Have a Cost Accounting System, Now What?

As I help healthcare organizations create effective cost accounting systems, the number one complaint I hear is: “I don’t think this report is accurate” or its second cousin “This just doesn’t look right.” My own father gives me grief because he doesn’t trust accounting systems.

I can understand that frustration, but a cost accounting system that works well and provides timely, accurate data doesn’t just happen. It takes diligence during implementation and ongoing maintenance afterwards to create a useful system. I’d like to share five tips for creating a cost accounting system you can actually use and trust.

Tip #1 – Design internal audit procedures for completeness and accuracy.

You must begin with good data during system implementation. I’m sure you’ve heard the acronym “GIGO” – garbage in, garbage out. It’s true. You won’t get usable reports unless your initial data are as accurate as possible.

If you already have implemented a system and believe you might have data-integrity problems, an external consultant can run tests to verify your data and allocation methodologies. They can tell you how accurate your data is and can help you repair any problems. Often, hiring an outside company, rather than doing the work internally, can improve users’ perceptions of the reliability of the system.

Finally, you can’t implement a system and leave it alone. Cost accounting systems require ongoing maintenance. You must be sure that new data input into the system is reliable and that they conform to the standards you established during implementation.

Tip #2 – The cost system should talk to the data analytics system.

Cost data never should be examined in a silo. Just because you have cut the cost of something, doesn’t necessarily mean the value to your patients has increased. All cost decisions should include their effect on quality.

Value dashboards can help you interpret cost savings against the value provided. In the best of worlds, your cost data will display in a dashboard next to your value data for easy analysis. Those dashboards should run at the system level, as well as the physician, patient and payer levels.

Tip #3 – Implement process improvement in your costing system and processes.

Use technology as much as you can to help automate the system. For example, your system should be designed to create and distribute recurring reports without help from your staff.

Configure your routine reports to provide exceptions only, and you’ll have much less information to sift through. Exception reports will highlight the issues you need to handle. Your system should also be configured to import new source data without staff assistance.

As you test the system for reasonableness, focus on the variation between periods. Variations can indicate problems in the system. You can also ask users where reports just don’t seem right. They can help you find areas that need more accuracy to facilitate operations process improvement.

Tip #4 – Don’t rely on assumptions or anecdotal evidence.

Before you had a costing system, managers may have made decisions based on assumptions that simply weren’t true. For example, someone may have allocated 45 minutes in the OR for a certain procedure, without knowing the procedure actually needed 30 minutes or an hour. Over the course of weeks and months, those assumptions could have led to large inaccuracies.

To combat these situations, you may see hybrid systems come into play. In the example above, time studies could be used to accurately assign time in the operating room. The cost accounting system could also interface directly with surgical software, providing exact information. Using the different systems together can provide better information that can lead to making better decisions.

Tip #5 – Form a rapid-response, decision-support team.

When you form a team like this, consider using a mix of operational, information technology, financial and cost-accounting staff members. The team works to assist management by providing data, as well as options. Expertise in a variety of areas will help the team work effectively. As the name suggests, the team should be able to respond quickly to issues as they arrive, and its members must give the team priority in their daily schedules. Every decision they make should include the value added to the patient analysis.

Most hospitals I work with call their cost-accounting team their “decision-support” team. I like the concept very much. Cost accounting provides information to leaders in a healthcare system so that their decisions are based on facts, not guesses or misperceptions. These systems take effort and maintenance after implementation, but when used in conjunction with value indicators, can dramatically improve both an organization’s quality and bottom line.

If you are implementing a system and would like to test the accuracy of your data, reach out to the HORNE Healthcare team.

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