Why Hospitals and Healthcare Providers Need to Adopt Modern Cost Accounting Practices
The global healthcare landscape is drastically evolving at an unprecedented pace. Hospitals and healthcare providers that can leverage new technologies and current advancements in medical research are poised to provide more effective and specialized care than ever before. However, at many institutions, incumbent reimbursement systems are struggling to keep up with the steep costs of new devices and drugs, along with rising administrative and human capital costs. As margins contract and overall revenue diminishes, healthcare organizations must prioritize cost optimization to succeed.
One of the biggest financial challenges many healthcare organizations face today is that their traditional cost accounting systems are built around suboptimal processes and antiquated technology. Such systems ultimately lack the speed, accuracy, and flexibility to produce accurate cost data. More modern cost accounting for hospitals and healthcare providers, thus, necessitates overhauling legacy procedures and investing in advanced solutions that can efficiently collect the information they need.
While designing and implementing a more up-to-date cost accounting system requires a significant investment of labor, time, and resources, the benefits that healthcare companies stand to reap are well worth the effort. Here are just a few major gains organizations can look forward to from modernizing their cost accounting processes:
1. More Accurate View of Actual Margins
Legacy accounting systems have historically depended on elementary cost-accounting methodologies such as the ratio of cost to charge method, which simply divides the cost of operating a healthcare facility by the total revenue received from patient care and other sources. This methodology fails to fully account for resources and any related costs and, thus, delivers less accurate results than more advanced costing models.
Modern approaches to costing, such as activity-based costing and the hybrid advanced costing model, aim to provide a fuller view of a healthcare organization’s costs. The best cost-accounting solutions are further able to supplement cost data with projections for payer contract revenue. With this critical information at hand, healthcare providers can see their actual margins, identify areas in which they’re losing money, and figure out ways to improve operations in those areas.
2. Comprehensive Perspective on the Cost of Care
It’s more important than ever for healthcare organizations to understand the total cost of both outpatient and inpatient care and to factor this understanding into major clinical and business decisions. Today’s consumers are more critical of their healthcare providers’ financial and clinical performance, and they are in a good position to research healthcare experiences at different institutions. They also have little incentive to remain loyal to providers that they consider sub-par and generally will not hesitate to switch if they find another that can meet their needs more cost-effectively.
Changing administrative trends in global healthcare also make access to complete and accurate cost data an urgent need for health organizations. Most hospitals are poised to abandon traditional fee-for-service approaches in lieu of value-based purchasing, if they haven’t already done so. Hospitals that make use of value-based care models must be aware that higher patient volumes no longer translate straightforwardly to greater profitability. Ultimately, it’s institutions that maximize their profitability with support from effective cost-accounting systems that will outpace their competitors in the field.
Modern cost-accounting approaches focus on capturing and interpreting data from across the whole continuum of care. This means integrating cost data from outpatient procedures as well as inpatient care. This more complete view of cost will help hospitals and other healthcare institutions make more intelligent choices and develop strategies to boost efficiency, which will lead to increased productivity and profitability in the long run.
3. Enables Smarter Cost-Cutting Strategies
Cost-cutting is an often-necessary action that businesses must take to stay afloat in a challenging business environment. However, healthcare organizations can’t slash costs haphazardly at the risk of compromising potentially lifesaving care. They require advanced analytics and cost information to perform more nuanced clinical and financial analyses and pinpoint fruitful savings opportunities.
Modern cost-accounting practices also help healthcare organizations enhance their budgeting, financial planning, and performance improvement initiatives. Understanding the correlation between quality outcomes and the cost of care helps providers determine how to provide high-quality care at the lowest possible cost.
4. More User-Friendly Cost-Accounting Processes
Many healthcare organizations have a history of underinvesting in cost-accounting systems and underutilizing the data they return. In many cases, this is due to the belief that cost-accounting systems are too expensive, difficult, or resource-intensive to implement and maintain. Legacy cost-accounting systems are also generally complicated to use and don’t incorporate data changes easily. As a result, many organizations running legacy systems are likely to mistrust the cost information they receive and use it only sparingly, if they use it at all.
Fortunately, modern cost-accounting practices are built around more agile, accessible, and user-friendly solutions than those available in the past. In many cases, these solutions are expressly designed to make data actionable and to drive more informed decision-making at every level of a healthcare organization’s operations.
Trust in ANSI to Find the Best Healthcare Accounting Solution for You The above are just a few compelling reasons why healthcare organizations today stand to benefit from modernizing their cost-accounting systems. Hospitals and other healthcare firms in the Philippines are best-served by turning to ANSI for the most up-to-date, highest-performing cost-accounting solutions. As one of the country’s leading providers of accounting software with over 30 years of experience, we can help you develop a system that’s uniquely tailored to your healthcare company’s unique needs, strengths, and goals.
