Hospital Cost Accounting Explained

Summary

In this healthcare-focused video, Dr. Eric Bricker discusses the critical yet often overlooked aspect of hospital accounting. He highlights that most hospitals lack cost accounting, meaning they are unaware of the internal costs for various services. The University of Utah's healthcare system, however, managed to determine these costs and, as a result, reduced expenses. Bricker attributes this innovation to competition with Intermountain Healthcare, which runs its own health plan and has been recognized for its efficient care pathways. The video emphasizes the importance of cost awareness in driving healthcare innovation and improved patient outcomes.

Takeaways

• 🏥 Most hospitals in the U.S. do not perform cost accounting, meaning they are unaware of the internal costs associated with specific procedures or services.
• 📰 A 2015 New York Times article highlighted the University of Utah healthcare system's discovery of their internal costs, which should be a major news story in healthcare.
• 🔢 The University of Utah found that an ER visit cost 82 cents per minute and operating room time for orthopedic surgery cost $12 per minute.
• 💡 Cost awareness is a standard business practice in most industries but is considered highly innovative in healthcare.
• 📉 Knowing their costs allowed the University of Utah healthcare system to reduce costs, in contrast to other academic medical centers in the area that saw an increase.
• 🤔 The speaker theorizes that the University of Utah's focus on cost accounting might be due to competition with the Intermountain Healthcare system in the region.
• 🏆 Intermountain Healthcare is recognized for its efficiency and protocols, having its own health plan and taking on risk, which has led to innovation.
• 🆚 Competition with a healthcare system that runs its own health plan and takes on risk appears to drive cost accounting and innovation.
• 💼 The speaker suggests that taking on risk and the need to manage healthcare resources prudently can lead to significant innovation and improved patient outcomes.
• 🌟 The Geisinger Health System in Pennsylvania, known for innovation, also runs a health plan and takes on risk, indicating a pattern in innovative healthcare systems.
• 👍 The importance of cost accounting in healthcare is underscored as a fundamental for understanding and managing healthcare costs effectively.

Q & A

What is the main topic of discussion in the video by Dr. Eric Bricker?

The main topic of discussion in the video is hospital accounting, specifically the importance of cost accounting in healthcare.

Why does Dr. Bricker consider hospital accounting a potentially fascinating topic despite its initial perception as boring?

Dr. Bricker believes that if viewers stay with him till the end, they will find the topic fascinating because of its critical implications for healthcare costs and innovation.

According to Dr. Bricker, why do most hospitals not perform cost accounting?

The script does not provide a specific reason, but it implies that cost accounting is not a common practice in hospitals, which is a significant issue given its importance.

What was the impact of the University of Utah healthcare system's cost accounting exercise as mentioned in the New York Times article?

The University of Utah healthcare system found out the exact internal costs of various services, such as an ER visit costing 82 cents a minute and time in the operating room for orthopedic surgery costing $12 a minute.

How did the University of Utah healthcare system's knowledge of their costs affect their financial performance compared to other academic medical centers?

Knowing their costs allowed the University of Utah healthcare system to lower their costs by about half a percentage point, while comparable academic medical centers in their region experienced an increase of 2.9 percent.

What does Dr. Bricker suggest is a fundamental business practice that is highly innovative in healthcare?

Dr. Bricker suggests that knowing and managing the exact costs of services, which is a fundamental business practice in other industries, is highly innovative in healthcare.

Why did Michael Porter, a renowned business school professor, take an interest in the University of Utah healthcare system's cost accounting?

Michael Porter was interested because the University of Utah healthcare system's detailed cost accounting was an exceptional practice in the healthcare industry, which he considered a significant achievement.

What role does competition play in the innovation of healthcare systems according to Dr. Bricker's theory?

Competition, particularly with healthcare systems that run their own health plans and take on risk, forces other healthcare systems to innovate and improve their cost accounting to remain competitive.

What is unique about the healthcare system in Utah as described by Dr. Bricker?

Utah has a unique situation with two major hospital systems, the University of Utah and Intermountain Healthcare, serving a concentrated population. Intermountain Healthcare's operation of its own health plan and risk management has led to innovation and efficiency.

What is the connection between running a health plan and innovation in healthcare according to the script?

Running a health plan means collecting premiums and delivering care, which involves taking on risk. This risk management incentivizes healthcare systems to innovate, improve clinical practices, and enhance patient outcomes.

What does Dr. Bricker suggest is the 'punchline' or key takeaway from the discussion on hospital accounting?

The key takeaway is that necessity, such as the need to manage costs and take on risk, is the mother of invention, driving innovation and improvement in healthcare.