Ask a restaurant owner how much it costs to serve a steak, and he’ll tell you it’s the purchase price of the ingredients, plus the costs for the chef and wait staff, food delivery expenses and restaurant overhead. These all impact the price printed on your menu.
Ask a doctor how much it costs for a knee replacement and the answer is a little more complicated.
Some expenditures—like pre- and post-operative patient care, drug costs, X-ray and imaging costs—are easy to identify. But what about less obvious costs: hospital administration, housekeeping, patient meals and facility maintenance? How do these expenses affect care costs?
And how can we accurately manage health care finances without first understanding the true costs of each care episode?
Through patient costing.
This accounting method captures all direct and indirect costs associated with a specific procedure or care episode. By accounting for factors such as overhead costs and workload expenses, patient costing provides a more complete picture of health care spending. Care providers and decision-makers can more accurately track where the money is really going—through supporting analysis, comparison and evaluation—while delivering the information needed to make the best possible patient care and system decisions.
In Halifax, at the Capital District Health Authority (CDHA), the value of patient costing is well recognized.
“In over 20 years in health care, I’ve seen budgeting and expense tracking models come and go,” said Cecil Snow, Director, Finance and eHealth at CDHA.
“Patient costing is one of the few methods that really pinpoints the true costs of care. It includes the complex variables of care spending and lets us accurately see the costs driving the system.”
CDHA is in the midst of implementing patient costing data collection and reporting. With a little help from CIHI, CDHA is collecting and evaluating the costing information available through data whose collection is mandated by the province. Once the data is clean, standardized and comparable, CDHA will roll out case costing data and reporting across its jurisdiction.
“Having access to this information will support everything from budget planning and business case development to resource allocation and practice improvements,” Snow said. “Once we clearly understand spending practices, we can make choices that will help improve patient care and better system management.”
While the benefits of patient costing are clear, not all organizations have moved to this level of financial detail. For these organizations, CIHI created the online Patient Cost Estimator (PCE). This unique tool provides Canadian managers and planners with financial details that include the estimated average cost of services, average acute care length of stay and patient volumes per clinical group by jurisdiction and age group.
Here, the PCE fills the gap for organizations in need of patient costing information. It promotes better understanding of hospital costs and allows for more accurate financial estimates.
With the help of the PCE, the true cost of that knee replacement comes into view.