1. Calculating Costs of Care at UCSF
New approach to cost and savings measurements at UCSF
Jahan Fahimi, MD MPH
Director of Value Improvement, UCSF Health
8/31/2019
8/31/2019
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2. Value Improvement Program
Leveraging the expertise of the Clinical Innovation Center and the Center for Healthcare Value to develop a framework for measuring the value of initiatives at UCSF Health.
VALUE =
OUTCOMES
COST
Most broadly accepted notion of value in healthcare
Center of Healthcare Value – Understanding Costs of Care
8/31/2019
8/31/2019
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3. Value Equation VALUE = Complexities of a practical value calculator:
patient reported outcome measures
VALUE =
weighted ∑ (mortality recovery processes + sustainability of health + patient satisfaction – adverse effects)
direct costs + indirect costs + programmatic costs
Outcomes (numerator) includes all the components of the Michael Porter framework, summed up, with some weighting system to account for the relative importance of each component/tier.
Costs (denominator) may include costs as seen by various perspectives – we are focused on the hospital/ACO costs here; it includes various components of cost that are part of the accounting system, as well as any spending associated with a new program, pathway, initiative, etc.
Costs may differ dramatically if we are considering the perspective of the payer (what will they pay for, how much will they pay; contracts, etc); or the patient (co-pays, deductibles, a la carte billing) – in these instances, and in the current fee-for-service model, we may be considering CHARGES more than actual COSTS when talking about payers and patients
- Patient - Payer - Hospital/ACO
Center of Healthcare Value – Understanding Costs of Care
8/31/2019
8/31/2019
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4. direct costs + indirect costs + programmatic costs
Focus on Costs to UCSF
patient reported outcome measures
VALUE =
weighted ∑ (mortality recovery processes + sustainability of health + patient satisfaction – adverse effects)
direct costs + indirect costs + programmatic costs
Cost per case is the standard metric by which costs of care should be measured, across an entire care cycle. Allows for benchmarking and standardization by complexity of care Aligns cost considerations between payors, patients, and delivery systems
Measured/allocated at patient level to capture Cost per Case incurred by UCSF
Center of Healthcare Value – Understanding Costs of Care
8/31/2019
8/31/2019
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5. Direct Costs Indirect Costs Total Cost per Case (services that bill)
(services that don’t bill)
Fixed
Variable
Fixed
Variable
Cost allocation methodology (Decision Support)
This is the current cost accounting system at UCSF with respect to how we can calculate the cost of care for a patient.
Aggregate cumulative costs at billing Cost Centers with varying ratios of direct to indirect
Total Cost per Case
Center of Healthcare Value – Understanding Costs of Care
8/31/2019
8/31/2019
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6. Direct Costs Indirect Costs Direct Cost per Case (services that bill)
(services that don’t bill)
Fixed
Variable
Fixed
Variable
Cost allocation methodology (Decision Support)
Direct Cost per Case
Center of Healthcare Value – Understanding Costs of Care
8/31/2019
8/31/2019
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7. Cost Measure – Direct Cost per Case
Cost per case is a common measure for health centers to describe their costs for a particular patient, condition, or population
Cost per case is also a key measure that UCSF had targeted for improvement and has incorporated into incentive plans
While total cost per case represents all of the costs that the health system bears, direct cost per case is a better measure for patient- centric initiatives as it:
Represents those costs that are incurred by units that bill for services
Is most likely impacted by changes in patient care
Value Improvement – Project Update
8/31/2019

8. Tracking Costs at UCSF Cost Center 1 Cost Center 2 Cost Center 3
Costs accumulated at patient level
Patient 1
Cost Center 1
Patient 2
Patient 3
Fixed Indirect
Fixed Direct
Variable Direct
Variable Indirect
Cost Center 2
Patient 4
Directors & Managers
Patient 5
Cost Center 3
Patient 6
Patient 7
Improvement work is aimed at impacting the cost per case – at the patient level. In this framework, we can see how changes in the costs at the patient level may track or be realized at the cost centers responsible for the spending of money. Without a direct connection between improvement work focused on patients and the cost centers, then no savings will be realized.
We believe we can leverage our existing financial data system to bring all parties together.
Cost Center 4
Patient 8
Cost allocation methodology (Decision Support)
Center of Healthcare Value – Understanding Costs of Care
8/31/2019
8/31/2019
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9. Other “Cost” Measures Contribution Margin = Net Revenue – Direct Cost
Net Income = Net Revenue – Total Cost
Length of Stay (LOS)
LOS and Cost/Case indices from Vizient
Return on Investment (ROI)
(# reduced utilization x $ unit cost) - $ program cost = ROI
(standard $ cost/case – intervention $ cost/case) x # intervention cases = ROI
Value Improvement – Project Update
8/31/2019

10. How to get accurate costs – Key Points
Well-defined cohort (inclusion, exclusion criteria)
Median vs mean costs for a population
Consider how to handle outliers
Look at detail/distribution of costs across various categories
Center of Healthcare Value – Understanding Costs of Care
8/31/2019

11. Questions?
We propose a project management tool for initiative owners, executive sponsors, and analysts in order to standardize and streamline cost measurement
Currently a work in progress, built by Jahan, Kim, and Ralph
Being applied to appraise perioperative pathways, Caring Wisely initiatives, and others
Being integrated prospectively into new initiatives and aligning with Finance to be able to forecast
Center of Healthcare Value – Understanding Costs of Care
8/31/2019
8/31/2019
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