Healthcare News & Insights

What your hospital should know when measuring total cost of care

The rising cost of health care has become a major concern for payors and the feds. To curb the costs associated with patient care, hospitals must be looking at the total cost of care – usually defined as the direct and indirect costs for an episode of care over a period of healthcare coverage (e.g., a health plan benefit year). 

Measuring your organization’s total cost of care (TCOC) helps decrease unnecessary spending and improve clinical staff’s ability to deliver quality patient care. Knowing where money is going within your facility can help you identify instances of overuse or inefficiency and highlight opportunities to save money.

But first, you should know what makes up the TCOC for a health system.

What’s TCOC & why investigate it?

According to Hospitals & Health Networks Magazine (H&HN), utilization and price are the two main metrics used to measure TCOC for an organization. Utilization encompasses all related or covered services delivered during an episode of care or period of coverage, no matter the provider or setting.

Price, meanwhile, is defined from the payor’s perspective, not the provider’s, looking at how much is reimbursed for a particular service rather than how much it costs the provider to deliver the service. As a result, providers that deliver lower-cost services can offer lower prices to payors.

HealthPartners developed a TCOC framework that healthcare organizations and providers can use to figure out the approximate costs of care.

Determining these costs can be beneficial for everyone involved in the healthcare industry. For hospitals, health systems and providers, estimating TCOC can help evaluate efficiency and price competitiveness within in the market, and payors can use TCOC measurements to design benefits packages and develop new reimbursement models, like shared savings agreements.

First steps

H&HN offers three keys to getting started with measuring your hospital’s cost of care:

  1. Understand your organization’s ability to track and monitor the cost of care. Many payors and providers are working together as part of value-based payment arrangements, including bundled payment models and accountable care organizations (ACOs). These models require providers to be able to track TCOC and use that data to find intervention opportunities. It’s key to identify your hospital’s capabilities for collecting and analyzing this information, and to close any gaps, so these arrangements can be successful.
  2. Access claims data. To accurately measure TCOC, you’ll need claims data from payors. This data can be found either directly from each payor, or via all-payor claims databases (depending on your state).
  3. Prepare for the future. As more information becomes available about healthcare costs and spending, current cost of care measures may become outdated or change. It’s possible future measures will include spending on community-based social services, depending on what we learn about the influence of socioeconomic and demographic factors on health. Keep up to date on trends in TCOC research, and be prepared for your organization’s strategy to develop over time.

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