“By harnessing innovative in-memory technology, healthcare organizations reduce the need to replicate data across departments. Business users receive their results within seconds or minutes rather than hours.”
Healthcare Costing and Profitability Analysis: Harnessing Innovations to Boost Bottom Lines
Reading Time: 4:45 minutes
By Thiam Hwa Lim — Healthcare Director at SAP
Mounting industry pressures
The healthcare industry is undergoing explosive change.
Hospitals are pressured to strike a balance: Achieve sound financial management along with value-based patient care. Stakeholders are demanding the integration of healthcare delivery with sustainability and efficiency as top priorities. Leadership is challenged to innovate, find new ways of solving complex problems, and make the right decisions faster. While IT has been tasked to relook processes to improve efficiency and quality. Whether non-profit, public or private, healthcare institutions are under scrutiny to do things not only in the right way, but in an innovative manner for optimal care outcomes.
Complexity causes an inability to determine true healthcare cost
Amid these big picture pressures, there exist for a long time, organizational complexity in the healthcare industry. Caused by a multitude of longstanding factors, the amalgamation of these circumstances has led to an inability to determine true cost of healthcare services.
The factors include traditional costing approaches which typically calculate costs at the departmental level and allocates aggregated expenditures to each cost center. Based on top-down allocation procedures, these approaches do not provide accurate patient-level cost information, nor are they based on service delivery processes.
In addition, healthcare organizations are encumbered with outdated, manual processes which are slow, inefficient, and error prone. Information silos arising from fragmented backend systems and applications also leads to the inability to track costs across episodes, services, patients. A spreadsheet-based culture doesn’t help. While Microsoft Excel is flexible, it lacks the structure, integration, security, and modeling functionality needed for accurate, actionable, and sustainable information. Across the organization, it is also difficult to roll up costs by areas of interest – such as episodes, procedures, medications, diagnosis, patient level.
The inability to establish true healthcare cost poses serious consequences.
Not only does it tantamount to inefficiencies and ballooning costs within healthcare institutions, it has much more wide-reaching societal outcomes.
Since the beginning of time, understanding the costs of the things around us have allowed us, as a species, to guide the way we allocate resources. Our forefathers considered how best to utilize a tribe’s manpower and tools to hunt, scavenge, or gather on any one day, based on the possible costs and outcomes. Today, we might think about whether we should invest in a newer, fuel-efficient car, or instead participate in a ride sharing scheme that could reduce long term investment cost and make overall transport economy more efficient.
By the same vein, knowing the cost of healthcare delivery is important for making informed resource allocation decisions and cost-benefit trade-offs. Such decisions are especially intricate in healthcare, where you may have to decide between allocating funds to an HIV or a cancer research programs. Or prescribe a cheaper generic drug versus a branded drug if both gives the same patient outcome.
Poor in-depth analysis of cost and profitability hinders insight into health services delivery efficiency and effectiveness.
Fluctuating bottom lines in Asia: A need to keep fingers on pulse of profitability
For healthcare institutions in Asia, this is a key aspect to pay attention to as bottom lines continue to fluctuate.
Take Singapore as an example. In 2017, healthcare organizations providing medical and dental services garnered operating revenues of S$17.3 billion. But their overall profitability ratio fell from 14% in 2007 to 9.7% in the same year. Thomson Medical Group returned to profit in 2018 by maintaining a firm focus on its healthcare business (after divesting its real estate business) with plans for growth including a digital healthcare platform.
In Malaysia, IHH Healthcare Bhd – among the world’s largest listed healthcare organization – saw its profits down by 65.8% in Q2 2018, only returning to profit in Q4. More recently this year, almost US$800 million was erased from its market value as one of the key shareholders cut its stake.
Harnessing innovative technologies to help
In the face of these forces, innovative technologies can help healthcare institutions keep an eagle eye on bottom lines.
How so? Let’s look at how a robust reporting and performance management framework can help safeguard profitability.
Resource utilization: Even more efficient
By allowing healthcare professionals to identify the most cost-efficient and effective health services, healthcare providers can allocate costs more efficiently across the healthcare organization. This improves operational efficiency and improves health services delivery
Profitability by episodes, patients, procedures: Granularity means transparency
By tapping on deep insights into granular revenue and cost information at episode-, patient- or procedure-level, healthcare institutions minimize cost and optimize profitability. Healthcare professionals can easily create allocation units to manage, plan and optimize allocation costs. Plus perform what-if simulation of revenue and costs and tracking of forecasts against actuals.
Robust reporting and performance management framework: Speed like never before
By harnessing innovative in-memory technology, healthcare organizations reduce the need to replicate data across departments. Business users receive their results within seconds or minutes rather than hours. Cost analysis becomes faster and speed of action can be improved, leading to faster improvement to the bottom line.
Safeguarding profitability in healthcare simplified
Running a healthcare institution is no easy business.
With so many moving parts, controlling costs and safeguarding its profitability is an aspect that simply cannot be left to the information silos and manual processes of yesterday. Healthcare organizations that want to generate new value must first devote time and commitment to get there. In today’s digital world, leveraging digital technologies to simplify profitability and cost management is among one of the most important steps.
Technology providers are actively transforming technologies into value for business and society, including healthcare. Healthcare institutions that harness this value and intelligence can redefine your organizations’ future. And inspire a purposeful, thriving future that inspire your people.