The University of Pittsburgh Medical Center is hoping a cost-analysis system from their Italian transplant hospital will become the future of cost measurement here in the United States.
Most hospitals use charges to determine cost information. But Robert DeMichiei, UPMC’s CFO, said the industry is moving into a whole new world where more accurate cost data is required by payers, patients and providers alike.
“We are rapidly getting into a world where there will be extreme price deflation,” he said. “We are realizing we have to lower costs and use fewer resources and we have to understand where we are profitable by product line, DRG, payer or physician.”
And that’s what the new, activity-based cost-analysis program can do. The system pulls information from operational and financial systems along with more than 50 clinical activities at the hospital and aggregates it to provide information for each service offered. The system has been piloted throughout UPMC and by summer, will be implemented at 80 percent of the providers in its $6 billion system.
Because there was no off-the-shelf technology able to provide this information, UPMC invited eight IT vendors to bid on the project. The field was narrowed to two to create a prototype. Neither was from healthcare – they were previously used in banking and manufacturing. One was chosen and algorithms were created that map the cost processes from clinical and financial systems.
Don Riefner, vice president of finance, said the system allows them, for the first time, to be able to document variations in care. They are able to break treatment down by patient or physician to find the best, most cost-effective practices.
Initially, they have looked at areas like hip and knee surgery, hysterectomies and spine surgery to see if practices can be standardized. With hysterectomies, for example, numbers proved that – under certain circumstances – laparoscopic procedures use fewer resources and have fewer adverse outcomes than traditional open procedures do.
“It provides indisputable information that causes physicians to rethink, if practical, what they are doing,” Riefner said.
Riefner said they have also been able to drill down to compare various kinds of technologies against each other. For example, they found that laparoscopic offered similar outcomes to robotic surgery, but is much less costly.
While some clinicians have not looked favorably on activity-based cost-analysis, UPMC’s project was done in conjunction with the clinical side of the operation. Oscar Marroquin, director of the Center for Interventional Cardiology Research at the hospital, said in a video provided by UPMC that the new system will allow the organization to understand and measure models of care and how they impact cost and value.
Riefner said clinicians helped to determine when certain techniques were indicated. For instance, there are times when an open hysterectomy is required instead of a laparoscopic procedure.
“Most of the discussion was not on cost, but around when medically something was indicated,” he said. “And after we provided information on what cost was, it helped push, when they agreed on indication, which procedure is best to use.”
Doctors, Riefner said, are also incented to be more efficient because they know that pricing pressures are competitive. They are being engaged to be more efficient and support the hospital’s ability to increase volume.
DeMichiei said there has been interest across the country in the system and they host about one call each week with other providers wanting to talk about the system. They are considering commercializing the system to other providers of all sizes.
“We don’t have infinite resources, so we need a balanced and thoughtful and informed discussion and there is so much we can do just by having good information,” DeMichiei said. “We don’t have to worry about ethical discussions and favoring cost over quality. We are just trying to shine a light on these decisions.”