Understanding costs during COVID-19 is a unique and specific challenge for hospitals and health systems because there’s no historical precedent to rely on for guidance.
MultiCare Health System was on the front lines of the COVID-19 pandemic because of its location in Washington state. Elective surgery volumes are beginning to increase, and the good news is that patient satisfaction scores remain high. Telemedicine continues to gain in popularity. Given all of the changes on many fronts, leaders like Curtis Bryan, Director of Decision Support, are assessing COVID-19’s impact on expenses and volumes.
This assessment has led to a shift in MultiCare’s costing approach for 2020, which includes new ways of recording general ledger expenses, calculating and assigning cost, and tracking cases. The changes being made at MultiCare have enabled the organization to remain responsive to the pandemic with its approach to patient care and the long-term financial planning required for organizational success.
Strategic approach to variance reporting
While MultiCare facilities were performing only essential procedures for much of March and April, the organization had many new expenses as well as ongoing expenses to consider for reporting and cost accounting. The extraordinary costs associated with COVID-19 were recorded and tracked separately to ensure the ability to report on these expenses for government reimbursement and for internal reporting. In addition, a number of existing departments had no volume or charge activity but still had some level of expense. MultiCare’s costing team realized that this mismatch would need to be addressed to ensure accurate costing results. Leaders decided to be consistent with both types of costs.
Treating COVID-19 costs as a separate department and/or set of accounts enables organizations to isolate the costs and to include or exclude them for reporting and analytics as needed. The journey to financial recovery will be a long one, and ensuring the ability to report accurate costs that reflect long-term resource requirements will be important. As an example, MultiCare realized early on that there would be employees in low census areas. These employees were kept whole and paid from a special job code to ensure detailed tracking of this pay.
For departments that had no volume but still had some general ledger expense, MultiCare had a cost accounting decision to make. “There are many ways within the Axiom™ Cost Accounting system to incorporate these costs,” said Wayne Zack, Financial Systems Manager for MultiCare. “We are leaning toward leaving the cost unassigned and reporting it as a variance for costing purposes.”
Whether the cost is purely a COVID-19 expense, such as PPE or labor costs for furloughed employees, or ongoing expense with no patient volume, it’s beneficial to isolate extraordinary costs related to COVID-19 from ongoing cost results and reporting. The long recovery period will require that organizations be thoughtful in how they approach the general ledger and the costing model.
The Axiom Cost Accounting solution enables organizations to select an approach that fits their needs. Examples of the strategies available within Axiom include:
- Allowing COVID-specific costs to be tracked separately through the use of unique cost categories for costing purposes.
- As an alternative, maintaining all costs in traditional cost categories, knowing they will be tracked through service line reporting based on COVID-19 diagnoses.
- Treating much of the COVID-19 cost as indirect and reporting in a way that reflects organizational goals for absorbing the cost — either across all activity or COVID-19 cases only.
- Treating any COVID-19-related revenue from government sources as an offset to those costs, either directly or as a separate cost category that can be included or excluded, as desired.
- Setting up separate service lines for COVID to ensure efficient reporting of COVID-19 cases.
Preventing record losses from skewing future calculations
April 2020 was the most financially devastating month the U.S. healthcare system has ever seen—hospital outpatient revenue fell 49%, inpatient revenue dropped 25%, and operating EBITDA margins fell 174%. Few organizations were immune from the effect of the COVID-19 crisis, including MultiCare.
To prevent record losses from skewing ongoing 2020 cost calculations, the MultiCare team decided to isolate the April cost calculations. For March a large portion of the month was “normal” since they did not cancel elective cases until March 16. In May, they saw a start in the uptick of case volumes, causing these numbers to allow for some semblance of “normal.” For this reason, the MultiCare team believes that cost calculations for April are the most problematic and will likely be the only month that needs to be fully isolated. This approach will help with trending and recovery modeling.
Organizations should model for future months and years, paying particular attention to the many nuances to expense, volume, and the healthcare environment. Each organization will have unique factors to consider, including the extent of the COVID-19 activity, the types of expenses incurred, and how those expenses are reported.
Some parts of the country saw few COVID-19 cases yet still experienced a nearly complete stoppage of elective cases. For the organizations that saw tremendous COVID-19 activity, extraordinary costs associated with these cases and reduced revenue from elective cases become a double-edged sword that must be addressed with costing, reporting, and strategic analytics. Syntellis Performance Solutions is partnering with organizations across the spectrum to ensure an approach to recovery that provides the most successful financial outcomes.
The right tools accelerate recovery
As healthcare leaders trudge through the recovery process and long for a time when things feel “normal” again, those who have tools designed to empower financial planning, management, and performance improvement will enjoy a quicker return to normalcy.
“Like every other hospital, we wish we were further along the path to normal,” said Bryan. “But we are in better shape than most because our costing and other financial processes are data- informed, streamlined, and integrated. We’re ready for what the future brings.”
Learn more about MultiCare’s journey to costing best practices in the article, Cost Accounting: Bridging the Gap Between Where You are and Where You Should Be.