Cost management is the future of sustainable healthcare : Latesh Sen

In modern scenario, emerging insurance sector and competitive pricing has kept a control over the revenue side whereas modern technique of treatment has shifted the focus away from bed occupancy.

Cost management is deemed to be the backbone of the healthcare industry. Latesh Sen, GM, Costing and Business Analysis, BLK Super Speciality Hospital, talks to ETHealthworld about the key drivers of productivity in sustainable healthcare.

What makes ‘Efficient Cost Management’ the future of sustainable healthcare ?

Cost management is the process of planning and controlling the budget of a business. It is a form of management accounting that allows a business to predict impending expenditures to help reduce the chance of going over budget. With the evolution of new techniques and research, healthcare is no more a system of patient care only. With sizable investment in equipment, infrastructure and manpower, it is as vulnerable as any other industry in terms of financial viability. Earlier Hospitals were more focused on managing revenues rather than cost.

The yardstick of operational efficiency was bed occupancy. But in modern scenario, emerging insurance sector and competitive pricing has kept a control over the revenue side whereas modern technique of treatment has shifted the focus away from bed occupancy. The resources are limited so the optimum utilization of resources is the only way to sustain in long term. The long term financial stability is dependent on efficient and strategic cost management. The unique techniques of costing help in understanding and focusing on key drivers of productivity and streamline the overhead factors.

In your view, how challenging is it for establishing a costing system in a hospital vis a vis other sectors?

Efficient cost management is based on the real time costing mechanism, which can provide the accurate cost of each and every service and resource. In my view, the hospital industry is still far behind in establishing costs of resources utilized as against many other industries. The reason may be quantum of services along with complexity involved for each individual and various permutations and combinations of such services provided to a patient. Radiant Healthcare is very much proactive in utilizing the various techniques and keep the best practice for the cost management to make the services affordable for the society.

At one of its unit, BLK Super Speciality Hospital, we have been among the first few in the country to have done so. Now the same activity based costing system has been established in another unit of Radiant Healthcare Pvt. Ltd at Nanavati Super Speciality Hospital in Mumbai. My 18 years of costing journey through various industries gave me insight on how to to hold the various strings in complex cost structure of hospital. We are humbled to get the award from The Institute of Cost Accountants of India for Excellence in Cost Management which is also an acknowledgement of the organization efforts of establishing micro level activity based costing in hospital.

While cost management has been practiced in some form or other, there was no institutionalised mechanism. However, till date there are gaps between cost record formats and effective activity based costing. Hospitals have large number of specialties and each specialty has many services. Each patient (even for the same procedure) goes through different processes of treatment cycle wherein the cost of resources and material may vary. For example, two patients going for the Open Heart surgery with different clinical complications will have different treatment / recovery plan. Their resource utilization would be different and also the costs incurred. Senior management can evaluate and take appropriate strategy if they have the correct cost information in real time.

How do you achieve best performance for hospital by deploying activity based costing model?

It is a proven management adage that what is not measured cannot be managed or improved. Since Hospitals are unable to link cost to process improvements or outcomes, it prevents them from making systemic and sustainable cost reductions. Instead, they turn to simplistic actions such as across-the-board cuts in expenses, staff compensation, and head count. Healthcare is manpower intensive industry. Spectrum of manpower is wide ranging from highly skilled doctors to technicians and nurses. Cost involved in each segment is high and requires very efficient and effective cost management.

Effective procedure costing and cost management can play a very large role in changing the dynamics of healthcare industry. Essential tools for effective cost analysis include time based activity based costing which capture the cost of each and every effort and process, and provides the impact of underutilized resources. Kaizen Costing i.e. cost control efforts without compromising on the quality of healthcare delivery will lead to providing quality healthcare services to the society at affordable price. Another tool is Standard Costing, which is the standardization of consumptions and time in various services and activities. The variance analysis also helps in optimum utilization of resources as well as control over the cost of the procedures.

Various approaches of management accounting includes tools of management accounting such as capital budgeting, NPV & IRR analysis, Zero base budgeting, providing the insight for strategy planning.

For instance, at BLK Super Specialty Hospital, we provide insight to management for decision making upto the level of costing of each and every service, procedure and packages with respect to various combinations of services.

How can hospitals use data analytics to revamp healthcare facilities?

The increased utilization of costly resources, e.g. equipment in operating theatres, ICUs, Cath-Lab, radiology, Pathology Lab, manpower planning, deployment of nurses etc are the key to success in hospitals. The data analytics provides the yardsticks to measure the performance of various resources and management is able to take corrective actions in time. The trend analysis and quantifying efforts can change the perspective of any decision. Adequate and accurate knowledge on break even of any investment or any additional resource deployed in various specialties will help to achieve the desired profitability.

What is the future of strategic cost management?

Private healthcare players serve major portion of the healthcare need in India. So people have to pay from their pocket. The cost and efficiency of care will continue to be a major motivating factor for many patients. They want to know how much services will cost so they can plan their care. Hospitals have to be judicious in allocating its resources. The outcomes and various parameters must be analysed in real time. The pricing of services must be done on the basis of costing then only the hospital can provide most competitive price to the patient while maintaining the quality of services as well as maintain its financial sustainability. Many hospitals in US, Australia and Canada are utilizing the activity based costing as their base for management. In India more awareness and emphasis on cost management is required to streamline the industry in future.

Original article by ET Healthworld