Posted: September 30th, 2023

Health Insurance, Managed Care and reimbursement Methodologies

Assignment topic:
Health Insurance, Managed Care and reimbursement Methodologies. Instructions
Cost accounting is one of the most challenging areas in accounting to understand. “A cost accounting system is a system for recording, analyzing and allocating cost to the individual services provided to patients (e.g., medications, procedures, tests, room and board) (Becker’s Hospital Review, 2014). The healthcare industry has been working toward correlating cost with quality. Read Porter, M. E., & Lee, T. H. (2016). From volume to value in health care: the work begins. Jama, 316(10), 1047-1048. Discuss how healthcare providers and patients can benefit when cost is correlated with the quality of healthcare services. Post an original discussion of a few paragraphs and support your statements with research.

Cost accounting and correlating costs with quality of care is an important area of healthcare that benefits both providers and patients (Porter & Lee, 2016). When costs are properly tracked and associated with the specific services delivered, it allows healthcare organizations to understand their operations at a granular level. This level of cost visibility helps identify inefficiencies and opportunities for improvement. For patients, understanding the relationship between costs and quality can help make more informed choices on their care.
There are several ways accurate cost accounting supports value-based care. First, having costs correlated to individual services and procedures allows providers to analyze their own performance and benchmark against peers (Becker’s Hospital Review, 2014). This type of cost data drives quality improvement initiatives by pinpointing areas where resources can be utilized more efficiently without compromising outcomes. Second, making cost information transparent for common procedures empowers patients to be more discerning healthcare consumers. When patients understand the relationship between cost and quality for various providers, it can influence their care decisions and support competition on value (Porter & Lee, 2016).
For cost accounting to effectively translate to quality improvement and value-based selection, the cost methodology must be standardized. Some approaches for calculating average costs include top-down and micro-costing techniques (Kaplan & Porter, 2011). Top-down allocation uses revenue and expense data to estimate department or service line costs. Micro-costing builds costs from the ground up by tracking individual resource inputs like labor, supplies and equipment used in care delivery. Both have trade-offs, but micro-costing generally provides the most granular cost-to-quality insights desired for value-based reimbursement (Kaplan & Porter, 2011).
In conclusion, accurate cost accounting is foundational for healthcare’s transition to value (Porter & Lee, 2016). By correlating expenses with quality outcomes, providers can enhance efficiency and patients can make informed choices (Becker’s Hospital Review, 2014). Standardizing cost methodologies like micro-costing allows for benchmarking and drives the optimization of care based on both quality and affordability (Kaplan & Porter, 2011). This evolution supports the triple aim of improving patient experience, population health and reducing per capita costs.
Becker’s Hospital Review. (2014). 5 key steps for an effective cost accounting system. https://www.beckershospitalreview.com/finance/5-key-steps-for-an-effective-cost-accounting-system.html
Kaplan, R. S., & Porter, M. E. (2011). How to solve the cost crisis in health care. Harvard business review, 89(9), 46-64.
Porter, M. E., & Lee, T. H. (2016). From volume to value in health care: the work begins. Jama, 316(10), 1047-1048.

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