The top six health care cost comparisons every physician-owned practice should consider

The importance of cost analysis: ©Wutzkoh - stock.adobe.com

Cost analysis in isolation lacks depth. The cost of a loaf of bread is only relevant when considering other variables: location, time period, inflation, cost in proportion to income to the buyer. Physicians who own their practices should always compare costs meticulously, managing limited resources by analyzing salaries, materials, and indirect expenses like administrative and IT costs. Balancing quality care with cost management is paramount, as every spending aspect affects institutional well-being. Cost containment measures, like optimizing resource use and negotiating contracts, are crucial. Detailed analysis and proactive strategies ensure informed decisions for long-term sustainability.

Before deciding on new equipment adoption or service line expansion, physician owners should conduct thorough cost comparisons, and engage in holistic cost panoramas, as well as examining costs from multiple angles to enhance financial performance and operational efficiency. Big picture thinking as well as diverse perspectives are key for identifying areas for improvement, recognizing trends, and making well-informed decisions.

Here are six essential cost comparisons to make before deciding what is best for your practice:

1. Service line costs across physician peer groups: Analyze service line costs across physician peer groups to understand spending patterns across different care areas. Compare costs and margins of high-impact service lines like family, internal medicine, and pediatrics, orthopedics, ENT, and women’s services to identify performance variations. Delve deeper into service lines by patient groups, such as patient types, visits, and CPTs. Physician comparisons offer insights into patient case mix, practice pattern disparities, and quality outcomes, facilitating cost reduction and increased reimbursement by meeting or exceeding quality targets.

2. Reimbursement:Compare health care service costs to negotiated payer reimbursement. Conduct comparisons using both direct/patient costs and "all-in" total costs, which encompass direct costs and allocated overhead burden. This identifies under-reimbursed services affecting the bottom line. Understanding patient-level costs often reveals opportunities for renegotiation to address discrepancies.

3. Practice comparisons:Compare the costs and performance within the practice to identify opportunities for cost savings. While these costs may differ, comparing costs can reveal best practices and potential economies of scale. Centralizing administrative overhead functions or outsourcing them can reduce costs. Joint negotiations for payer and vendor contracts, along with bulk purchasing, can lead to cost reductions. Implementing standardized clinical protocols, treatment pathways, or operational procedures can lower the cost of care while maintaining high quality standards.

4. Time trends:Examining cost trends over time helps assess the impact of health care changes on financial stability. These trends reflect the success of cost-saving measures and inform decision-making, driving improvements in operational efficiency and long-term planning. Through systematic analysis of cost trends, physician owners can identify areas for improvement, manage financial risks, and strengthen competitiveness in the healthcare market.

5. Cost effectiveness of changes in clinical pathways:Compare historical patient care operating costs, such as clinical salaries and wages, medical supplies, and equipment, with the costs associated with changes in clinical workflows or technology. The control group represents the historical cost per visit under the legacy workflow, while the test group represents either projected or realized costs under the new clinical pathways. This analysis should account for short-term and long-term assumptions, considering potential initial margin losses due to setup costs. Sunk costs, which remain unchanged with new processes, should be excluded to simplify the analysis. Additionally, assess not only cost variances but also changes in patient outcomes to ensure efficiency improvements without compromising care quality.

6. Quality outcomes: It is imperative to harness the symbiotic relationship between cost optimization and quality targets to efficiently manage limited resources and better serve their communities. Maintaining a balance between cost reduction and outcome measures is crucial across all comparisons. Cost containment initiatives, devoid of both objective and subjective quality benchmarks, may lead to unintended consequences, particularly in the long run. Are patients coming in for preventative care visits and are their chronic conditions effectively managed? Patients expect exceptional clinical outcomes and respectful treatment, while employees and physicians should actively engage in and contribute to continuous improvement processes. Failing to effectively adopt new processes can not only fail to reduce costs but may also escalate them, resulting in turnover costs, diminished care quality, and reduced patient satisfaction. Therefore, a foundation of comparing costs to quality remains the cornerstone of any cost-saving endeavor.

Other comparisons:

In addition to these top cost comparisons, comparing providers’ costs per procedure, per visit and by patient diagnostic types are all crucial elements for assessing the value of care delivery.

Cost analysis is not merely about numbers—it is about finding ways to improve health care delivery while optimizing efficiency. Integrating cost comparisons alongside service lines, reimbursement, other facilities within the practice, time trending, changing in clinical pathways, and quality metrics, can ensure initiatives not only improve outcomes, but also make the most effective use of resources. Through ongoing monitoring and evaluation, financial sustainability can be achieved while delivering the highest standards of care.

Beyond surface perception: Unraveling cost conundrums

One fact that has been repeatedly proven in health care is that higher costs do not equal higher quality of care. Conversely, prudent resource management and strategic allocation of funds often yields better outcomes, regardless of the level of expenditure. Consider, for example, the glaring incongruity between the potentially excessive costs associated with the management of chronic pain in outpatient pain management clinics in the United States and its unreliable results. Pain management can require frequent visits, interventional procedures, and prescription medications, all adding to the cost to the health care system and the patient. However, the success of these techniques can vary widely among patients, and can even lead to bigger issues, such as opioid dependency and addiction. Despite substantial investments in health care infrastructure, the correlation between expenditure and outcomes remains elusive, highlighting the need for a more discerning approach to cost management in healthcare.

There is no simple answer to challenges like these; the complexity of health care cost analysis cannot be overstated. Methodological variations, data quality issues, and the lack of standardized benchmarks contribute to the intricacy of cost comparison endeavors. However, amidst this complexity lies an opportunity for incremental progress. It is important to resist feeling overwhelmed and instead focus on incremental improvements.

A delicate balance

In the current health care environment, physician-owned practices are constantly challenged to do more with less. Optimizing resources while ensuring the highest standards of patient care is the only option. To achieve this delicate balance, physicians are increasingly turning to cost comparisons as a strategic tool.

Tackling the intricacies of cost comparisons can be challenging, however, making small strides forward is absolutely doable. Investing in powerful data analytics tools and fostering an open culture of financial transparency and accountability are key steps on this journey. Joining hands with industry partners and taking part in benchmarking initiatives can offer valuable insights and support along the way.

By embracing tailored strategies fueled by data-driven insights, physician owners can work to simplify operations, increase efficiency, boost the quality of care, and create a practice that puts patients first.

Christie Scanlon, CMA, is the co-founder and CEO of Scanlon Enterprises.