How Data Models Help Hospitals Predict Costs in During COVID-19

Hospitals receiving stimulus funding agree to future spending audits. Data-driven tools can help them track compliance.
Stephen Gossett
April 25, 2020
Updated: July 8, 2020
Stephen Gossett
April 25, 2020
Updated: July 8, 2020

The COVID-19 pandemic has thrust the U.S. hospital system into critical condition. Facilities struggle to secure life-saving medical equipment and personal protective supplies, and the Centers for Disease Control and Prevention have found it impossible to meet spiking demands for testing. It’s also a potential serious challenge of ... records-keeping?

Indeed it is. The Coronavirus Aid, Relief, and Economic Security (CARES) Act will see $100 billion of its $2.1 trillion in stimulus spending go to hospitals. A recent agreement between lawmakers means an additional $75 billion will also be on the way in the future. The Department of Health and Human Services dispersed some $30 billion in the first, and as yet only, wave of distribution to facilities, in early April.

Welcome as it is, the cash infusion also carries the burden of thorough documentation.

Any facility that accepts CARES dollars agrees to a potential audit down the road by the HHS’s Office of the Inspector General. Those that get more than $150,000 will be required to file at least one report of their spending to the HHS, plus a new accountability committee that was created by the legislation. There’s no evidence of wrongdoing so far, but even unintentional slip-ups could leave hospitals liable under the False Claims Act.

Prominent law firms like Gibson, Dunn & Crutcher and Ropes & Gray have warned of possible aggressive FCA enforcement in healthcare in the wake of CARES, although the real level of scrutiny remains to be seen. Whatever the case, it’s imperative that healthcare providers are prepared and properly attributing COVID-19-related costs and revenue losses.

“By the time we’re done with this, there’s going to be accountability on the back end, and hospitals understand that,” said Dan Michelson, CEO of Strata Decision Technology, a cloud-based financial analytics platform for the healthcare industry. “So the demand for cost accounting has spiked significantly.”

 

Decision Support During a Crisis

Strata this month rolled out a new cost capture and recovery model to help healthcare facilities both track their initial COVID-19-related expenses and plan for eventual audits. The methodology includes a checklist of various potential costs across several categories — everything from converting an existing department into a COVID-19 department to making sure all drug billing codes are correctly allocated.

The model is presented as a dashboard that sits atop Strata’s existing cost-accounting SaaS platform, which is used by some 200 health systems across the country to track hospital labor and supplies and help automate budgeting. Once a patient is coded a COVID-19 patient, any eligible related services can be coded automatically as such through the extension. Of course, there are a host of nontraditional supply costs in this extraordinary moment. Those can be fed into the model as well.

“You can pull things directly related to the allocation of a given patient or procedure, and you can pull these more general costs,” Michelson said. “Because, yes, people are going to try to get a complete accounting of all costs across the continuum, not just directly in the hospital, ICU or when directly treating the patient.”

RelatedSmart Tags Can Help Hospitals Track Coronavirus Exposure

 

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Sophisticated cost accounting platforms can help account for non-traditional costs brought by COVID-19, such as drive-thru testing. | Photo: Shutterstock

No Margin for Loss

The need for precise bookkeeping arises before a bleak financial backdrop for hospitals. Some health systems were already working on the narrowest of margins even before the pandemic. Operating margins fell a precipitous 29 percent, to below 3 percent, between 2015 and 2017, according to Navigant Consulting. Since the outbreak, that number even fell into the red, according to a report from financial planning consultancy Kaufman Hall.

The diagnosis has been grim in terms of manpower lost too. Despite healthcare being historically recession-resistant, nearly a quarter of medical group practices have laid off staff and nearly half have implemented furloughs, according to the Medical Group Management Association. By early May, 60 percent of all medical practices will have resorted to furloughs, the organization projects. A staggering 43,000 healthcare jobs were lost in the first month of the pandemic alone, according to research firm Altarum. It’s led a number of systems, including the 23-hospital Quorum Health system, to file for bankruptcy since the outbreak hit.

A driving reason for all the upheaval has been the restriction of elective procedures. Some facilities are starting to slowly resume those procedures, amid recent recommendations that were put forth by the Centers for Medicare and Medicaid Services and applauded by health organizations including the American Hospital Association. But the financial pain won’t be easily reversed.

Another wild card that hospitals face is the nature of the relief allocation. The initial $30 billion dispersal was based in part on the previous year’s Medicare fee-for-service reimbursements. A hospital’s estimated relief figure was the quotient of their individual 2019 FFS payment divided by $484 billion (the total amount of FFS payments in 2019), multiplied by $30 billion.

The straightforward-enough calculation got the first batch of money in the mail, but it was not exactly targeted. A hospital’s 2019 FFS payments by no means directly correlates to the degree with which it was hit by COVID-19. That first dispersal was “not necessarily the best methodology to get money to the front lines of folks who are treating the most COVID patients and having to incur the highest level of costs,” Michelson said.

Luckily, the HHS appears to have heard healthcare advocates pleas for more targeted funding allocation, as the agency recently called upon hospitals to submit COVID-related data to help improve distribution, though the effectiveness of any updates remains to be seen.

“At the very moment we’re asking for healthcare providers to rescue us and help us, they’re getting hit on the financial side, at a level that’s pretty consistent with what's going on in other industries,” Michelson told Built In. Even with the promised influx of cash, hospitals cannot afford to misallocate costs or poorly model their budgets.

Thin margins and an understanding of the value of integrating cost data with electronic health records has seen more health systems move toward advanced cost accounting systems in recent years. But the pandemic and its attendant pinch could necessitate further adoption.

“Initially, the pathway for most organizations was just to react and respond, but now they’re trying to figure out how to really recover and what resources they’re going to need in order to support that recovery,” said Michelson, adding that representatives from hundreds of healthcare organizations have been sitting in on Strata’s recent webinars as they grapple with financials.

 

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Many hospitals were already operating on hyper-thin margin before the pandemic. | Photo: Shutterstock

Advocacy through Data

Strata’s system scoops up reams of data by automating tabs on every procedure and patient experience — even down to when staff enters and exits a room, a system known as activity-based costing. That plethora of information is useful at the hospital and system level for planning and analytics, but it also affords Strata a privileged top-down understanding of its industry — and position from which to advocate.

Before the CARES Act was signed into law, Strata dove into the data across its customer base to develop a model to see whether the legislation’s proposed 20 percent Medicare add-on for COVID patients would be sufficient. Their findings? Not by a long shot. That percentage was “about half of what they should be doing,” Michelson said.

“Even with this increase, the analysis shows there will be an average loss of about $1,200 per case and up to $6,000 to $8,000 per case for some hospital systems, depending on their payer mix,” according to the report.

The report garnered media attention and some notice at the HHS, and that kind of advocacy-through-data-science will be important to make sure the stimulus is well-calibrated. “As the federal government tries to do a better job of determining who should get paid what, doing that in a data-driven fashion is hugely important,” he said.

As the pandemic stretches on, the firm will continue to delve into the data in search of opportunities to help make sure hospitals are getting the money they need, when they need it. “By looking at data across so many different healthcare providers, we can understand what’s happening in different parts of the country and what’s happening with individual cases in order to provide the advocacy and support for funding at the federal level,” Michelson said.

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