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Case Costing: 6 Key Value Points

Daren Smith

July 16, 2020 By Daren Smith

Bio

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I recently hosted a webinar: ASC Case Costing: Fundamentals and Best Practices in which I broke down the importance and usefulness of case costing, along with providing some “how-tos.” Before we dive in, it is important to understand what case costing is. Case costing is the manner in which you calculate both the direct and indirect costs of a surgical procedure. So why is case costing so important? Here are 6 key value points.

  1. Increases the accuracy of budget forecasting

Case Costing allows for your ASC to properly forecast your budget by breaking down the costs in detail. Back in the day, when case costing was a very vague concept and budgets were based off much more generalized numbers, this was not possible. The case costing of today helps to paint your budget in a much more realistic light and provides a cleaner look at your expenses year over year.

  1. Contributes to understanding profit margin

A better understanding of your profit margin can also be accomplished with case costing. Administrators and managers at an ASC know the importance of their profit margin is greater than it might be if they were at a hospital. When tasked with a flat-fee reimbursement model, it does not matter what materials or resources are used to accomplish a procedure, you will always get a standard reimbursement. This is eye opening for some and will prompt these important questions: What does it cost to do business at our ASC? What is being paid by the insurers or by the patients? You are able to get insight into profit and loss on a case-by-case basis as opposed to just seeing a blanket statement from your accounting firm.

  1. It is advantageous when negotiating payer contracts or patient payment programs

If you are not doing proper case costing at your facility, it can be difficult to see what eventual impact any changes to payer contracts will have on the profitability of each case, and even your business as a whole. This visibility will enable you to discuss case adjustments with your physicians. Some might argue that case costing is more important now than ever before when setting up patient payment programs in the wake of a pandemic that has left more and more people unemployed and in need of a self-paced payment plan. When you understand what it costs to perform each case and can give it a detailed dollar amount, you are able to set forth realistic expectations and know the minimum amount needed for reimbursement to at least cover the cost of the procedure.

  1. Keeps the focus on costs

When you implement the case costing model into your facility, you may find that your clinical staff develops a heightened sense of awareness around the cost of materials. Making material costs well known and advertised internally, even by adding them onto preference cards, encourages a more considerate decision-making process throughout the surgical procedure.

  1. Can prompt competition between vendors

If you are able to break down the costs of each procedure and can clearly distinguish the difference between two different vendors selling your physicians the same material, it will promote a sense of competition among vendors. If you can evidently point out that you lose money using one vendor, and profit while using another on the same procedure, it gives you the leverage needed to negotiate a fair price.

  1. Possibility to change physician behavior

We all know that “physician preferences” have coined that term for a reason, and it can be hard to change physicians’ minds when it comes to using certain materials, because after all it is what they prefer. However, when using case costing you are able to outline cost differentiators and can bring some awareness to the physician. Case costing is a fantastic tool to show your physicians how much power they have over controlling the costs of your ASC.

Now that you understand the importance of case costing, we invite you to watch the full presentation on demand to learn how to best implement case costing into your facility. Continuing education credits for CASC are now available for certain previously recorded webinar presentations, including this one.

Topics: Ambulatory Surgery Centers

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