Financial success is critical to the clinical utilization of a new medical technology, at least in the US. Because the US healthcare system is based on reimbursing for procedures performed rather than outcomes achieved, the decision to invest in a new technology is based as much on the dollar amount that can be charged for using it as it is on whether it results in better outcomes.
The proper goal for any healthcare delivery system is to improve patient outcomes achieved per dollar spent. A positive revenue stream is achieved when a facility is paid more for performing a procedure than it costs to perform the procedure. This requires a knowledge of cost and accurate and reliable measures of outcome; however, calculating costs is not an easy proposition.
As stated in an article by Kaplan and Porter in the Harvard Business Review:*
“To put it bluntly, there is an almost complete lack of understanding of how much it costs to deliver patient care, much less how those costs compare with the outcomes achieved. … Making matters worse, participants in the health care system do not even agree on what they mean by costs. When politicians and policy makers talk about cost reduction and ‘bending the cost curve,’ they are typically referring to how much the government or insurers pay to providers – not to the costs incurred by providers to deliver health care services.”
The proper goal for any healthcare delivery system is to improve patient outcomes achieved per dollar spent. This requires a knowledge of cost and accurate and reliable measures of outcome. It is a well-known business management axiom that what is not measured cannot be managed or improved. It can be challenging for providers to calculate their costs and measure outcomes, which prevents them from making systemic and sustainable cost reductions.
The Focused Ultrasound Foundation has developed a tool that may help with determining the cost side of the equation – namely determining how much a procedure costs, how much it is reimbursed, and how those numbers compare with other possible treatments for the same condition. The tool is written as an Excel spreadsheet. It uses a database of focused ultrasound procedures – and all competing procedures – to compare:
- How the procedure is delivered;
- The hospital and staffing resources required to deliver the procedure;
- The cost associated with each of these resources; and
- The Centers for Medicare and Medicaid Services (CMS) payment for each procedure.
The tool uses the database to compute the total facility and physician costs for the procedure. It then compares these costs and payments to similar costs for other procedures selected for comparison by the user.
The costs calculated by the tool represent true cost, equivalent roughly to the geometric mean cost the facility submits to CMS discounted by the cost-to-charge ratio for each profit center within the facility. In the “generic” version of the tool, the costs are taken from the literature and represent average costs across the U.S. When the tool is used for a given facility, facility-specific values can be entered for each resource, assuming the facility knows those costs. Payments are taken from the American Medical Association (AMA), CMS, or vendor-published data on the payment level associated with various procedure codes. These payments can be modified automatically based on regional costs factors published by CMS.
In practice, using the tool is very straight forward.
- The user first creates a “blank page” for the comparison. All selection options and the costs associated with each option are embedded in the blank page.
- The user selects a first procedure for comparison from a pull-down menu located on the first “procedure pane” on the page, which automatically populates the pane.
- The data used to populate the pane is obtained from the database, with the user having the option of manually changing the values or resources used to compute cost either globally (by editing the database) or individually (by editing pane-specific data).
- The user can then select additional procedures for comparison, with each assigned its own pane.
As procedures are selected, a comparison table, consisting of costs and payments for facility and physician for each procedure, is populated automatically. The table also displays net profit/loss for each component of each procedure as well as regulatory and reimbursement status, and time lost from work and activities of daily living, for the procedure.
The Foundation has identified two primary uses for this tool. The first is to assist vendors in selling focused ultrasound technology to prospective customers. Creating a clear cost comparison of available treatments that demonstrates how focused ultrasound procedures cost significantly less and require fewer facility resources than existing treatments may encoruage the purchase of focused ultrasound technology. For this use, the Foundation will provide clinical application-specific versions of the tool to simplify the selling process. For instance, for prostate cancer the Foundation will provide a version of the tool that includes only prostate related treatments in its database. In return, each company utilizing to tool will provide the Foundation with cost data from its site-specific comparisons to improve the accuracy of the tool’s database.
Second, nascent companies exploring focused ultrasound for clinical targets for their development efforts can use the tool to identify cost-effective and profit-generating uses of for their technology. In this instance, companies would use the generic version of the tool, which contains more than 150 individual procedures across all aspects of clinical treatments. Comparative costs from the tool may also help the company value its approach when pitching prospective investors.
- The Big Idea: How to Solve the Cost Crisis in Health Care by Robert S. Kaplan, Michael E. Porter. Harvard Business Review Magazine (September 2011)
For more information or access to the tool, please contact Mark Carol.
Mark Carol, MD, is a senior consultant at the Focused Ultrasound Foundation.