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This is not a secret mission. In fact, Robert Kaplan, the guru of activity based costing and Michael Porter, the guru of industrial strategy are very open about their mission to get healthcare organizations to count pennies properly.

The problem with healthcare budgets, according to Kaplan and Porter as reported in the New York times, seems to be that no one knows what it costs to deliver healthcare and no one knows how these costs relate to outcomes achieved.

When agencies try to cut costs, they will often make across-the-board cuts that are unsustainable because they have no connection to the true costs of care.  No one measures the costs based on the actual resources that are used. Without understanding resources used and outcomes achieved, costs will keep rising.

Kaplan and Porter’s research shows that many healthcare organizations are improving their measurements of outcomes. But they  have done little to measure the actual costs of achieving those outcomes.

To accurately measure costs, teams of clinicians and administrators must identify all the processes involved in care. The teams then identify the quantity and unit cost of each resource- doctors, nurses, equipment, supplies, devices and admin support – used in each process. Together these form the true cost of care.

This process helps healthcare organizations to discover immediate and realizable opportunities for improvements in outcomes and decreases in cost.

For example, the head and neck division at MD Anderson used specialized nurses instead of doctors in the evaluations of new patients, moved to standardized processes and improved IT. This resulted in a 36% reduction in cost without any adverse effects on patient outcomes.

According to Kaplan and Porter, with accurate information on costs and outcomes, providers can improve care, save money by eliminating wasted steps, and reduce waiting times.

Understanding costs could be the most important tool in transforming the value delivered in healthcare. This will help to improve patient care and stop arbitrary cuts and counterproductive cost shifting.