April 3, 2023
The Healthcare Financial Management Association (HFMA) promotes the L7 Cost Accounting Adoption ModelTM (L7 Model) as the industry's first roadmap to help healthcare providers access accurate cost data via the use of advanced cost accounting.
The model is intended to provide a framework for helping hospitals and healthcare systems assess their current cost accounting methodology, understand the level of accuracy of their cost data, benchmark capabilities against peers, and create a roadmap for the actions required to ensure that a provider’s cost accounting approach meets its strategic needs. Most often this data is made available via a decision support solution so organizations can identify areas for improvement.
Linking your costs
The basis of this model is for hospitals and health systems that rely heavily on ratio-of-costs to charges (RCC) or relative value unit (RVU) methodology to obtain cost data needed to manage their organizations. These methods, however, do not provide the ability to precisely identify the elemental cost of care, making it impossible to link costs to outcomes, value-based care initiatives, or process improvements. To effectively do so requires the use of activity-based costing, of which the L7 model sets forth a longer-term approach to moving to this method.
But what about the interim?
It can take years to fully adopt activity-based cost accounting across the organization, and even longer when organizations use a stepwise approach by functional area or department. In addition, healthcare providers are facing many challenges and need to make strategic decisions every day that affect their long-term financial viability. Without knowing your true cost of care--which is only available with activity-based costing done across the entirety of an organization--it is impossible to link costs to activities, medications, and supplies to participate in or evaluate value-based care programs, process improvements, medication acquisition, or physician variability. Therefore, only when an organization completes the L7 roadmap can they be assured of accurate, effective decision making.
There is another solution
Decision support solutions such as Trisus Decision Support, utilize activity-based costing from the outset. The implementation process is completed by knowledgeable experts who understand and curate the data from all the data sources, providing you with your true costs. Not only will this provide an accurate depiction of your environment, but it provides insights and lets you drill down into all aspects of the organization. Click here to learn if Trisus Decision Support is right for your organization.