IMPLEMENTING AN INTEGRATED HOSPITAL COST MANAGEMENT SYSTEM
The Management Accountant|February 2021
The unique features of Healthcare Sector and their Business Process Flow are a big challenge to implement an Integrated Cost Management Solution. Even though a Hospital may have an effective Medical Information System of Patients and an ERP, they still struggle with implementing a Costing System; this is because the information is in different Silos. To implement an effective Costing System, the cost structure should be either inbuilt in the ERP or should have information flowing in from the Accounting and Patient Information. Identifying the Cost Elements and their classification, defining Cost Objects and their hierarchy and mapping the flow of information from Accounting and Medical Information System are pre-requisite for an Integrated Cost Management Solution. With the rapid development in information technology many IT firms/ERP use Data Connectivity for seamless integration. An integrated Costing System will facilitate online reporting and help Management in decision making on Pricing, Profitability and Cost Control.
CMA Krishnan Narayanan

Unique Features of Healthcare Sector

The process of implementing Costing Module starts with understanding the unique features of Healthcare Sector and the process flow of the business 1. About Patient

~ In a Hospital, Patient is the Customer and their number is large.

~ Nowadays payments on behalf of Patients are done through Medi-claim policies also.

~ Patients undergo different tests and treatments for which they have to be charged for various services utilized.

~ No two patients can be compared; even though they may have similar diagnosis. Because of age and health of the patients are different, the treatment will vary in terms of time and cost.

2. Different Specialties which are Revenue Streams independently and are also bundled,

3. Infrastructure Cost, Non-Technical, Support Service Costs are independent cost centers which are mostly fixed in nature.

Difficulties faced in implementing Costing System in Hospitals

~ Invoicing is done for the patient which may be identifiable with the Specialties but in the case of bundling it loses its identity.

~ Accounting Packages and also Finance module in ERP focus on transaction and report expenses to suit the requirement of Accounting Standards. Unless at the time of implementing ERP if Costing requirements are not defined according to Business requirements , integration becomes difficult.

~ Information is available in Silos and implementing a Costing system becomes difficult. Therefore most of the Hospitals struggle with computing the cost of products and services provided by them.

~ The inter-related and interdependency of processes makes cost management difficult.

~ Further the cost of stand-by facilities such as. Generator, backup operation theatre, and extra trained staff complicates the system of cost management

Lack of proper costing system has adverse influence on pricing, profitability and finally on sustainability of business. Therefore it calls for an integrated Costing System

Need for integrating Costing System

The ultimate solution to overcome the above difficulties is to have an integrated Costing System. The objective of the Integrated Costing System is to analyze, summarize, and evaluate cost data, so that management can evaluate Profitability by Product/ Activity and take decisions on price, compare with budgets and implement cost control measures

An effective Cost Management in Hospital is possible, only when the following three key areas are integrated.

1) Medical information on patients,

2) Financial and accounting system,

3) Costing System

The Medical Information on Patients is provided by the EMR (Electronic Medical Record) which is capable of providing minute information of a Patient, the history and the treatment to the Patient.

A Financial and Accounting System, which may be a Finance Module in an ERP, or a standalone Accounting Package, fulfills all the requirements of Financial Reporting for Management and Statutory.

But to have an effective and efficient Cost Management it has to be integrated with Medical Information System and also Financial and Accounting System.

PROCESS OF IMPLEMENTATION OF AN INTEGRATED COSTING SYSTEM

All reputed ERP Packages have Costing Accounting as an independent Module which is integrated with the Finance and other Modules, but not with Electronic Medical Records of the patient, but nowadays there are Data Connector Tools which can be used to import Patient Information

The Integrated Costing System will collect data from various sources, such as the general ledger, sub-ledgers, budgets, and statistical information and define the following terms

Cost element

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