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Managing the Cost of Care Managing the Cost of Care
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Managing the Cost of Care
How Are Provider Organizations Tackling the Cost of Care?

author - Paul Pitcher
Paul Pitcher
author - Lois Krotz
Lois Krotz
October 26, 2017 | Read Time: 5  minutes

With healthcare costs at unsustainable levels, the industry finds itself on a trajectory from fee-for-service to value-based care. Provider organizations who aren’t prepared to manage cost and take on risk while also maintaining or improving quality will have a hard time surviving. In this first-time report, KLAS takes an early look at the various ways organizations that already have a strategy are tackling this challenge and what vendors they are using or considering to help them. Interviews were conducted mainly with C-level executives, mostly from organizations with 500+ beds. Only the strategies and vendors most commonly brought up in interviews are discussed below.


Definitions of Cost of Care

The cost of care can be viewed through the lens of three different groups in healthcare, and it means something different to each group. The focus of this report will be on how provider organizations manage the cost of care.

providerview the total cost ofdelivering careto patientstop strategies provider organizations use to manage cost of caretypes of vendors firms considered or engaged for cost of care strategies

Disclaimer: Other vendors not discussed in this report may offer similar capabilities, but they were not mentioned by healthcare organizations surveyed in this research due to the wide variety of cost management strategies covered in this report.

1. Strata Decision Technology Continues Cost Accounting Growth; Health Catalyst Gains Attention in Evolving Area of Activity-Based Costing

Cost accounting tools are the most common tools used for the difficult yet effective strategy of point-of-care cost management. With a robust, comprehensive suite, Strata Decision Technology (Strata) has gained significant market share and mindshare in cost accounting over the past few years. The cost accounting subcategory of activity-based costing (ABC) is not new but is evolving, driven mainly by improvement in the EMR’s ability to record patient activities and the growing need for real, more accurate patient-level costs that can be linked to outcomes. Health Catalyst—a newcomer to cost accounting with a handful of organizations live or deploying—is seen as a potential disruptor and is the firm most often mentioned as being used for ABC methodologies that are based on actual patient utilization of clinician time and other direct costs (e.g., supplies and drugs).

provider strategy 6 unit level point of care cost reduction

Customers engage Health Catalyst to reduce cost and cost variation and integrate cost accounting systems with other solutions. Many interviewed Strata customers have adopted ABC methodologies for determining actual patient utilization of direct costs. EPSi is most commonly used for cost-to-charge-ratio and RVU allocation methodologies to help customers understand patient- and provider-level costs. EPSi users say they can’t do ambulatory cost accounting; organizations using Strata report that they can. Evolving market requirements combined with competitors’ technology advancements have reduced mindshare for both Vizient (formerly MedAssets) and McKesson.

2. Consulting Firms Used More Often Than Cost Accounting Software

When trying to manage supply chain, infrastructure, and operational costs, provider organizations are more likely to use consulting firms than software technology. Consulting firms are often engaged to help develop playbooks, lean methodologies, and cost-structure/process improvements, as reflected in the projects that organizations in this research report having done with EY, Huron Consulting, Impact Advisors, McKinsey, and Navigant. Gartner and Chartis Group have been engaged to benchmark clients’ supply costs and IT department costs, respectively. One common challenge highlighted by clients of many firms is a tendency for firms to use a one-size-fits-all playbook. Additionally, firms’ resources are sometimes stretched and not able to meet clients’ timelines or provide consistent deliverables.

provider strategy 2 supply chain improvementerp tm solutions mia for strategies related to healthcares top costs

3. Utilization Management Most Prevalent Reported Methodology for Managing Cost

provider strategy 5

Reducing Utilization through PHM: Enterprise Vendors Used Often as PHM Vendors, with Epic Healthy Planet Leading Mindshare

The cost-management aspect of population health management (PHM) involves reducing utilization by proactively identifying gaps in care, promoting preventive healthcare, enabling better care coordination and patient engagement, and managing high-risk patients. In this research, Epic is the top-mentioned vendor being used/considered for organizations’ efforts to manage cost through PHM. This speaks to the strength of Epic’s market share and the fact that Epic customers tend to leverage Epic’s broad portfolio. The majority of providers in this research who report using Epic to manage costs are doing so by using Healthy Planet for care management, including risk stratification, patient outreach, and the closing of care gaps. 37 of the organizations interviewed in this research are enterprise Epic organizations. Few of the 20 Cerner customers KLAS interviewed mention leveraging Cerner for utilization management or for managing cost of care overall. Healthcare organizations might also look to a long-term partner with extensive experience in care management to help accelerate their PHM efforts. Evolent Health is mentioned the most as being used or considered for this type of work.

population health managementnumber of mentions by vendor firm type

For Patient-Level and Episodic Claims Analytics, Services-Oriented Premier and Truven Health Have Top Mindshare

The primary goal of patient-level and episodic claims analytics is to enable organizations to reduce unnecessary utilization of healthcare services by patients in value- or risk-based contracts. For patient-level claims analytics, organizations most frequently mention using PHM vendors and firms; for example, Explorys is leveraged for both claims and care management. Firms that provide claims-management analytics services—including Premier, Truven Health, and Optum—are the next most commonly used type of firm. Technology from these firms aggregates claims data, and then the firms provide insights, measurements, models, and reporting.

For episodic claims analytics (i.e., bundled payments), Truven Health, Premier, and Remedy Partners are the most commonly mentioned, being used for managed services arrangements. All are engaged to provide longer-term analytics (including aggregating and analyzing claims data) and consulting services (including program setup and education services) to help clients participate in bundled-payment programs. In addition, Premier’s Milliman tool is often applied more broadly for clients participating in MSSPs.

patient level claims analytics number of mentions by vendor firm typeepisodic claims analytics number of mentions by vendor firm type

author - Elizabeth Pew
Elizabeth Pew
author - Natalie Jamison
Natalie Jamison
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This material is copyrighted. Any organization gaining unauthorized access to this report will be liable to compensate KLAS for the full retail price. Please see the KLAS DATA USE POLICY for information regarding use of this report. © 2024 KLAS Research, LLC. All Rights Reserved. NOTE: Performance scores may change significantly when including newly interviewed provider organizations, especially when added to a smaller sample size like in emerging markets with a small number of live clients. The findings presented are not meant to be conclusive data for an entire client base.