Undoubtedly, the development of better drugs and surgical technologies have significantly contributed to improving the quality of life. Hospital networks and health insurance companies are experiencing important competing challenges, causing drastic changes in their business models. Consolidation among providers, predictive analytics, and artificial intelligence are delivering efficiency gains to meet more demanding patient expectations. All this has led to an uncontrolled and exponential increase in costs incurred. This rise in costs can be analyzed by its contribution to the country's gross domestic product (see Figure 1 published by World Bank).
The health costs are rising in the USA due to these trends:
Increasing medical costs
Pharmacy costs skyrocketing
Lack of cost transparency
Medical providers are rewarded for doing more (Rather than being efficient)
Rise of chronic illness and obesity
Decreasing competition (Carrier consolidation)
Fewer plan options & smaller provider networks
Healthcare is not Patient Centric (consumerized)
For the last 30 years, the variety and volume of medical information have expanded significantly. A lot is said about technologies like high-resolution medical imaging, electronic medical records, big data, pseudo-predictive analytics, or in-memory platforms to improve healthcare operations. However, before all these medical and technological advances, Financial Analytics remains a pending subject in many organizations.
The interest in profitability and cost management is re-emerging, and the topic is increasingly being elevated to the board‘s agenda. Profitability and cost management is more relevant than ever. There are multiple reasons for this, both on the tactical side—responding to internal and external pressures, and from a strategic point of view—increasing the organization‘s competitiveness.
The excessive use of spreadsheets and isolated financial models, generate limited situations to form a suitable scenario for analysis and decision making. The best financial models for healthcare entities are structured in a coherent and integrated way to understand performance in descriptive, predictive and prescriptive scenarios at the patient level.
Unfortunately, the maturity levels in most healthcare companies are not encouraging at all. Using as reference IFAC´s Maturity Model. Figure 2 shows that most entities are located in 5D for descriptive analytics and 1P for predictive analytics. In other words, this means that financial models at most healthcare organizations are too far away to measure and truly understand Patient Profitability and effectively manage the costs associated with specialized services and other healthcare operations.
Any organization that boasts of being focused on its patients should verify that it has a business model oriented in the patients and not only collect services to the insurers and other providers. Patient Centricity is a strategy with a well-defined business model, which has financial indicators that can accurately measure these stages (see Figure 3):
Patient Profitability and Cost Management is an imperative for healthcare insurance providers. This is being driven by both regulatory requirements and competitive pressures. Effectively addressing the challenges of patient profitability and cost management involves mastering a methodology, understanding the business drivers, changing business processes, and introducing a system that supports an efficient process. The impact of profitability and cost management ripples through to all management processes and is a key component of an overall enterprise performance management system.
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