How to perform Clinical Costing following DoH Standards?

For an introduction on Clinical Costing, feel free to take a look at What is Clinical Costing?

The Clinical Costing Standard published by Abu Dhabi Department of Health (DOH) outlines a procedure that spans several stages through which Clinical Costing is performed.

The standard contains important definitions and determines how Clinical Costing should be performed. In this article, we go through the various stages in Clinical Costing and what is involved in each stage at a high level.

Healthcare providers must follow this standard as they prepare required data, and perform the processes required to build and cost model and produce the final clinical costing process outputs.

Here are the stages of the Clinical Costing process.

• Stage 1: Identifying Expenses for Costing
• Stage 2: Creating the Cost Ledger
• Stage 3: Allocating Overheads
• Stage 4: Creating Costing Products
• Stage 5: Allocating Costs to Products and Patients
• Stage 6: Data Review, Reconciliation, and Audit Readiness

Stage 1: Identifying Expenses for Costing

Clinical costing begins with identifying the correct expenses from the general ledger. All relevant operating expenses related to patient care must be included, while balance sheet items such as capital expenses and revenues are excluded.

Subsequent stages depend on this stage, so it is important to be careful at this stage. Errors introduced at this stage flow through every subsequent allocation.

Stage 2: Creating the Cost Ledger

This stage builds on the previous step to continue building the cost model. In this stage, Cost Centers are defined and the costs are classified.

Further, cost centers are categorized as direct and indirect cost centers, and statistics are assigned to determine how overhead costs are allocated as in the next stage.

Again, as this is an early stage of the process, care need to be taken to ensure accuracy and correctness as errors will affect the next stages in a way that cannot be corrected without rebuilding the model.

Stage 3: Allocating Overheads

Support and overhead cost centers must be systematically allocated to clinical cost centers.

This may be done via either Step-down allocation or Reciprocal allocation.

The Reciprocal overhead allocation method is more accurate but also more complex. The advantage of using the reciprocal method is that this method recognizes that overhead cost centers not only support direct cost centers, but also support other overhead cost centers. It is the method that DoH prefers and is the one implemented by CostVitals.

The goal of this stage is to ensure that clinical departments (direct cost centers) absorb their fair share of indirect costs.

At the end of this step:

• Non-clinical cost centers should be fully allocated
• All remaining costs should sit within clinical cost centers

Stage 4: Creating Costing Products

In this stage, costing products produced (and consumed) are identified and formally defined.

Costing products pertain directly to patient care and they reflect the activities involved in and the resources consumed while providing patient care.

Costing products have a cost, and this cost includes direct costs from direct cost centers, as well as indirect costs that originate from overhead cost centers.

Stage 5: Allocating Costs to Products and Patients

"Allocating Costs to Products and Patients" is the stage where clinical costing becomes patient-level costing.

In this stage, all costs accumulated in final cost centers are distributed to the costing products created in Stage 4, and then linked to individual patient encounters. Allocation is performed using primary cost drivers such as duration, activity counts, actual item costs, or RVUs.

Linking rules are used to identify what products are consumed during an encounter from the various direct cost centers.

Stage 6: Data Review, Reconciliation, and Audit Readiness

The purpose of this stage is to ensure that the clinical costing results are complete, accurate, and defensible.

Healthcare providers must validate data quality, review costed outputs for reasonableness, and reconcile total costs back to financial statements and source patient activity data.

This stage involves preparing a Reconciliation Report where costing data is summarized at a high level, overhead costs and some encounter and activity data are listed, and finally a list of validation rules are checked.

Submitting data to DoH

Finally, the data needs to be submitted to DoH.

• The reconciliation report is submitted via email.
• The clinical costing data for each encounter is submitted via Shafafiya.

CostVitals' can generate the required XML as well as submit to DoH using Shafafiya as well as track the submission on Shafafiya for confirmation.