Ask the Payment Expert about ... how to calculate cost of care

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Patricia Boyer
Patricia Boyer

Our referral hospital system is asking us what our cost of care is. How do I calculate that?

It is not surprising that your referral source is asking about the cost of care.  It is a definite focus with new payment initiatives including bundled payment and accountable care organizations.

As hospitals, managed care and ACOs are being held responsible for 90 days of post-acute care, they are turning to the facilities to tell them how they are going to meet their objectives of high quality at a lower cost. A major medical center estimated the cost of care for lower joint replacement post-acute care in skilled nursing facilities as $41,100, and with a home health agency as $22,350. 

So you need to lower your cost of care to be a provider of choice. Most SNFs do not typically think about the cost, but rather their resource utilization groups (RUGs) reimbursement.

Now it is time to do that calculation. There are several ways to figure the cost of care for nursing. The first is to use the RUGs level, and from the Federal Register find the case mix index score for each RUG level. You would then calculate your nursing cost per RUG level. 

The second method is to use average wage rates and the STRIVE staffing studies to determine cost for each RUG level. Then look at other costs, including costs for therapy, pharmacy, lab and X-ray, pharmacy and IV therapy, medical supplies and any other expenditures.

As you can see, it's not an easy venture. You may want to contact your accountant to assist you. The reality is that you will need the average cost of care for your residents, depending on diagnosis and care provided. That is the information that is being requested. 

Once you know your costs, you need to determine how to lower them. That might include shorter stays and moving residents to home healthcare sooner.