Finland is undergoing it’s largest social- and healthcare services reform in modern time. Until now, the Finnish hospital regions has been owned and funded by the municipalities. The healthcare providers has been reimbursed based upon production and patient fees.
If there is a lack of understanding about where value is created and what is driving cost from the healthcare provider’s side, the result may be underprized services and budget deficits. In Finland, deficits has traditionally been covered by additional block-funding, i.e the municipalities has just covered what is missing in order to keep operations running. This way of operating, where service units with deficits are compensated from other service units with a surplus, is not very sustainable or value adding for the patients and clients.
The preparation of new social- and healthcare related laws and regulation in Finland is finally increasing the understanding of the need to change the governance and funding of social- and healthcare services. In the new model, the regions are responsible for all social services and healthcare where the state finances the activities.
How the compensation system will look is discussed and prepared as this is written. During preparing the new structures, it has been suggested that 2/ 3 of the funding should be based on capitation, and 1/ 3 based on performance. This means a huge need to change the operational culture for the healthcare providers. It will no longer be possible to get budget deficits covered by the municipalities, but the costs need to be at a level where it is possible to develop operations in a sustainable and efficient way.
It is commonly known that in healthcare service production, about 60-70 % of the total costs are salaries and other personnel-related expenditure items. The international researchers specializing in healthcare costing have started to emphasize Time-Driven Activity-Based Costing (Time-Driven ABC) in employee-intensive healthcare.
In Time-Driven ABC, the cost of resources needed for particular service is directly allocated to the service by using time consumption. The main difference between the traditional and time-driven ABC is that, in traditional ABC the resource costs are first allocated to the activities and then only to the services or the customers.
From a regional perspective, it will be necessary to optimize the service network, to provide social and healthcare services when and where they are needed. This is possible only if different stage holders have reliable and transparent information about the costs of producing these services. In order to enable benchmarking between different units of primary care, specialist health care and social services there need to be common principles for healthcare costing. This will also provide a good foundation for make or buy-decisions.
Value based healthcare means identifying and monitoring activities and functions that adds value and improves health both clinically and from the customer experience point of view. When costs and resource consumption of these activities can be measured and are available, in real-time by using time-driven activity based costing for the healthcare providers, there will be prerequisites evaluating value-based service production and it’s improvement potential.
With time-driven ABC-methodology, it is possible to overcome the complexity of changed organization structures and large activity dictionaries, resource-consuming maintenance of spreadsheets and lack of automation. Imagine surveying the time consumption of the staff within an organization of 20 000 employees.
The time-driven adaption provides a solution to this. For each group of resources, estimates of only two parameters are required: the cost per time unit of supplying resource capacity and the unit times of consumption of resource capacity by products, services, and customers. The unit times are multiplied with the volume of the produced services, which are derived automatically from the source solutions. This creates the prerequisites for evaluating value-based service production and anticipating change needs.
By Kari Lappalainen
CEO FCG Prodacapo Group
Katariina Kääpä (katariina.kaapafcg.fi), Jun 14th 2017