Introduction to Cost Cycle Management

Introduction to Cost Cycle Management

Reimbursement constraints continue to put pressure on Health Systems throughout the country. Consequently, more and more efforts are focused on creating an efficient well-organized Cost Cycle Management process. Ensuring every bit of revenue captured can make a difference when considering bottom-line margins.


While a sound Revenue Cycle Management approach is definitely “best practice” and necessary, SpendMend has recently noticed Health Systems applying this same approach towards Cost Cycle as well. Cost Cycle Management gives visibility to the costs associated with conducting business and securing the necessary products and services to support the Health System on a day-to-day basis.


An important facet associated with Cost Cycle Management is the containment of Financial Leakage.


The Reality is financial Leakage occurs in every organization. Even though organizations invest considerably in preventative controls (to prevent financial leakage), it still exists. Due to the unique challenges within the Healthcare Industry, Financial Leakage is more prevalent than in any other industry:


Complexity – Departments tend to function independently with different systems and procedures that are not easily transparent, and many times structured to support the clinical needs. (i.e. Surgery, Supply, Pharmacy, etc.)


Compliance – while investment in processes/procedures is sound, a Health System still relies on individuals to comply with those processes. Lack of compliance will harm the data used to contain Financial Leakage.


Change – one of the most consistent attributes in today’s Healthcare Industry is “Change”. Merging with other Health Systems, upgrading or even changing ERP systems, restructuring departments, and changing GPO providers are just a few examples. Many of these changes are also happening with a demanding vendor base as well.


When considering the bottom line margin at the typical Health system, every dollar not contained within the Cost Cycle has a huge impact and can correlate to 50 – 75 times its weight in new revenue.


Here are some compelling stats from our 2017 audits:


For every $1 billion in hospital spending, the recovery equals over $1 million.


Every $1 million recovered is equal to more than the profits of $75 million in Patient Billings


In 2017, we recovered over $100 million for our clients, or the equivalent of over $7.5 billion in Patient Billings


As attention grows towards prevention and containment within Cost Cycle Management, organizations are discovering that the issues causing Financial Leakage are not transparent but rather “Dark”. By uncovering the “dark data” embedded in the process, organizations are beginning to gain full Spend Visibility. Only when full visibility is accomplished can an organization approach a sound Cost Cycle Management process.

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