The HFMA-Strata L7 Cost Accounting Maturity Model

About the L7 Model

Healthcare providers have little to no access to accurate, comprehensive, and actionable information on the cost of care.  According to a recent survey, 90% of healthcare leaders are “flying blind” when it comes to understanding cost.

While hospitals and health systems represent roughly $4 trillion of the annual spend on U.S. healthcare, their average net operating margins have dropped below 3% with close to 30% operating at a loss. The challenge they are faced with is how to reduce variation, waste and inefficiency in order to invest in and improve care—without any access to trusted data on the cost of care. As the business model of healthcare continues to shift and operating margins continue to shrink, understanding the true cost of care has become mission critical for hospitals and healthcare delivery systems. How can you reduce variation, waste and inefficiency in order to invest in and improve care if you don’t have any access to data and hospital cost accounting basics?

The HFMA-Strata L7 Cost Accounting Maturity Model (L7^®) provides an industry standard to help hospitals and healthcare delivery systems:

• Assess their current cost accounting model methodology, understand the level of accuracy of their cost data, and benchmark capabilities against peers, and
• Create a roadmap for the actions required to ensure their cost accounting model approach meets their strategic needs

L7 helps you benchmark your current cost accounting model capabilities against your peers. Each level of the L7 Model builds upon the level before, allowing an organization to increase the accuracy of cost accounting and more easily access cost data with dynamic, actionable methodologies. As you move up to the next level, you deploy more sophisticated costing processes and workflows and generate more meaningful and accurate output.  The model also assesses current gaps in source system data to help standardize and automate data capture.

The base of the model represents healthcare organizations with a basic cost accounting model and tool that deploys ratio of cost to charge based methods, reflecting hospital cost accounting basics. An organization that is at Level 7 has expanded the use of time-driven costing to all clinical areas and engages clinicians with the cost data to help drive performance improvements.

Originally designed for 200 leading healthcare delivery systems, we have now open-sourced this model to make it available as a tool to every healthcare provider.

“As hospitals and healthcare delivery systems move toward value-based payment structures, they will need to leverage cost accounting in a much more strategic fashion,” said HFMA President and CEO Joseph J. Fifer, FHFMA, CPA. “To effectively improve their cost accounting capabilities in a rapidly changing and complex setting, health systems need a roadmap to ensure their approach meets their strategic needs.”

Improve your L7 score

With your L7 estimate as a foundation – our experts will craft a game plan to help your organization reach it’s advanced cost accounting goals. Our team will collaborate to design and implement sustainable future state models, managing change across organizations of all sizes and types. Learn more about Strata Advisory Services.