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Saint Luke’s Health System Updates Cost Allocation Model to Reflect Organizational Growth and Plan for the Future
Saint Luke's Health System consists of 11 hospitals and several primary and specialty care practices in the 67-county area surrounding Kansas City. The system provides a range of inpatient, outpatient, and home care services. Founded as a faith-based, not-for-profit organization, its mission includes a commitment to the highest levels of excellence in health care and the advancement of medical research and education. The health system is an aligned organization in which the physicians and hospitals assume responsibility for enhancing the physical, mental, and spiritual health of people in the communities it serves. It employs 8,300 and includes a medical staff of more than 1,200 physicians in a full range of medical specialties. Saint Luke’s Hospital is a recipient of the Malcolm Baldrige National Quality Award.
Saint Luke's Health System
Debe Gash, CIO
“Aspen Advisors principals have had a long standing relationship with Saint Luke’s and innately understood our management culture and IS cost components and drivers. They helped us quickly update our IS cost allocation model to ensure equitable allocation across our facilities and acceptance by our business unit and departmental leaders as well as make the value IT was delivering across our system more transparent.”
THE CHALLENGE
Saint Luke's Health System had developed a model for allocating IS expenses to its operating entities in 2001. The model had the expenses allocated to each entity based on a percentage of net revenue. The methodology was complex, difficult to administer and update, and its results often stirred debate with business unit leaders. Over the following five years, the makeup of the health system had changed with the addition of Saint Luke’s East, an increase in employed physician practices, and the divestiture of Shawnee Mission Medical Center. Additionally, the IS service catalog provided to all entities had grown with the addition of PACS, e-ICU, and advanced clinical systems, among others. The service catalog was also continuing to expand with the addition of bio-medical engineering services which was consolidated under the corporate IS department as was the addition of services to be provided to the regional hospitals that were managed by Saint Luke’s. As a result, Saint Luke’s needed to update its IS cost allocation mechanism to reflect the growth in health system entities and the IS portfolio.
THE SOLUTION
Aspen was engaged to assist Saint Luke’s in updating its IS expense allocation methodology. Specific outcomes included:
- Reviewing the current IS cost allocation framework, guiding principles, and key components and categories;
- Developing principles and a framework for allocating IS costs to organizational entities;
- Identifying key responsibilities, governance structure, and processes necessary to sustain a viable cost allocation system;
- Defining changes in the IS cost allocation mechanism to account for new services, new entities supported, and areas where allocation of costs based on direct usage of services could be made;
- Establishing a durable, yet flexible methodology for allocation of future IS costs; and Organizing and managing operational support for go-live; and
- Updating the cost allocation model to account for changes in IS service catalog offerings and entities that were supported with IS services.
THE RESULTS
As a result of the engagement, Saint Luke’s Health System had an updated cost allocation model that incorporated both the expected near-term changes and incorporated longer-term considerations and trigger points that would invoke future changes. A key attribute was the simplicity with which the mechanism could be updated and how the cost impact of potential IS decisions could be modeled with business unit and departmental leaders. The allocation model was validated, the impact of the new model was assessed, and the model successfully rolled out and still in use three years later.
