After assisting an HPM customer recently with developing more refined cost standards, we were curious: would the new standards make a difference or would the answers be close to using something like the RBRVS?  We see a lot of demand for off-the-shelf standards, RBRVS being the chief example.  Of course, RBRVS (Resource Based Relative Value Scale) is intended for payment to physicians, and includes physician work and malpractice expense.  How well does this relate to what is required to perform the service item in the hospital setting?

Diagnostic Radiology Estimated Minutes vs. RBRVS x 10
each x-axis increment is a single service item

What we noticed from the graph is that much of the correlation happens in the lower time service items.  When you go out into the longer time service items, more variation between the two approaches becomes apparent.  In fact, when we ran the correlation coefficient on the half of the service items with the highest minute estimates, the coefficient fell to approximately 32%.  So in the most expensive things you are doing, using estimated standards is even more important, as the off-the-shelf standards show wide disparities.

We think this is pretty good empirical evidence that estimated standards are superior to the off-the-shelf standards.  When you also consider that the manager developed the standards and you have secured their support in the process, estimated standards are well worth the effort.  We will discuss that effort in another note later.  Our new approach makes developing estimated standards a sustainable process.