Decision Support Primer

This link provides you access to a document that summarizes the discipline of Decision Support.


Decision support is a specialized type of data analysis developed to enhance the business decision making process. The basis of healthcare decision support is the creation of a data repository generated by integrating and restructuring an organization’s financial information (general ledger and payroll systems), patient data (registration and medical records system), detailed service transactions (billing system) and clinical data (case abstracted data). The majority of the data used in decision support already exists in one or more computer systems. Because of this, and because it deals with very large amounts of information, decision support depends on sophisticated software to work effectively.


A decision support system is an integration tool. It brings together data from a variety of transaction systems. This does two important things for your organization:

  • Creates an integrated repository for easy access, retrieval and analysis (various datasets imported, re-structured and connected to provide institution-wide, cross-systems, data access).
  • Creates new data not available anywhere else (charge item cost).

Item level cost (aka, charge item cost). This is created through the merging of detailed expense, payroll, statistical and service activity data. Using sophisticated data modeling, it is possible to calculate the actual cost of every service provided by the organization.


Your accounting system knows costs only as aggregate amounts (aka, “expenses”). It can tell you what your total expenses are, the expense in a specific G/L account (e.g., Registered Nurses Salaries in th ICU), or your total expenses for a particular type of expense (e.g., all labor expense in the ICU). It cannot tell you the cost of a specific service item (e.g., how much money does it cost to provide a day of care in the ICU which includes not just RN Salaries, but also supplies, equipment, building, electricity, etc.). Item level costs can only be determined through the complex and careful matching of expense and detailed service data. Without item level costs, you cannot know the cost of a particular product line (an aggregation of patients and the services – i.e., charge items – they were provided), the profitability of a contract or the detailed information required to manage your cost variances effectively (what it cost vs. what it should cost).


Once the cost of each service has been determined, this new information becomes a part of the organization’s decision support database. The key concept in this database is flexibility. The data can be “sliced and diced” to provide information such as.

  • Product/business line costs and profitability
  • Contract costs and profitability
  • Program costs and profitability
  • Physician and staff productivity
  • Analysis of physician efficiency
  • Analysis of financial efficiency of clinical options
  • Analysis of clinical effectiveness
  • Introduction of key statistics and financial indicators
  • Comparisons to actuarial cost and utilization standards
  • Consolidated financial reporting – across multiple organizations and reporting periods
  • Cost and volume-based product line budgeting

In fact, the database becomes the key source of information to the organization, not just for financial performance, but for operational management, the evaluation of clinical practices and the evaluation of outcomes effectiveness.


It is the ability to answer analytical questions involving more than just one individual network unit. There are many different, and frequently more complex, questions which exist only in an integrated healthcare organization. Managing a network requires sharing or consolidating resources and the development of new integrated clinical services. The financial impact of these changes on each part of the network is impossible to predict without sophisticated analysis. A decision support system gives you an automated tool to support this analysis process.


Managed care depends on financial models in which there are incentives to maintain the health of a population in the most cost-effective way possible. To be successful, both management and clinical decisions require an understanding of the organization’s actual service and product costs. Healthcare providers are increasingly operating “at risk” in their managed care contracts. The fee-for-service management environment of the past focused on volume management. In the past it was being rapidly replaced by the risk management environment of managed care. While this trend has been slowed and even reverted somehow in the first decade of 2000, the new changes in Healthcare legislation in 2010 are sure to bring it back. As time goes on, charges will become less and less relevant as a means to increase revenue. They will require more relevant as a mean of monitoring utilization because Cost will replace them as the essential component in determining the effectiveness or profitability of a provider, a department, a service or the entire organization.


Cost variance is the difference between what something cost vs. what it should have cost. Intrinsic in this notion is the believe that one knows what something should have cost. That is not necessarily the case in Healthcare. However, proxies can be arrived at from which to conduct variance analysis. Cost variances can exist for three reasons: a) Because the quantity of services provided is not in keeping with the expectation –> Volume or Utilization Variance b) Because the cost of the services provided is not in keeping with the expectation –> Either Unit Cost can be too high or the MIX of the services is too expensive… or a combination of both c) Because of a combination of a and b. Of all of these reasons, only the Unit Cost is under the non-Physician Manager control. The rest is driven by the Physician utilization of resources, traditionally related to the criticality of the case and the practice pattern on the Physician Provider. To manage a variance, one has to know the reason so that one can tell where to act. As it is obvious, unraveling the reason for the variance is not a simple exercise, but one that is essential is the provider organization is to be able to control cost. Decision Support is geared to conduct these analysis. But a good system is only part of the solution. Said system has to be kept up to date and it has to be managed, maintained and USED appropriately to derive the enormous benefit one expects from it.


Never two disciplines could be more complementary! – Insurance companies contract with providers in what amounts to a “non-level” playing field. Insurance companies pay “Claims” for “Cases”, that is, their cost is already neatly arranged in the way they BUY (i.e., Pays for the service) their business. A case is an insured and the combination of insured individuals is a “plan”. Then all they have to do is look at the costs by plan to tell what that contract is costing them. On the other hand the provider receives payments by either case (fee-for-service world) or by “life” (capitated world) but BUYS (i.e., Pays for the work) in lump sums COMPLETELY UN-ALIGNED with the way in which they get paid. The provider pays “salaries” and “utilities” and has no clear idea of what deliver the service for that one case, or that one plan, cost them…  Without good cost accounting information, the negotiating table is slanted. One one side, the insurance carrier, holding the money and all the “knowledge cards”. On the other side is the provider, without that knowledge and with the need to get paid for services to continue to operate. The payer (i.e., the insurance carrier) can offer “alternatives” (e.g., alternative benefit plans that have different co-payments, special benefit, carve outs, payments by case, etc., etc.) all the while KNOWING (from its data) the exact financial impact that those options mean to them. The provider, on the other hand, has none of the information that can assist them to balance the power of the knowledge of the insurance company’s data. However, having this knowledge is CRITICAL because it may be saying “NO”, or better yet, offering the Provider’s OWN alternative (that are possible if the provider can do the same kind of modelling the insurance company does)  that a loosing proposition can be turned into a winning one, or even a win-win one for both negotiators. Decision Support is geared for this analysis. But again, a good system is only part of the solution. Said system has to be kept up to date and it has to be managed, maintained and USED appropriately to derive the enormous benefit one expects from it.