Behavioral health cost reporting by program and level of care
See what each behavioral health program and level of care really costs: direct costs, shared cost allocation, staffing and the monthly leadership report.
Behavioral health finance leaders get asked which programs to grow, which to restructure and whether a new site can work at current staffing. A chart of accounts that reports by entity or site can’t answer those questions, because they sit at the level of the program and the level of care.
This post sets out the three layers a program cost report needs, the monthly report leaders can build on them, and the questions to ask of any finance system or method. It covers the cost side.
Key takeaways
- Entity and site totals hide which program, and which level of care, is carrying the others. Reporting cost by program and by level of care gives a multi-program provider that view.
- A program cost report has three layers: direct costs coded to the program at entry, staffing cost attributed to the level of care each clinician delivers, and shared costs spread by a documented method.
- The monthly leadership report should answer three questions: what each program cost to deliver, how it is tracking against plan, and which programs need a closer look before capacity decisions.
- Test any finance system or method against real scenarios: a new site, a new level of care, a staffing change and a program funded from several sources.
What we’ll cover
Why entity and site totals hide program costs
A provider running several programs across several sites is running several businesses at once. A program is the service line leaders fund and manage, such as an addiction treatment or youth program. A level of care is the intensity of service within it: residential, partial hospitalization (PHP), intensive outpatient (IOP) or outpatient. One addiction treatment program may offer both residential and intensive outpatient care, at more than one site.
Each program has its own cost structure and staffing model, and often its own mix of funding: Medicaid, state grants, county contracts and managed care organization (MCO) arrangements. For the revenue side, see our post on reporting five funding streams in one close. Define program and level of care as separate dimensions in your reporting model, and use them the same way everywhere.
When the ledger reports only by entity or site, those differences disappear. The close shows whether the organization made or lost money, but it can’t show which program carried which, or whether a site that looks healthy is relying on one busy level of care while another loses money.
The signs are familiar. Allocations get run rarely, because they are hard to do. Questions about whether a program is viable take days to answer, because the answer is rebuilt in spreadsheets. Close week goes on extracting and reconciling data.
Health Solutions, a community medical and behavioral health provider in Colorado, describes this before it moved to Sage Intacct. Its chief financial officer (CFO), Paige Oldham, says the previous software couldn’t produce a monthly balance sheet, and allocations for unit cost reporting were so cumbersome that she did them only once a year. Read the Health Solutions story.
The three layers of a program cost report
Each layer is a design choice. A standard chart of accounts won’t produce any of them by itself.
Layer 1: direct costs coded at entry
Direct costs (program supplies, direct service contracts, space used by only one program, and the salaries of staff who work in only one program) should be coded to the program and level of care when they are entered, so nobody has to reallocate them at month end. That means the chart of accounts and the entry workflow carry program and level-of-care dimensions from the start. Staff who work across programs or levels of care are handled in the next layer.
Patient-level data stays in the electronic health record (EHR) and billing system. The finance system needs only summarized operational data, such as direct service hours by program, so protected health information (PHI) stays where it belongs.
Layer 2: staffing attributed to the level of care delivered
Staffing is usually the largest cost in a behavioral health program, and the hardest to attribute when clinicians work across programs or levels of care. A clinician who splits time between residential and IOP is a direct cost to both, and the split should follow the service they actually delivered.
That needs a summarized feed from the scheduling system or EHR: hours by program and level of care, with no patient detail. Finance then uses it to split payroll cost. With this layer in place, the report can answer staffing-mix questions as well as headcount by site.
Layer 3: shared costs spread by a documented method
Administration, information technology (IT), space used by several programs and other shared costs can’t be coded to one program at entry. They need an allocation method that is written down and applied the same way every period.
Choose a basis that reasonably reflects how each program uses the resources in the cost pool: direct service hours, headcount or square footage are common choices. Document it, apply it every period, and review it when operations change (a staffing restructure, a new site). A method like this is easy to explain to an auditor or a funder. When the basis changes, finance should be able to re-spread shared costs in the system, without a side spreadsheet.
What the monthly leadership report should answer
A report built on the three layers can be organized around the decisions leaders make. It should answer three questions:
- What did each program cost to deliver this period? Full cost by program and level of care: direct costs, including staffing attributed to each program and level of care, plus allocated shared costs. Compare it with the prior period and the plan.
- How is each program tracking against plan? Variance by cost category, with enough detail to tell a staffing-mix shift from a volume change or a rate change.
- Which programs need a closer look before capacity decisions? Compare cost per direct service hour with target, then weigh demand, revenue, outcomes and available staff before deciding where to invest.
When the three layers already sit in the ledger, the report becomes a saved financial report that finance runs each close.
Behavioral Health Resources (BHR), a mental health provider in Washington state, shows the reporting time that dimensional reporting can save. Its Director of Finance, Eric Jensen, estimates he saves around four hours a month on report preparation, because he no longer has to manipulate 15 department profit and loss statements in Excel. BHR also cut 20 hours of manual work from its monthly close. Read the BHR story.
Pavillon Treatment Center, which runs residential and outpatient addiction treatment programs in North and South Carolina, reports a 73% shorter month-end close cycle. Its CFO, Kent Spear, now spends more of his time with executives, clinical staff and the board on strategic planning, including cost impacts. Read the Pavillon story.
Questions to ask of any finance system or method
Test each option against the scenarios your organization actually faces:
- New site: if we open a site next quarter, how do we add it to the program cost structure without rebuilding the allocation model?
- New level of care: if we add an IOP track to a site that runs only outpatient today, how do we add that dimension without disrupting existing reports?
- Staffing change: if two clinicians move from residential to PHP, how is their cost re-attributed? Is it a manual journal entry or a configuration change?
- Program with several funding sources: if one program draws on a state grant, a county contract and Medicaid, can we report its cost and revenue by funding source without pulling patient-level data out of the EHR or billing system?
- Audit trail: if a funder asks how we allocated shared costs to a program over the past two years, can we show it from the system?
An option that handles these without manual workarounds can support program decisions at the pace leaders need. To see how Sage supports providers with several programs and sites, explore our behavioral health accounting software.
Frequently asked questions
What is behavioral health cost reporting by program?
It tracks the full cost of delivering each program (residential, PHP, IOP, outpatient, community-based), broken down by level of care, site and funding source. It goes further than entity totals, so finance and leadership can see what each program costs before deciding where to invest.
How do you allocate shared costs across behavioral health programs?
Choose a basis that reasonably reflects how programs use each shared cost pool, such as direct service hours, headcount or square footage. Document it, apply it every period, review it when operations change, and keep it in the finance system so it is easy to explain to an auditor or funder.
How should staffing costs be attributed to levels of care?
Use summarized hours by program and level of care from the scheduling system or EHR. The finance system receives the hours with no patient detail and uses them to split payroll cost across the programs each clinician served that period.
What is the difference between direct and shared costs in behavioral health programs?
Direct costs, such as program supplies, space used by only one program and staff who work in one program, can be coded to a program and level of care when they are entered. Shared costs, such as administration, IT and space used by several programs, can’t be assigned directly, so they are allocated by a documented method applied each period.
What should a behavioral health CFO look for in finance software for program cost reporting?
Test it against real scenarios: adding a site, opening a new level of care, re-spreading shared costs after a staffing change, and reporting one program across several funding sources. Software that handles these without workarounds can support program-level decisions.
Bring the questions above to your next finance system conversation, and test each option against the scenarios your organization faces.
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