Student Funding and the Healthcare Precedent

February 24, 2012 at 9:25 AM 3 comments

It is in our children’s best interest to match school finance to the mission of providing them the best education services. Weighted-average student funding could drive this focus on education’s mission, and lessons from other industries have shown how it can be accomplished. The question remains…Is the education leadership ready to take up this challenge?

In 1983, structural change began in the healthcare industry, driven by a new Medicare reimbursement program. In an attempt to control costs and create a path to case management, the Health Care Finance Administration organized hundreds of procedures that involved hospitalizations into Diagnosis Related Groups (DRGs) and set global payments for hospital care. Administrators were overwhelmed as they rushed to tweak accounting and data systems that had been rendered obsolete overnight. At the same time, they looked to quality assurance programs and utilization review with new urgency. Previously, hospitals had been compensated for their costs, without regard to efficiency or outcomes. Industry leaders were extremely concerned about financial failure and deterioration in quality of care. So what does this have to do with education?

School finance has been driven by costs, not outcomes for students, and financial accounting has been tailored to fit that model. DRGs in healthcare could be considered analogous to weighted-average student funding in education. Conversion to DRGs for healthcare reimbursement created a lever for change that cut across the entire industry. Hospitals were challenged to create data systems that informed them about individual episodes of care, both in terms of costs and outcomes. A new mindset was needed for case management and, while the transition was difficult, the emergence of patient-focused treatment, within hospitals and beyond, had to happen.

Lessons from the conversion to DRGs could be useful for educators as they begin the journey to student-centered finance and education services. Despite student centrism in the classroom, education’s mission and financial incentives have not been in synch. Like the hospital model, administrative overhead and bureaucratization have generated a burden for school districts that detracts from direct student services. Further, case management from a revenue, expense, and outcome perspective only occurs in isolated situations.

Charter schools have shown the benefits of direct student funding and outcomes management. Is it time for education finance to begin the transition to this model for all schools?

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Entry filed under: Financial data.

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3 Comments Add your own

  • 1. Jon Claerbout  |  February 24, 2012 at 12:53 PM

    I don’t know the definition of “Weighted-average student funding”

    Reply
    • 2. schoolsretooled  |  March 3, 2012 at 1:22 PM

      Several countries do what they call weighted student funding, which takes the $$s spent on education and gives them weights for factors such as poverty, special needs, or local language proficiency. Often, the concept is attached to a particular country whose prescribed methods are being cited as the latest magic bullet for the US. I just say “weighted average” to suggest blended rates for particular populations as a generic way to fund, avoiding the attachment to the current craze. The innovation is to fund individual students as opposed to overall school districts based on population totals.

      We tend to fund education in a cost-plus fashion, and there are no direct links to students that can be analyzed from a finance perspective. This is quite analogous to many government service providers, and it tends to reward the building of bureaucracies and the loss of $$ to mission.

      I happened to be working at American Hospital Supply Corporation in Strategic Planning when the Medicare reimbursement change hit the hospitals. It was a good thing to do, and healthcare finance and information were changed for the better. However, as a company, we went from a standard 15% annual revenue growth rate to roughly zero overnight. Money not only talks but talks fast.

      Reply

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