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Cost categories, behavior patterns, and break-even analysis.

Nurse executives budget and control costs, use those budgets and other management tools to control departmental costs, identify existing programs to drop or change, target new programs and services, and determine fees for nursing services. Knowledge of costs and their behavior patterns assist nurse executives in all of these activities. The author identifies the two cost categories (direct and indirect), explains the basic cost behavior patterns (fixed and variable), and helps nurse executives identify these cost categories and behavior patterns in their own departments.

Budgets↗

Cost analysis of heart transplantation from the day of operation to the day of discharge.

Hospital costs from the day of transplantation to the day of discharge were examined in a consecutive series of 53 patients who underwent orthotopic heart transplantation between October 1982 and February 1987. An accounting cost methodology was used to convert billable charges, to costs for 29 separate hospital cost centers. Total cost per case has shown a statistically significant decrease of over $30,000 with no indication of a change in patient selection or a decrease in 3-month survival. Most of the cost reductions occurred in five cost centers: operating room, blood and intravenous therapy, medical supplies, heart station, and routine services, as evidenced by decreases in wages and supplies. The results support the premise that new technologies can become more cost-efficient over time and suggest that as the medical team becomes more proficient and experienced, cost reductions can become a reality.

Accounting↗

Projecting the medical costs of AIDS and ARC in the United States.

We projected the direct medical costs of acquired immune deficiency syndrome (AIDS) and AIDS-related complex (ARC) for the United States during the period 1987-1991, by applying current epidemiologic projections to state-of-the-art medical decision algorithms for diagnosis and treatment of AIDS-related illnesses. We included the cost of azidothymidine (AZT) therapy, as well as other therapeutic innovations likely to be approved by the FDA, and estimated average ARC patient treatment costs. By combining prospective study data on rates of progression to AIDS with current AIDS incidence data, we arrived at human immunodeficiency virus (HIV) seroprevalence and AIDS incidence projection that were considerably lower than those of the Public Health Service. We estimated the average total medical costs per patient for AIDS in the 1990s at $27,950-$40,455 and for ARC at $3,621-$4,913 per year (1987 U.S. dollars). We projected the medical costs of AIDS and ARC at $2-4 billion annually by 1991, substantially lower than previous estimates. We projected that Pneumocystis carinii pneumonia and other pulmonary complications would account for the largest share (over 40%) of AIDS medical costs, and that AZT therapy and medication would account for more than 25% of total ARC/AIDS treatment costs by 1991. In our estimates, the total medical costs of treating ARC patients could approach one-half of the costs of treating AIDS patients by 1991, primarily due to costs associated with AZT.

AIDS-Related Complex↗

Evaluating financial viability of clinical programs under prospective pricing.

The new financial incentives created by prospective pricing for hospital inpatient services--especially by Medicare's diagnosis-related group (DRG) system--make it important for hospitals to evaluate the financial viability of individual clinical programs. For the purposes of such evaluations, however, DRGs are likely to be poor definitions of the services or products delivered by any given hospital. This article examines the implications of the concept of "product lines" in hospitals, three criteria for useful product definitions, ways in which DRGs fail to meet these criteria, the need for hospital-specific product definitions, and technical difficulties that hospitals may encounter in defining their products. A case study of the orthopedic service at a large, urban, teaching hospital, using both DRGs and the hospitals own product definitions, illustrates the process of evaluating the financial viability of clinical programs.

Chicago↗