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In this article, activity-based costing, an approach that has proved to be an improvement over the conventional costing system in product costing, is introduced. By combining activity-based costing with standard costing, health care administrators can better plan and control the costs of health services provided while ensuring that the organization's bottom line is healthy.
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This study evaluates the accuracy of costs derived from the ratio of costs to charges (RCCs), using costs based on relative value units (RVUs) as the "gold standard." We found that RCC-calculated costs were not a good basis for determining the costs of individual patients. However, when examining average costs per diagnosis-related group (DRG), RCCs performed better. For almost 70% of the DRGs, average RCC-calculated costs were within 10% of average RVU-calculated costs. RCCs were even more reliable for comparing the relative cost of patients in a DRG in one hospital to the average cost of patients in that DRG in a group of hospitals. Charges, or an overall hospital RCC (as opposed to the departmental RCCs we used in most of our analyses), were not a good basis for determining relative hospital costs.
The implications of risk shifting on subacute care providers by payers are enormous. Financially, it will force subacute care providers to strategize on how to deal with capitated arrangements. Strategically, it will provide the impetus for retaining, increasing or losing market share in the health care arena. Philosophically, it will forge a leveling of the playing field among different subacute care sites in terms of average length of stay and pricing.
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The objectives of this study were to assess trends in referral patterns for joint replacements (JRs) in Ontario between the fiscal year 1988/89 and the fiscal year 1993/94; to assess the redistribution of financial resources if services were provided to residents in the region where they reside; and to estimate the financial implications of the devolution of primary JRs from tertiary-care hospitals to community hospitals. Despite rapid growth in the provision of JRs, there was no significant change in their regional distribution. Community hospitals have increased their share of JRs at the expense of teaching hospitals. For hospitals located in Central east Ontario, the cost of providing JRs to nonresidents increased from $ 5.9 million in 1988/89 to $8.3 million in 1993/94. Devolution of primary JRs requires a minimum reallocation sum of $25.1 million, with potential cost savings of $4.3 million. Many obstacles limit the devolution and local provision of health care services, including modifications to referral patterns and the availability of provider expertise, especially when a substantial redistribution of resources is required. Better clinical data to evaluate outcomes and better patient-specific costing data are required. Devolution of services should be addressed in the context of appropriate institutional compensation for medical education.
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Electronic bar coding, scanning, and the data generated are an inevitable part of a health care provider's future. Initially, it will probably be implemented in hospitals, where the diversity of products and scrutiny to reduce costs are greatest. Many lessons can be learned from the introduction of electronic scanning in the grocery or supermarket industry. The transformation to scanning in the grocery industry met with initial resistance and problems, but generated creative solutions, best practices, and a rich database.
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OBJECTIVE: Allocation criteria changed in 2000 as a result of Germany's new transplantation law. Before, thoracic organs were primarily allocated electively within the donor region (according to urgency and waiting time). Afterwards, all patients in Germany eligible for heart transplants were registered in a national waiting list. With the exception of high-urgency patients that are approved by an audit committee, waiting time has become the major criteria for allocation. In this study, we investigated the impact of the new allocation system on economic aspects as on clinical results. METHODS: One year in the new allocation system (NA) was compared to the previous year in the old allocation system (OA) regarding explantation/transportation distance, costs, ischemia time and clinical outcome. All explantations performed by our institution within Germany were evaluated. RESULTS: The number of transplantations and the spectrum was similar between the two time periods (NA vs. OA: 61 vs. 57 overall). Eighty-two percent of these explanted organs were transplanted within the donor region in the OA time period, but only 37 % in the NA period. This resulted in higher transportation distances (NA: 441 +/- 177 km vs. OA: 179 +/- 118 km), higher transportation cost (NA: EUR 4,472 +/- 2,858 per explantation vs. OA: EUR 1,858 +/- 2,293 explantation, p = 0.001), and therefore longer ischemia times in the NA period (NA: 264 +/- 56 min: OA: 208 + 61 min, p = 0.001). Perioperative results and survival after a mean clinical follow-up of 21 +/- 8 (OA) and 11 +/- 5 (NA) months were comparable (86 % vs. 87 % (p = 0.93). CONCLUSION: Transportation distance, costs for explantation and ischemia time increased significantly with the NA period. While the clinical short-term outcome proved to be comparable, we cannot yet judge the long-term impact of the prolonged ischemia time on the development of chronic rejection.
Ignorance about the costs, case loads and case mixes of different hospitals within the public health system constitutes an important obstacle to reforming health care spending in many developing countries. National (tertiary) hospitals generally receive significantly larger budgets, per patient, than lower-level (district) hospitals. One reason for these differential allocations is the widely held belief that national hospitals treat persons with more difficult illnesses and persons who are more severely ill than do other, non-national, hospitals. This belief is but a presumption and one that warrants investigation. This paper analyzes expenditures among public hospitals in El Salvador over a 12-year period to address this question. While controlling for patient morbidity, outputs and other characteristics, district hospitals are found to be substantially underfunded relative to national hospitals. Four policy options to redress this situation are examined.
OBJECTIVES: The author examined issues in linking costs and outcomes in care delivery systems research. METHODS: Literature regarding cost analyses and outcomes is discussed in light of the following methodological issues: what costs can be captured, how costs should be allocated, whose costs are being considered in relation to the choice of meaningful outcomes measures, and what magnitude of intervention is required to achieve the outcomes. RESULTS: Although various methods are used to estimate the costs of providing health care, direct determination of cost is elusive, and measurement problems limit comparison across studies and institutions. Further, the linkage among outcomes, organizational variables, and the "intervention dose" needed to produce the desired outcomes is not well developed. CONCLUSIONS: The methodological issues linking costs and outcomes pose challenging research opportunities: the choice of the most feasible measures for estimating costs of care across sites of care delivery, the examination of shifts in cost burden, the most meaningful measures of outcomes as relevant to different stakeholders, the magnitude of intervention needed to produce a change in outcome, and the cost of achieving that change.
OBJECTIVE: An instrument able to estimate the direct costs of stays in Intensive Care Units (ICUs) simply would be very useful for resource allocation inside a hospital, through a global budget system. The aim of this study was to propose such a tool. DESIGN: Since 1991, a region-wide common data base has collected standard data of intensive care such as the Omega Score, Simplified Acute Physiologic Score, length of stay, length of ventilation, main diagnosis and procedures. The Omega Score, developed in France in 1986 and proved to be related to the workload, was recorded on each patient of the study. SETTING: Eighteen ICUs of Assistance Publique-Hôpitaux de Paris (AP-HP) and suburbs. PATIENTS: 1) Hundred twenty-one randomly selected ICU patients; 2) 12,000 consecutive ICU stays collected in the common data base in 1993. MEASUREMENTS: 1) On the sample of 121 patients, medical expenditure and nursing time associated with interventions were measured through a prospective study. The correlation between Omega points and direct costs was calculated, and regression equations were applied to the 12,000 stays of the data base, leading to estimated costs. 2) From the analytic accounting of AP-HP, the mean direct cost per stay and per unit was calculated, and compared with the mean associated Omega score from the data base. In both methods a comparison of actual and estimated costs was made. RESULTS: The Omega Score is strongly correlated to total direct costs, medical direct costs and nursing requirements. This correlation is observed both in the random sample of 121 stays and on the data base' stays. The discrepancy of estimated costs through Omega Score and actual costs may result from drugs, blood product underestimation and therapeutic procedures not involved in the Omega Score. CONCLUSIONS: The Omega system appears to be a simple and relevant indicator with which to estimate the direct costs of each stay, and then to organise nursing requirements and resource allocation.
Cost-utility analysis is increasingly being advocated as a tool for helping to establish funding priorities among programs and services in the health-care sector. As currently conducted, however, cost-utility analysis is problematic as a basis for achieving allocative efficiency because it excludes externalities. The exclusion of externalities may bias program ranking in unpredictable ways, leading to a non-optimal allocation of resources. Consideration of externalities also raises a number of distributional issues for the evaluation of health services and highlights the important of developing economic evaluation methods that are consistent with the conceptual basis for allocating resources.
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As hospital-based managers are being confronted with changing patterns of reimbursement, ranging from revenue generating to cost management, it is imperative that hospitals know the exact nursing costs associated with the actual care delivered to specific patients. Nursing care has traditionally been bundled into the room rate for patients. This approach is extremely limiting when facilities are negotiating per diem rates and capitated rate contracts. At Braintree Hospital Rehabilitation Network, the nursing department has developed and implemented an activity-based management system to determine the actual cost of nursing care provided to each patient. This approach, which differentiates nursing costs accurately by diagnostic group and by intensity of nursing care, has contributed to the hospital's success in negotiating individual patient contracts with insurers in the managed care environment that increasingly focuses on costs and outcomes. Another result has been to enhance the accuracy of the network's cost accounting system.
The authors examined the impact of costs of education on the overall expenses of two major teaching hospitals during a period of rapid growth and change in the Minneapolis and St. Paul, Minnesota, health care environment. By using a retrospective faculty-time study and the two hospitals' estimated costs for education, education costs of each hospital were compared--within and across facilities--with annual hospital operating expenses, with inflation, and by educational program. Unit costs were estimated for undergraduate and graduate medical students. Over the study period, allocated education costs averaged 13-14% of the hospitals' operating budgets. The combined mean allocated cost per medical student and resident was approximately +73,000 in 1983-84. During this period, allocated education costs were in line with medical inflationary trends and did not drive hospital expense increases. These findings suggest that policymakers wishing to restrain the rise in health care costs should look beyond cutting the costs of education programs and find other solutions.
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