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A major component of standard costing is overhead allocation. Unfortunately, overhead allocation can be complex and difficult. But, at one hospital, this problem was solved with a microcomputer-based technique. The technique, using the spreadsheet Lotus 1-2-3, was logical, simple, and technically sound, allowing the financial manager to more accurately allocate overhead in the standard costing process.
The cost of a health facility's continuing education (CE) program varies with facility size, mission, and its location or accessibility to sources of CE. This paper describes the development and use of a policy model and algorithm for allocating CE dollar resources in a large national health system. The algorithm uses a two-factor model, basing facility CE dollar allocations on the amount of CE need and price differences in accessing CE sources.
Cost accounting--the identification, allocation, and measurement of costs incurred and values received--is the information complement to cost-effectiveness in foodservice management. It is a necessary adjunct to and entirely compatible with the professional skills of dietitians and foodservice administrators. Cost accounting provides the information for making decisions which enhance both the effectiveness (doing the right things) and the efficiency (doing things right). Cost accounting assists in maintaining the economic harmony of foodservice decisions and provides the proof that the right decisions were made. The heads-up professional will learn to make cost accounting work for survival and success in the arena of foodservice administration.
Assuming that rationing health care is unavoidable, and that it requires moral reasoning, how should we allocate limited health care resources? This question is difficult because our pluralistic, liberal society has no consensus on a conception of distributive justice. In this article I focus on an alternative: Who shall decide how to ration health care, and how shall this be done to respect autonomy, pluralism, liberalism, and fairness? I explore three processes for making rationing decisions: cost-utility analysis, informed democratic decision making, and applications of the veil of ignorance. I evaluate these processes as examples of procedural justice, assuming that there is no outcome considered the most just. I use consent as a criterion to judge competing processes so that rationing decisions are, to some extent, self-imposed. I also examine the processes' feasibility in our current health care system. Cost-utility analysis does not meet criteria for actual or presumed consent, even if costs and health-related utility could be measured perfectly. Existing structures of government cannot creditably assimilate the information required for sound rationing decisions, and grassroots efforts are not representative. Applications of the veil of ignorance are more useful for identifying principles relevant to health care rationing than for making concrete rationing decisions. I outline a process of decision making, specifically for health care, that relies on substantive, selected representation, respects pluralism, liberalism, and deliberative democracy, and could be implemented at the community or organizational level.
Information technology planning can be described as a continuous cyclical process composed of three phases whose primary purpose is optimum allocation of scarce resources. In the assessment phase, planners assess user needs, environmental factors, business objectives, and IT infrastructure needs to develop IT projects that address needs in each of these areas. A major goal of this phase is to develop a broad IT inventory. The prioritization phase seeks to ensure optimum allocation of scarce resources by prioritizing ITprojects based on: Costs--total life cycle costs. Benefits--both quantitative and non-quantitative, including support for the organization's strategic business objectives. Risks--subjective assessments of technological and non-technological risks. Implementation requirements--time and personnel requirements to implement the system. The scheduling phase incorporates sequencing considerations, personnel availability, and budgetary constraints to produce an IT plan in which project priorities are adjusted to meet organizational realities.
To illustrate the cost of producing a medical doctor through a 6-year curriculum and the analysis of the cost components of the Faculty of Medicine, could be used as key data for future planning, budgeting and preparation for the autonomous university. The cost centers were categorized to be executive, education support and education unit. The simultaneous equation method was employed to allocate all costs from other associated cost centers to the education unit. The unit cost per enrolled student was 2,161,124 baht and 8,217 Baht/Student Credit Hour (SCH), while the unit cost per graduate was 2,174,091 baht and 8,267 Baht/SCH. The labor cost accounted for 69.46 per cent, capital cost, 26.42 per cent and material cost, 4.12 per cent of the total medical doctor production cost. The three most costly departments were,: Department of Medicine (13.24%), Department of Obstetrics and Gynecology (11.73%) and Department of Paediatrics (9.87%). The cost-fee ratio (cost/fee) was 95:5 which suggested that medical students obtain 95 per cent subsidy from the government budget or the society. If the University becomes autonomous and less dependent on public budget, the fee may have to be adjusted higher to cover the cost. The percentage of drop out and repeat students was 0.00-0.88 per cent with a delay duration of about 6 months to one year only. The opportunity cost of six years' study for a student attending the medical school was 544,956 baht which raised the total cost per graduate to 2,719,047 baht from student/societal perspective.
OBJECTIVES: Calculations of healthcare costs rarely disclose the specific approach used to allocate the cost of hospitalizations by diagnosis. However, the type of approach used can have a major impact on the findings in the case of significant comorbidities. The present analyses compared three approaches for attributing Medicare DRG reimbursements (which were used as surrogates for average costs) for hospitalization by diagnosis. METHODS: Medical resource utilization data from the National Hospital Discharge Survey were analyzed using each of three allocation approaches: a) attributing 100% of the cost of hospitalization to the disease when it was the first-listed diagnosis; b) attributing a portion of the cost of hospitalization to the disease, depending on its position in the list of diagnoses and the relevance of any comorbidities; and c) an incremental analysis of cost based upon the hospitalization experiences of an age and gender matched cohort. These three approaches were applied to the cost of hospitalization for chronic obstructive pulmonary disease (COPD). RESULTS: The first approach projected 206,098 hospitalizations at $3,449 per hospitalization for a projected U.S. annual total of $711 million. The second approach projected 681,547 hospitalizations at $3,205 per hospitalization for a projected U.S. annual total of $2.2 billion. The third approach also projected 681,547 hospitalizations, but at $2,361 per hospitalization, for a projected U.S. annual total of $1.6 billion. CONCLUSIONS: Expanding from the example on COPD, the limitations of each approach are described and their applications to other conditions are presented.
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Large-scale production of proteins by cell culture and subsequent purification for use in novel medical therapies is a slow and complex process. During the early phases of development of manufacturing processes, contamination and replication errors cause entire batches of material to be wasted. As a result, the cost of goods for large-molecule therapies in early clinical development can be significant, and the supply limited. When designing clinical trials to test expensive biological compounds with limited supply, sponsoring companies want to minimize the waste of drug, that is, to maintain small inventories of drug at the investigational hospitals. We must, however, weigh the benefits of smaller inventories against the costs of increased numbers of shipments to resupply when rapid enrollment causes shortages of drug. A well-planned randomization scheme may be able to balance these objectives. This paper demonstrates how a dynamic randomization algorithm can be used to maintain smaller drug inventory at hospitals than a typical permuted block randomization list plan, and how well it automatically restores balance when the shortage of drug causes assignment of alternate treatments.
The authors have developed a system that provides information about costs related to specific laboratory tests. These costs are derived from: (1) labor and material actually used for specific tests; (2) allocation of costs for labor and material shared by several different tests; (3) allocation of supervisory and management costs. The "cost" of a specific procedure is a theoretical construct that is significantly affected by the method chosen for allocation. We know of no cost-analysis system generally accepted by all clinical laboratories. Since third-party payers may base future reimbursement on costs rather than charges, accurate systems for clinical laboratory cost analysis may have some practical value.
Internal transfer pricing system (ITPS) of anaesthesia services is established to guarantee a close connection of delivered service and the budget of the department of anaesthesia. In most cases a time-based system is used with the pricing unit being calculated as the quotient from the enumerator "costs" divided by the denominator "anaesthesia time in minutes". The implementation of a transfer pricing system requires the identification of all relevant costs caused by the department of anaesthesia and a cost centre structure is needed which allocates all costs correctly according to their cause. The regulations regarding cost calculations as defined by the German DRG System should be considered. To generate valid data not only the necessary technical infrastructure is needed, but also detailed training of the staff and plausibility checks are needed to ensure correct and complete data. Subsequent agreements with the hospital administration are necessary in order to adjust the system if extrinsic cost increases occur. This paper gives a step-by-step guidance for the successful implementation of an internal transfer pricing system based on anaesthesia time.
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Osteoporotic fractures are a major cause of morbidity in the elderly, the most rapidly growing segment of our population. We characterized the incremental direct medical costs following such fractures in a population-based cohort of men and women in Olmsted County, Minnesota. Cases included all County residents 50 years of age and older with an incident fracture due to minimal or moderate trauma between January 1, 1989 and January 1, 1992. For each case, a control of the same age (+/- 1 year) and sex who was attended in the local medical system in the same year was identified. Total incremental costs (cases - controls) in the year after fracture were estimated. Unit costs for each health service/procedure were obtained through the Mayo Cost Data Warehouse, which provides a standardized, inflation-adjusted estimate reflecting the national average cost of providing the service. Regression analysis was used to identify factors associated with incremental costs. There were 1263 case/control pairs; their average age was 73.8 years and 78% were female. Median total direct medical costs were $761 and $625, respectively, for cases and nonfracture controls in the year prior to fracture, and $3884 and $712, respectively, in the year following fracture. The highest median incremental costs were for distal femur ($11756) and hip fractures ($11241), whereas the lowest were for rib fractures ($213). Although hip fractures resulted in more incremental cost than any other fracture type, this amounted to only 37% of the total incremental cost of all moderate-trauma fractures combined. Regression analyses revealed that age, prior year costs and type of fracture were significant predictors of incremental costs (p<0.03 for all comparisons). The incremental costs of osteoporotic fractures are therefore substantial. Whereas hip fractures contributed disproportionately, they accounted for only one-third of the total incremental cost of fractures in our cohort. The use of incremental costs in economic analyses will provide a more accurate reflection of the true cost-effectiveness of osteoporosis prevention.
The aim of this study was to analyse the costs of the interventional radiology unit and to identify the cost factors in the different activities of catheter-based angiographies and interventional radiology. In 1999 the number of procedures in the interventional radiological unit at Tampere University Hospital was 2968; 1601 of these were diagnostic angiographies, 526 endovascular and 841 nonvascular interventions. The costs were analysed by using Activity Based Cost (ABC) analysis. The budget of the interventional unit was approximately 1.8 million Euro. Material costs accounted for 67%, personnel costs for 17%, equipment costs for 14% and premises costs for 2% of this. The most expensive products were endografting of aortic aneurysms, with a mean price of 5291 Euro and embolizations of cerebral aneurysms (4472 Euro). Endografts formed 87.3% of the total costs in endografting and Guglielmi detachable coils accounted for 63.3% of the total costs in embolizations. The material costs formed the majority of the costs, especially in the newest and most complicated endovascular treatments. Despite the high cost of angiography equipment, its share of the costs is minor. In our experience ABC system is suitable for analysing costs in interventional radiology.
OBJECTIVES: This study was designed to determine the economic effect of a tertiary heart failure (HF) program at an academic medical center. BACKGROUND: Most hospitals use cross-sectional financial models to analyze the economic contribution of clinical programs for a budget period. We estimated the incremental value of a tertiary hospital HF program on the basis of the longitudinal utilization of a sample of HF patients. METHODS: The primary data source was a sample of 82 HF patients referred for cardiac transplant evaluation at an academic medical center during calendar years 2000 to 2001. Cumulative recurrent rates of utilization, cost, and reimbursement for hospital services were computed as functions of time using reliability models. The economic contribution of patients transplanted was contrasted with those not transplanted. RESULTS: Mean hospitalizations and outpatient encounters per patient at the end of the first year of follow-up for those transplanted were 2.1 (95% confidence interval [CI] 1.6 to 2.7) and 11.9 (95% CI 9.2 to 15.4), compared with 1.1 (95% CI 0.8 to 1.6) and 6.0 (95% CI 4.8 to 7.6), respectively, for those not transplanted. Mean revenue and direct cost per patient were 194,470 dollars (95% CI 136,683 dollars to 276,689 dollars) and 146,623 dollars (95% CI 96,377 dollars to 233,065 dollars), respectively, for transplanted patients and 43,587 dollars (95% CI 28,149 dollars to 67,503 dollars) and 33,424 dollars (95% CI 21,584 dollars to 51,760 dollars), respectively, for non-transplanted patients. The point estimates of first-year contribution margins per patient for transplanted and non-transplanted patients were 47,847 dollars and 10,163 dollars, respectively. CONCLUSIONS: Newly evaluated patients for cardiac transplantation at an academic medical center generated substantial incident demands for inpatient and outpatient services over a two-year follow-up period. The estimated contribution margin associated with these services was positive. Hospitals without cardiac transplantation that serve high-acuity HF patients may generate favorable long-term contribution margins, on the basis of the results for the non-transplant group.
Information on hospital costs is key to many types of economic and financial analyses, yet many countries lack reliable estimates due partly to the time and resources required to undertake detailed costing studies. Accordingly, some analysts have used simple rules of thumb to estimate hospital unit costs, e.g., total hospital costs are allocated between departments assuming that the cost of an inpatient day equals a fixed number of outpatient visits. This paper first explores the extent to which these simple rules apply within and across countries. It then identifies determinants of variation in the relationship between the cost of outpatient visits and inpatient days, then uses the estimated relationship to calculate average costs of inpatient and outpatient stays for countries where data are not yet available. Cost information from 832 hospitals in 28 countries are used. We show that simple rules of thumb do not prove to be an accurate basis for cost estimates. The ratio of inpatient to outpatient unit costs varies with GDP per capita, hospital size, ownership, and occupancy rate. We show how the estimated relationship can be used to calculate a mean cost of inpatient stays and outpatient visits, taking into account differences in the levels of key determinants, and argue that, in the absence of a representative sample of hospital costing studies, this method can be used to estimate unit costs in the interim. Moreover, we suggest that the observed great variation in unit costs for similar hospitals in the same country means that this method might well be preferable to basing policy advice on the results of costing studies that cover only one, or a few hospitals, which might well be outliers.
PURPOSE: To analyse the process of outpatient radiation therapy by dividing it into elementary acts, and to determine the cost-inducers (staff and machine time, equipment) in order to enhance the value of radiotherapy activity. MATERIAL AND METHODS: The care process was analysed from 1 June 1997 to 1 September 1997, in two institutions (Centre hospitalo-universitaire de Saint Etienne and centre de Lutte contre le Cancer de Lyon), in terms of consumption of human and equipment means, representing a cost for the care institution. The valorization was expressed in physics units for material means, and in time units for human and heavy equipment. Parameters able to modify the consumption of means had been defined. The following data had been collected for each activity: patient characteristics, characteristics of the process, specific parameters of each activity, data related to the care staff and care unit. RESULTS: The importance of the specific data of each activity was noteworthy. Two criteria modified the valorization: the complexity level of dosimetry and inclusion in a research trial. Total body irradiation and conformal radiotherapy were well individualized. There was no difference between the two care units. The lack of cost-inducers for the 'immobilization-simulation' activity reflects the large diversity of practice, and requires a global analysis of the 'treatment preparation' process. CONCLUSION: The cost-inducers found in this study could permit the elaboration of the 'relative cost index' in radiation therapy. (The results obtained must be validated in other types of care units.) These relative cost indexes would describe the various phases of the treatment, such as treatment preparation, dosimetry, treatment, quality control. This approach is currently used by workshops in PMSI (Programme de Médicalisation des Systèmes d'Information) and NGAP (Nomenclature Générale des Actes Professionnels).
A simulation model was developed to measure costs in an Emergency Department setting for patients presenting with possible cervical-spine injury who needed radiological imaging. Simulation, a tool widely used to account for process variability but typically focused on utilization and throughput analysis, is being introduced here as a realistic means to perform an activity-based-costing (ABC) analysis, because traditional ABC methods have difficulty coping with process variation in healthcare. Though the study model has a very specific application, it can be generalized to other settings simply by changing the input parameters. In essence, simulation was found to be an accurate and viable means to conduct an ABC analysis; in fact, the output provides more complete information than could be achieved through other conventional analyses, which gives management more leverage with which to negotiate contractual reimbursements.