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This analysis was performed in an attempt to understand how managed care affects laboratory utilization and costs, specifically on a nonpatient basis, as well as overall health-care expenditures. Rochester, New York, was chosen as an initial case study because it is a well-documented, studied, and mature managed care market.
As healthcare organizations devote more resources to strategic planning, financial managers should consider capitalizing, rather than expensing, planning costs. Traditionally, healthcare organizations have absorbed these costs in the year a plan is developed. However, a strategic plan may be viewed as an intangible asset that provides the organization with future benefits. Therefore, its costs can be amortized over the plan's life.
From a financial standpoint, one of the most valuable assets in the survival of a health-care organization is the clinical laboratory. Laboratory directors, managers, and supervisors have indicated their overwhelming need to understand finance, especially cost management, to CLMA and to the author at national meetings and workshops, Tremendous financial pressures are being applied in health-care organizations across the country. Two strategic factors in their successful move into the 21st century are more appropriate test utilization and cost control in the laboratory.
As part of its National Affairs Plan, approved in 1991, CLMA committed to publishing periodic position, or "white," papers to explore contemporary public policy issues in laboratory services administration. As CLMA's first white paper, this article is an in-depth analysis of the historical and economic background to today's clinical laboratory industry in the United States. It provides the logic and rationale behind CLMA's position statement on Health-Care Reform and the Clinical Laboratory. The statement has been formally adopted by consensus and has been widely circulated to both Congress and our membership. It will help form the policy basis for the development of the Association's legislative agenda on health-care reform. The principles are intended to be universal and apply not only to U.S. reform efforts at the national level, but also to states and other nations.
Space limitations do not allow a complete discussion of all the topics and many of the obvious questions that the preceding brief introduction to directed expense costing probably raised in the reader's mind. These include how errors in accounting practices like posting expenses to the wrong period are handled; and how the system automatically adjusts costs for expenses benefiting several periods but posted to the acquisition month. As was mentioned above, underlying this overtly simple costing method are a number of sophisticated and sometimes complex processes that are hidden from the normal user and designed to automatically protect the integrity and accuracy of the costing process. From a user's viewpoint, the system is straightforward, understandable, and easy to use and audit. From a software development perspective, it is not quite that effortless. By using a system that is understood by all users at all levels, these users can now communicate with each other in a new and effective way. This new communication channel only occurs after each user is satisfied as to the overall costing quality achieved by the process. However, not all managers or physicians are always happy that the institution is using this "understandable" cost accounting system. During one of the weekly meetings of a hospital's administrative council, complaints from several powerful department heads concerning the impact that the use of cost data was having on them were brought up for discussion. In defending the continued use of the system, one vice president stated to the group that cost accounting does not get any easier than this, or any less expensive, or any more accurate. The directed expense process works and works very well. Our department heads and physicians will have to come to grips with the accountably it provides us to assess their value to the hospital.
The Medicare Act entitles qualified providers to reimbursement for the "reasonable cost" of furnishing hospital services to Medicare beneficiaries. The Sixth Circuit's decision in Guernsey Memorial Hospital demonstrates the tension between generally accepted accounting principles and Medicare reimbursement principles.
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Cost accounting systems provide management with information crucial to operating more efficiently in today's competitive healthcare environment. Enhanced cost systems are simple to implement because they parallel existing hospital charge systems. By modifying existing cost systems, healthcare institutions can generate more accurate cost information necessary for dealing with third-party payers, physicians, and managed care organizations.
Distributed testing, performed in satellite laboratories or at the bedside, is proliferating within healthcare systems. Users prefer it, and it is fast and convenient. A quick look at marginal costs, however, suggests that cost differentials between distributed and centralized testing may be prohibitive. Sound decision making on the part of health system administrators requires a broader understanding of the costs and benefits of testing options. This study illustrates an approach to cost analysis for decision support where opportunity costs (the costs associated with the next best alternative) provide the basis for decision making. Health system administrators need to understand the opportunity costs involved in their decisions to avoid being misled by analyses that omit important cost elements from consideration. We describe approaches to determining the costs of "stat" laboratory testing options. The costs of various blood gas testing options are compared among a central blood gas laboratory, two satellite laboratories, and point-of-care analysis. Opportunity costs were determined by modeling the substitution of one testing process for another. The cost analysis finds that a judicious mix of alternate-site testing methods can generate annual savings of between $250,000 and $330,000, and at the same time reduce test reporting times. In other words, technology that superficially appears more costly can deliver better service with lower costs.
The authors review pathology cost-based services, how they developed, their current status, and future applications in a managed care environment. Special emphasis is given to the utility of outcomes analysis for pathology cost-based services.
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The universe of high-tech biologic medications is expanding rapidly, and health plans are struggling to control the rising costs associated with the use of these agents. Specialty pharmaceutical networks are gaining greater visibility as a helpful tool in this effort. The author describes how to write the request for proposal and begin the decision-making and implementation processes for specialty pharmacy services.
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OBJECTIVE: This research addresses the following types of responses by hospitals to increased financial risk: (a) increases in prices to privately insured patients (testing separately the effects of risk from the effects of "cost-shifting" that depends on level of Medicare payment in relation to case mix-adjusted cost); (b) changes in service mix offered and selectivity in acceptance of patients to reduce risk; and (c) efforts to reduce variation in resource use for those patients admitted. DATA SOURCES: The database includes a national panel of over 400 hospitals providing information from patient discharge abstracts, hospital financial reports, and county level information over the period 1980-1987. STUDY DESIGN: Econometric methods suitable to panel data are implemented, with tests for pooling, hospital-specific fixed effects, and possible problems of selection bias. PRINCIPAL FINDINGS: The prices paid by private insurers to a particular hospital were affected by the changes in risk imposed by Medicare prospective payment, the generosity of Medicare payment, state rate regulation, and ability of the hospital to bear risk. The risk-weighted measure of case mix did not respond to changes in payment policy, but other variables reflecting the management of care after admission to reduce risk did change in the predicted directions. CONCLUSIONS: Some of the findings in this article are relevant to current Medicare policies that involve risk-sharing, for instance, special allowances for "outlier" patients with unusually high cost, and for sole community hospitals. The first type of allowance appears successful in preserving access to care, while the second type is not well justified by the findings. State rate regulation programs were associated not only with lower hospital prices but also with less risk reduction behavior by hospitals. The design of regulation as a sort of risk-pooling arrangement across payers and hospitals may be attractive to hospitals and help explain their support for regulation is some states.
The income source and the use of assets at the Health Department of a Chilean city hall was studied. A cost control system was created to know the real value of health services, which were compared with the administrative tariffs determined by the authorities. Specific health programs such as complementary feeding, immunizations and responsible paternity programs represented 48.1% of the Health Department expenses. Ninety four percent of services had a real cost that exceeded their administrative price. A reformulation of resource distribution for primary health care and the development of control systems that measure the results of experience activities is proposed.
During the mid-1980s, hospital prospective payment regulation was associated with major changes in medical practice, resulting in initially significant reductions in the rate of growth of inpatient costs. More recently, the rate of growth of hospital costs has returned to historic levels, yet most hospitals have been reluctant to intensify their economic monitoring of physicians. Using data from a large teaching hospital in the Midwest, this article presents a model of marginal profitability by payor and by relative physician costliness. The results illustrate the mixed incentives for hospitals to reduce costly medical practice variations.
During a 10-year period, 237 patients (129 women, 108 men) with a diagnosis of neuropathic (Charcot) arthropathy of the foot and ankle were treated in a tertiary care university hospital medical center. During this period, 115 of the patients (48.5%) were treated nonoperatively as outpatients with local skin and nail care, accommodative shoe wear, and custom foot orthoses. A total of 120 (50.6%) underwent 143 operations. Surgery included 21 major limb amputations, 29 ankle fusions, 26 hindfoot fusions, 23 exostectomies, and 23 debridements for osteomyelitis. It is widely accepted that patients with diabetes are at risk for developing foot ulcers, which can lead to lower extremity amputation. Within the population of diabetic patients, it is widely accepted that patients with neuropathic (Charcot) arthropathy of the foot and ankle have one of the highest likelihoods of having to undergo lower extremity amputation. The current emphasis in care of the foot of a diabetic patient involves a multidisciplinary team approach combining patient education, skin and nail care, and accommodative shoe wear. As data from prophylactic programs become available, resource allocation and cost of care can be compared with this benchmark baseline. This benchmark analysis can be used by those who are responsible for allocating resources and projecting healthcare costs for this "high utilization"/high risk patient population.
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