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Only a health care system that balances the best interests of consumers with those of employers and government payers will ultimately provide quality care at manageable costs. These need not be opposing interests.
Since revenues are fixed for a growing majority of patients, healthcare providers need to develop creative mechanisms for fixing and reducing costs in all aspects of their operations. Froedtert Memorial Lutheran Hospital in Milwaukee, WI, wanted to find a supply distributor, or distributors, interested in becoming our partner to accomplish five main objectives: 1) stabilize current supply costs at or below current line item pricing, 2) reduce supply costs per unit of patient service, 3) consolidate a broad range of supply sources to achieve economies of scale and more cost-efficient systems, 4) reduce supplier line item profit margins in exchange for broader market share within the hospital, and 5) establish a mutual commitment to supply cost measurement and control that evolves from the current focus on line item pricing to a system of procedure or unit of service pricing and cost control. Froedtert selected one prime vendor after an RFP process. Material Management will manage and monitor the program, with primary supply recommendations to come from the medical staff, nursing services and the Product/Service Analysis Committee.
Traditional healthcare cost-accounting methods determine the cost of unused inpatient beds by calculating the fixed cost per patient-day using the number of patient days of inpatient care expected to be provided. Unfortunately, this approach can result in a misleading estimate of fixed costs per patient-day that fluctuate over time as expected levels of inpatient care fluctuate. A recommended alternative approach, practical capacity cost accounting, determines the cost of unused inpatient beds by calculating fixed costs per patient-day using the maximum feasible patient days of inpatient care that can be provided in a year. This approach yields stable fixed costs for more accurate costing of unused capacity and better long-range planning and decision making.
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Analysts often estimate the cost of hospital services by applying cost/charge (c/c) ratios from federal or state data sources to the charges provided on hospital discharge records. Recently, a number of sources of discharge data are not permitting the release of hospital identities. This study compares several sources of c/c data for use in the restricted environment. Accounting data from four state systems and from files of the federal Centers for Medicare and Medicaid Services (formerly HCFA) are employed. In one analysis hospitals are grouped by selected characteristics. C/c varies by state and characteristics. Some HCFA and state measures track each other closely. A wider analysis of hospital-specific data for 51 states offers a separate test and extension of the initial results. The study supports a practical policy option of releasing grouped c/c ratios attached to discharge records when identity must be masked. Key words: hospital cost, cost to charge ratios, privacy protections.
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Inadequate cost weights are a major problem in casemix funding systems. Clinicians should understand the basis for the cost weights underpinning the hospital payment system in their State and their own hospital. Clinician managers need valid patient costing data if they are to benchmark and improve cost-effectiveness while maintaining and enhancing quality. The cost model approach for determining cost weights has inherent limitations, and, the alternative, detailed patient costing, requires efficient hospital information technology systems. A simplified approach to patient costs, which uses existing hospital data systems, may be useful for smaller hospitals. A better classification system and funding formulas incorporating reliable cost weights derived from patient costing should overcome many of the deficiencies in the current casemix payments systems.
OBJECTIVES: To describe the ways in which total resources available for the Service Increment for Teaching (SIFT) have been determined and related to numbers of undergraduate medical students; and the development and current arrangements for allocating SIFT to the providers of service support for teaching. DESIGN: The derivation of SIFT from excess costs of teaching hospitals over general hospitals is described. The official principles of organizing SIFT to reimburse the service costs of teaching undergraduate medical students are explained. The crucial development that is examined is the change from SIFT being a global subsidy to being related to educational contracts. This development has facilitated both the specification of standards and innovative uses of SIFT. These are illustrated with examples. SETTING: Hospital and Community Health Services and Primary Care in the National Health Service (NHS) in England and Wales. SUBJECTS: Medical students. RESULTS: There is often confusion caused by SIFT being intended to cover the service costs of teaching but not having been derived in this way. This causes problems in deciding what providers should be paid through contracts for teaching of different kinds. CONCLUSIONS: The new contractual basis has enabled medical schools to use contracts to improve the clinical teaching of undergraduate medical students in the NHS. These developments may offer useful models for other countries.
Increasing net patient revenues from teaching clinics is one of the alternatives available to dental schools seeking to alleviate economic pressures. Managerial decisions directed to this end require accurate and useful data on clinic finances and economic organization. An important step in this direction can be taken by defining the teaching clinic as a cost center, that is as an economic entity in a dental school with identifiable specific resources, costs, and revenues. This paper describes the accounting and economics frameworks within which resources and costs are classified and allocated into direct and indirect, and fixed and variable categories. The development and structure of a cost-revenue model designed for the teaching clinics at the University of Connecticut School of Dental Medicine is described to illustrate an application of the cost center concept.
This study investigates the capacity of hospitals to vary the intensity of their services based on patients' expected sources of payment. While the concept of price discrimination by hospitals based on payer generosity ("cost-shifting") has been discussed extensively, the notion that hospitals can adjust payer-specific marginal costs to reflect differences in reimbursement policies has not been studied in depth. To examine this issue. this analysis employs a multiproduct cost function with hospital outputs defined as admissions by payment source, controlling for the distribution and severity of illness ("casemix") for each payer. Marginal costs of casemix-adjusted discharges are obtained and compared for Medicare, Medicaid, Private Payers, and a residual category that includes uncompensated care. We find that indeed, payer-specific marginal costs generally reflect payer generosity.
The empirical relationship is analyzed between the severity of illness and costs of medical care for 464 patients classified into DRGs 121-123, Acute Myocardial Infarction (AMI), in the University Hospital, Maastricht. Severity of cardiac and cardiovascular disorders characteristic of acute myocardial infarction is defined and operationalized in a sense that closely resembles the clinical practice of cardiologists. The effect of the severity of illness on DRG cost variations is studied separately for the costs of acute care (such as thrombolytic therapy, cardiac catheterization and percutaneous transluminal coronary angioplasty (PTCA)), length of hospital stay, costs of intensive nursing care at the coronary care unit (CCU) and the costs of ECGs, laboratory tests, echocardiography, exercise tests and drugs. For AMI patients, severity of illness measured by specific clinical criteria is found to give better predictions (higher R2) for costs of medical care than the DRG classification.
Effective analysis of hospital performance requires the existence of accurate cost and output data. However, these are missing ingredients in most developing countries due to lack of information systems or other sources of data. Typically, expenditures are substituted for actual costs in analyzing hospital finance. This paper presents a methodology and analysis of the actual costs of inpatient, emergency, and outpatient services in a Dominican hospital. Through applying a set of survey instruments to a large sample of patients, the study measures and costs all hospital staff time, in-kind goods (drugs, medical supplies, reagents, etc.), overhead, and the depreciated value of plant and equipment related to the treatment of each patient. The results are striking. The budget is over 50% higher than the actual costs of services, reflecting the high cost of waste, down time, and low productivity. For example, high fixed costs translate into immunizations that on the average cost over 20% more than outpatient surgical interventions. The most disturbing finding is that although physicians represent the bulk of personnel spending, the surveys could account for only 12% of the contracted time of staff physicians, including time dedicated to treatment, supervision, administration, and teaching. As a proportion of the hospital total budget, personnel spending represents a high 84%. Yet staff costs for patient treatment never exceed 12%. These results suggest gross inefficiency, chaotic medical care organization, and poor hospital management.
OBJECTIVE: To examine the applicability of an Australian casemix classification system to the description of Chinese hospital activity. DESIGN: A total of 161,478 inpatient episodes from three Chengdu hospitals with demographic, diagnosis, procedure and billing data for the year 1998/1999, 1999/2000 and 2000/2001 were grouped using the Australian refined-diagnosis related groups (AR-DRGs) (version 4.0) grouper. MAIN OUTCOME MEASURES: Reduction in variance (R2) and coefficient of variation (CV). RESULTS: Untrimmed reduction in variance (R2) was 0.12 and 0.17 for length of stay (LOS) and cost respectively. After trimming, R2 values were 0.45 and 0.59 for length of stay and cost respectively. CONCLUSIONS: The Australian refined DRGs provide a good basis for developing a Chinese grouper.
Previous research has shown that workers respond to the economic incentives provided in workers' compensation. In particular, claim frequency rises with increased benefits, and claim duration, on net, seems to increase. Here we provide additional evidence of another incidence of behavioral responses to incentives. We find that doctors in health maintenance organizations (HMOs) have a greater tendency to classify claims as compensable under workers' compensation than do other physicians. Our evidence suggests that the rapid expansion of HMOs over the 1980-1990 period resulted in a significant increase in workers' compensation claim frequency.
We introduce a technique for patient mix-adjusting x charts and compared differences between unadjusted and patient mix-adjusted results. Our data came from coronary artery bypass graft (CABG) surgery patients at Baptist Medical Center, Oklahoma City, Oklahoma. We first developed an unadjusted x control chart to compare monthly changes in CABG surgery costs and then used a published model to patient mix-adjust our x control chart information. Before adjustment, the average log costs for three of ten months were outside the 90% control limit lines, and there was a trend toward increasing costs. After adjustment, two months had average costs outside the 90% lower control limit lines, and the trend toward increasing costs had been explained by differences in patient acuity.
PURPOSE: The aim of the study was to analyse the costs of computed radiography (CR) as part of a small picture archiving and communication system (mini-PACS), and to compare these costs with those of conventional analogue radiography using activity-based accounting (ABC). MATERIAL AND METHODS: The study was conducted at the Central Hospital of Vaasa where in 1993 the Radiology Department acquired a mini-PACS with a CR reader, a chest CR unit, and a CT unit as digital image processing modalities. Of altogether 34140 plain-film examinations, 3/4 were made with CR and stored mostly on film, and 1/4 were made with conventional analogue radiography. The costs and activities of these two modes were analysed by means of the ABC method which identifies and allocates indirect costs in radiological procedures. RESULTS: The costs of CR imaging were 9% higher than those of conventional radiography. The costs of the chest CR unit were equal to those of conventional radiography. The difference was due to higher investment costs in digital image processing. The time gained from a reduction in the number of retakes did not shorten the time spent by patients in the examination room, and its effect on film costs was minimal. CONCLUSION: In planning the step-by-step transition of conventional film-based analogue radiography to fully digitized radiography, it should be noted that films are still used in the transition period and that this is associated with higher costs than in the previous system of conventional analogue plain-film imaging.