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PubMed1990

Resource use and cost of initial coronary revascularization. Coronary angioplasty versus coronary bypass surgery.

Although there is intense interest in the cost-saving potential of therapeutic alternatives, most studies have analyzed hospital charges rather than actual economic costs. To analyze cost differences rigorously, we studied 115 patients undergoing initial elective angioplasty (percutaneous transluminal coronary angioplasty, PTCA) and 274 patients undergoing initial elective surgery (coronary artery bypass graft surgery, CABG). Detailed resource consumption profiles were constructed and used to estimate the cost savings from switching a patient from CABG to PTCA. Four cost-accounting methods were used in the analysis; each method made different assumptions about the costs that would vary and the costs that would be fixed according to the number of procedures performed. The variable costs in the four methods were the 1) cost of supplies, 2) cost of personnel and supplies, 3) average direct costs, and 4) average direct costs plus allocated hospital overhead. The mean hospital charges for CABG patients were $19,644 versus $9,556 for PTCA patients (p less than 0.0001). The estimated cost difference between CABG and PTCA was substantially less than the $10,088 difference in charges, however, with net savings of 19%, 46%, 53%, and 78% of charges using cost-accounting methods 1-4, respectively. Thus, although the initial hospital charges for PTCA are significantly less than for CABG, the actual economic cost savings may be significantly overestimated by the use of hospital charge data.

Accounting↗
PubMed1986

The distinction between worth and affordability: implications of costs and benefits for the allocation of health care resources.

There is an important distinction between worth and affordability which remains largely unrecognized. It is widely supposed that if an economic analysis shows that the benefits of a service exceed its costs, failure to fund it is irrational and inefficient. By means of a simplified model of a health care system, it is shown that although an excess of benefits over costs is a necessary precondition for providing a service, it is by no means sufficient. If society is to make the best use of its resources in health care, worthwhile services--those which make a social 'profit'--must be compared with other such services. Since the resources available to any health care system will always be limited, it is likely that not all services whose benefits exceed their costs can be afforded, because the budget has already been committed to those worthwhile services which yield higher benefits per unit cost.

Cost-Benefit Analysis↗
PubMed2005

The cost of hospital care in Canada: a comparison of two alternatives.

This article compares resource intensity weight costs with case costs for selected patient groups at St. Paul's Hospital, British Columbia. Analysis found that average case costs for surgical patients were 23.9% higher than their resource intensity weight costs, whereas case costs for non-surgical patients were 14.8% lower. Average case costs for patients receiving surgical implants were 32.8% higher than resource intensity weight costs. For patients receiving internal defibrillators average case costs were three times higher.

British Columbia↗
PubMed1995

An analysis of the adoption of managerial innovation: cost accounting systems in hospitals.

The adoption of new medical technologies has received significant attention in the hospital industry, in part, because of its observed relation to hospital cost increases. However, few comprehensive studies exist regarding the adoption of non-medical technologies in the hospital setting. This paper develops and tests a model of the adoption of a managerial innovation, new to the hospital industry, that of cost accounting systems based upon standard costs. The conceptual model hypothesizes that four organizational context factors (size, complexity, ownership and slack resources) and two environmental factors (payor mix and interorganizational dependency) influence hospital adoption of cost accounting systems. Based on responses to a mail survey of hospitals in the Chicago area and AHA annual survey information for 1986, a sample of 92 hospitals was analyzed. Greater hospital size, complexity, slack resources, and interorganizational dependency all were associated with adoption. Payor mix had no significant influence and the hospital ownership variables had a mixed influence. The logistic regression model was significant overall and explained over 15% of the variance in the adoption decision.

Accounting↗
PubMed2001

On the "efficiency" of managed care plans.

The claim that managed care plans are more efficient than fee-for-service plans has been made so often that it has reached the status of folklore, but the evidence is inconclusive. The claim is usually based on one or both of the following errors: (1) lower medical care costs mean lower total costs (medical plus administrative costs) and (2) lower HMO premiums mean HMOs are more efficient than fee-for-service plans. The first assertion ignores evidence indicating that managed care has driven up administrative costs for both insurers and providers. The second ignores evidence that managed care plans have numerous methods of shifting costs that are unavailable or less available to fee-for-service plans. The lull in health care inflation during the mid-1990s is often cited as evidence that managed care is efficient. But the lull may have been caused not by the spread of managed care but by the near-simultaneous occurrence of four events: a downturn in the insurance underwriting cycle, the 1990-1991 recession, endorsement of managed competition by numerous politicians, and the merger fever triggered by those endorsements.

Cost Allocation↗
PubMed1994

One respiratory care department's contribution to the 'bottom line'.

BACKGROUND: Although many hospital departments that were revenue producers have become cost centers and revenues above expenditures have shrunk, some departments continue to contribute. METHODS: I analyzed the financial statements of our 240-bed, not-for-profit hospital to determine the Respiratory Care Department's actual contribution to the hospital's 'bottom line' (ie, revenue above expenditures). The Respiratory Care Department's financial statement, the Hospital's profit and loss statement, and the financial statements for all 54 hospital departments were reviewed. RESULTS: Analysis revealed that the Respiratory Care Department's revenue dollar contributed $0.095 to the hospital bottom line for each revenue dollar generated. Analysis also demonstrated that the break-even contribution margin for revenue departments was 76.77%. Departments with contribution margins greater than 76.77% were revenue contributors and those departments with less than 76.77% were cost centers. CONCLUSIONS: The Respiratory Care Department was the hospital's largest revenue contributor, generating 42.8% of the hospital's revenue above expenditures. In today's health-care environment, it is sound fiscal reasoning to control cost and to strengthen those departments and services that are responsible for the financial viability of the institution. The results of this study show that our Respiratory Care Department has assumed the leadership role in the economic viability of our hospital and is its most cost-efficient contributor to health care.

Cost Allocation↗
PubMedDate not supplied

Why activity-based costing works.

With advancing technology and the quest for delineating the true cost of a procedure or diagnostic test, cost accounting techniques are being re-explored in the health care setting. Activity-based costing (ABC), adopted from other businesses, is one such example that has applications in the health industry. The purpose of this paper is to enhance the understanding of health care costs among physician providers, emphasizing a new approach--activity-based costing.

Accounting↗
PubMed1999

What the role of the modern ED should be.

Managed care organizations (MCOs) have recently focused on the high cost per patient visit in the Emergency Department (ED). MCOs emphasize preventing low acuity patients access to the ED, believing that billions of healthcare dollars will be saved. However, a review of emergency department studies suggests a different outcome. Combined with new ED service lines, perhaps another, rather paradoxical approach to managing healthcare costs in the ED is more patient focused and more cost-effective long-term. This approach is more comprehensive and offers more services, not less. The ED is an important community resource and entry port to healthcare. It is the only place open 24-hours per day, 7 days per week with no appointment necessary, and all lab and radiology services available. The very claim that it is "overutilized" is an indication of its success. In large volume EDs, certain patient populations may be more specifically served with pediatric emergency, industrial medicine, and fast track physicians. Special facilities for chest pain patients or observation can treat patients more quickly, keep them out of hospital beds, thus lowering costs. In smaller hospitals, the well rounded ED physician can treat patients of all acuities. In the most rural communities the ED can become the local 24-hour clinic with short-term stay beds. EDs are fixed costs to hospitals. Extracting low acuity patients from the ED will raise costs for emergency patients and leave the facility underutilized. By appropriately raising prices for emergencies and decreasing low acuity patient charges to reflect marginal expense, the ED becomes a cost friendly environment for the low acuity patient.

Acute Disease↗
PubMed2003

The cost of inefficiency in US hospitals, 1985-1997.

We conducted a descriptive analysis of data from the Hospital Cost Report Information System from 1985 through 1997 on nonfederal, short-stay hospitals in the United States with 12-month reporting periods and valid data for the primary outcomes. The main outcome measures were change in number of beds, inpatient days, overhead cost per bed, and overhead cost per inpatient day. Actual outcomes were compared to predicted outcomes from: (1) a scenario holding the ratio of overhead cost per volume constant throughout the study period; and (2) a scenario holding overhead expenditures for 1985 constant as volume changed. The sample contained a mean of 3,605 hospitals per year. Volume declined annually by 2.2 beds (95 percent confidence interval [CI], 2.1 to 2.2; P < .001) and 997 inpatient days (95 percent CI, 992 to 1,003; P < .001). Overhead cost per bed increased by 3,388 dollars annually (95 percent CI, 3,049 to 3,737; P < .001) and overhead cost per inpatient day increased by 40 dollars annually (95 percent CI, 36 to 44; P < .001). In the constant ratio scenario, mean overhead cost per bed increased by 42,523 dollars (32 percent), and mean overhead cost per inpatient day increased by 435 dollars (59 percent). In the constant overhead cost scenario, overhead cost per bed increased 15 percent and overhead cost per inpatient day increased 19 percent. Hospital overhead costs are increasing faster than would be expected if efficiency were the primary goal of hospital management.

Bed Occupancy↗
PubMed1998

Evaluation of proposed casemix criteria as a basis for costing patients in the adult general intensive care unit.

This study analyses the relationship between the actual patient-related costs of care calculated for 145 patients admitted sequentially to an adult general intensive care unit and a number of factors obtained from a previously described consensus of opinion study. The factors identified in the study were suggested as potential descriptors for the casemix in an intensive care unit that could be used to predict the costs of care. Significant correlations between the costs of care and severity of illness, workload and length of stay were found but these failed to predict the costs of care with sufficient accuracy to be used in isolation to define isoresource groups in the intensive care unit. No associations between intensive care unit mortality, reason for admission and intensive and unit treatments and costs of care were found. Based on these results, it seems that casemix descriptors and isoresource groups for the intensive care unit that would allow costs to be predicted cannot be defined in terms of single factors.

APACHE↗
PubMed2000

Funding issues for Victorian hospitals: the risk-adjusted vision beyond casemix funding.

This paper discusses casemix funding issues in Victoria impacting on teaching hospitals. For casemix payments to be acceptable, the average price and cost weights must be set at an appropriate standard. The average price is based on a normative, policy basis rather than benchmarking. The 'averaging principle' inherent in cost weights has resulted in some AN-DRG weights being too low for teaching hospitals that are key State-wide providers of high complexity services such as neurosurgery and trauma. Casemix data have been analysed using international risk adjustment methodologies to successfully negotiate with the Victorian State Government for specified grants for several high complexity AN-DRGs. A risk-adjusted capitation funding model has also been developed for cystic fibrosis patients treated by The Alfred, called an Australian Health Maintenance Organisation (AHMO). This will facilitate the development of similar models by both the Victorian and Federal governments.

Benchmarking↗
PubMed2001

Cost recovery beds in public hospitals in Indonesia.

A policy of allowing public hospitals to provide some better quality, higher priced hospital beds for those able to pay was introduced as government policy in Indonesia after 1993. A study was conducted in 1998 in three public hospitals in East Java to investigate if the policy objective of cost-recovery was being achieved. Hospital revenue from these commercial beds was less than both the recurrent and total costs of providing them in all three hospitals, but exceeded recurrent costs minus staff salaries in two hospitals. One reason for the low cost-recovery ratios was that between 55% and 66% of the revenue was used as staff incentives, mostly to doctors. This was more than the maximum of 40% stipulated in the policy. The high proportions of total revenue going to staff were a result of hospital management having set bed fees too low. The policy may be contributing to the retention of doctors within public sector employment; however, it is not achieving its stated objective, especially over the longer term where full recovery of salaries and investment costs needs to be considered. Public hospitals that wish to invest in commercial beds need effective management and accounting systems so as to be able to monitor and control costs and set fees at levels that recoup the costs incurred. Further research is required to determine if this form of public-private mix has negative effects on equity and access for poorer patients.

Accounting↗
PubMed1999

Paying a premium: how patient complexity affects costs and profit margins.

OBJECTIVE AND BACKGROUND: Tertiary medical centers continue to be under extreme pressure to deliver high-complexity care, but paradoxically there is considerable pressure within these institutions to reduce their emphasis on tertiary care and refocus their efforts to develop a more community-like practice. The genesis of this pressure is the perceived profitability of routine surgical activity when compared with more complex care. The purpose of this study is to assess how the total cost and profit (loss) margin can vary for an entire trauma service. The authors also evaluate payments for specific trauma-related diagnostic-related groups (DRGs) and analyze how hospital margins were affected based on mortality outcome. MATERIALS AND METHODS: The authors analyzed the actual cost of all trauma discharges (n = 692) at their level I trauma center for fiscal year 1997. Data were obtained from the trauma registry and the hospital cost accounting system. Total cost was defined as the sum of the variable, fixed, and indirect costs associated with each patient. Margin was defined as expected payments minus total cost. The entire population and all DRGs with 10 or more patients were stratified based on survival outcome, Injury Severity Score, insurance status, and length of stay. The mean total costs for survivors and nonsurvivors within these various categories and their margins were evaluated. RESULTS: The profit margin on nonsurvivors was $5,898 greater than for survivors, even though the mean total cost for nonsurvivors was $28,821 greater. Within the fixed fee arrangement, approximately 44% of transfers had a negative margin. Both survivors and nonsurvivors become increasingly profitable out to 20 days and subsequently become unprofitable beyond 21 days, but nonsurvivors were more profitable than survivors. CONCLUSIONS: There is a wide variance in both the costs and margins within trauma-related DRGs. The DRG payment system disproportionately reimburses providers for nonsurvivors, even though on average they are more costly. Because payers are likely to engage in portfolio management, patients can be transferred between hospitals based on the contractual relationship between the payer and the provider. This payment system potentially allows payers to act strategically, sending relatively low-cost patients to hospitals where they use fee-for-service reimbursement and high-cost patients to hospitals where their reimbursement is contractually capped. Although specific to the authors' trauma center and its payer mix, these data demonstrate the profitability of maintaining a level I trauma center and preserving the mission of delivering care to the severely injured.

Cost Allocation↗
PubMed1996

The effect of rural hospital closures on the financial performance of neighboring rural hospitals.

This study investigates how the closure of rural hospitals affected other rural hospitals. The empirical analysis examined whether being the neighbor of a closed rural hospital affected financial performance variables during the periods before and after closure. Before and after comparisons of surviving rural hospitals were made between 1985 and 1989 for closures in 1987 and between 1986 and 1990 for closures in 1988. The regression results showed that neighbors of closed rural hospitals typically did experience increased volume in comparison to non-neighbors, but the increased volume did not lead to reductions in average cost or to improved profitability, after controlling for other factors.

Cost Allocation↗
PubMed2000

Recommendations for a cost-offset model of psychotherapy allocation using generalized anxiety disorder as an example.

As inexpensive interventions gain empirical support, there is an increasing risk that such data may be used by health maintenance organizations to unfairly restrict the number and type of therapy sessions reimbursed for all clients, even those less likely to benefit from economical treatments. As a result, it is important to identify clients who may not respond to specific therapies and to empirically support ways to treat them. Successful treatment of nonresponders is also valuable because predictors of treatment failure tend to predict cost related to medical and disability expenses. Using generalized anxiety disorder as an example, this article suggests a flexible and comprehensive approach to cost-benefit analysis in psychotherapy that includes clients who may not improve in response to current data-based interventions. In addition, suggestions are made for the identification of alternative treatment approaches, and a potential treatment allocation model is recommended.

Anxiety Disorders↗
PubMed1998

Funding. Adding to local divisions.

The white paper proposal to fund primary care groups according to a set formula is beset with difficulties. At present there appears to be no suitable formula for allocating funds at sub-district level. Applying to primary care the national formula now used to allocate funds to health authorities would change current spending considerably and could lead to greater inequities.

Budgets↗