Topic: HEALTH FINANCE

Order Description

answer the following questions:

2. After reading Joan Magretta’s article, comment on how numbers are used in your work setting or other part of your life in achieving financial goals.

3. Only in recent years have hospitals begun to develop meaningful systems of cost accounting. Why did they not begin such development sooner?

4. Teaching hospitals receive an additional payment to recognize the indirect costs of medical education. What rationale might be used to justify this extra payment?

SAMPLE ANSWERS (DO NOT COPY)
2. After reading Joan Magretta’s article, comment on how numbers are used in your work setting or other part of your life in achieving financial goals.

I really enjoyed this article and how it explained the balance between the interpretation of what numbers mean and how to use them to affect change. In MU we track a physicians success by comparing their achieved numbers to those established by the gov to make a given measure. What is frustrating is that the docs and staff lose focus of the value of what we are doing, trying to make an interoprative system of sharing medical information, with are we making the numbers? In this respect numbers are good and bad, good that we can get them and monitor progress and bad because they are blinding those looking at them on how we can improve care and make the numbers at the same time. The purpose and value of the program gets lost in the focus on the numbers. As a result we changed the order of the MU meeting. We talk process first, what’s best for the patients then we fit that into MU, or try to. The numbers are no longer posted at the start of the meetings but are saved for brief viewing in the final 2 minutes of the meeting. That and serving chocolate during the meeting seem to work fairly well – for now.

3. Only in recent years have hospitals begun to develop meaningful systems of cost accounting. Why did they not begin such development sooner?

In 1983 and before hospitals were paid actual costs for delivering service. In about 1983 Medicare introduced the perspective payment system for care. This payment system was based on a set amount of money the hospital would receive based on patient diagnosis not cost. If the hospital managed the care of the patient efficiently the hospital would break even and/or exceed expense (profit). if the hospital did not manage the patients well the hospital would lose money on that patients stay. A mechanism to forecast and determine best care practices was necessary for the hospital to survive financially. the hospital actually became accountable for efficient operations. Introduction of HMO payers, fixed rates for fixed service business added to the need for meaningful cost accounting.

4. Teaching hospitals receive an additional payment to recognize the indirect costs of medical education. What rationale might be used to justify this extra payment?

Teaching hospitals are established to support university based medical and dental training for advanced students. In most cases teaching hospitals are located cities where the indigent population is generally more concentrated than in suburban and rural settings. Thus the patient population in teaching hospitals is expected to of higher acuity than other hospitals, patients are sicker. The current DRG payment system does not adjust for this making it necessary for teaching hospitals to receive more than their suburban and rural counterparts.

health finance

Project description

.Types of Costs
This week we will be covering cost behavior. Most health care managers work closely with the Finance Department so, while we will be doing some calculations this week, the idea is really for you to get the concept of what it is you are looking at and why it is important.

Here are some thoughts that might help you understand the material:

Some costs are fixed costs — These costs DO NOT change regardless of the volume of services provided. A perfect example of a fixed cost is rent. Regardless of the number of patients that a clinic sees it pays the same rent each month.

Some costs are variable costs — These costs change based on the volume of services performed. An easy example of a variable cost is bandages. The more patients a clinic sees the more bandages it will use. If they do not use up the bandages then they will not buy more. Therefore, as volume goes up the cost of bandages goes up.

Some costs are semi-variable costs — These are costs that vary based on volume but in a more indirect way. An example would be…..If an RN in a hospital can take care of 5 patients and there are 5 patients on the ward then the hospital only needs one RN. When the 6th patient arrives on the ward the hospital will need a second nurse, however they will not need a third RN until the 11th patient arrives. Because of this indirect relationship semi-variable costs often increase in what is referred to as a step-wise fashion (see Fig 7-3).

These costs help you to think about the cost of providing services to patients. Why?…Because costs play a valuable role in determining whether a line of business or a program is profitable. By looking at costs as fixed, variable, and semi-variable we are able to estimate costs more accurately.

An Additional Explanation of Direct and Indirect Costs
I want to make sure that the class fully understands the difference between direct and indirect costs by stating things a little differently. Sometimes it just takes a few times through the same material to capture new concepts!

A direct cost is a cost that is specifically associated with a ‘cost object’. A ‘cost object’ can be a particular unit, department, a particular patient, etc. Examples of direct costs include salaries, medical supplies, and utilities.

An indirect cost is a cost that cannot be specifically associated with a a particular ‘cost object’. For instance, facility costs, administrative costs, general marketing costs, etc.

You can think of it this way…. If we think of a a patient as a ‘cost object’ then we can see how we might be able to figure out the direct costs — For example we could take the salary of the doctor per minute by the number of minutes that the doctor spends with the patient, we could include the cost for all of the medical and non-medical supplies used specifically for that patient….and on and on. Because we can attribute these costs directly to the patient, these are called direct costs.

Not all costs are easily attributed to the patient (or other ‘cost object’). What about the cost of the marketing that the hospital conducts? We don’t know which ad the patient saw or how many ads the patient saw. We don’t even know if the patient came to the hospital because of an ad at all. What about the salary of the CEO? Clearly the hospital cannot run without a CEO, but how much of the cost of the CEO can be attributed to this specific patient? Because we cannot attribute a certain portion of these costs directly to this patient, they are called indirect costs.

I hope that this explanations helps to clarify your understanding.

Assignmnet GHA 2

Assignment Exercise 6 – I (p. 466) Allocating Indirect Costs

NOTE: (1) The question in the text refers to worksheet #2. I do not know what this refers to since there is no worksheet #2 in the text. Please use the attached template instead and DO NOT change the Direct Costs from the values given in the original Table 6-1 and Table 6-2 and shown in the template.

It is perfectly OK to upload an updated version of the template that I have provided to you.

health finance

Project description

.Types of Costs
This week we will be covering cost behavior. Most health care managers work closely with the Finance Department so, while we will be doing some calculations this week, the idea is really for you to get the concept of what it is you are looking at and why it is important.

Here are some thoughts that might help you understand the material:

Some costs are fixed costs — These costs DO NOT change regardless of the volume of services provided. A perfect example of a fixed cost is rent. Regardless of the number of patients that a clinic sees it pays the same rent each month.

Some costs are variable costs — These costs change based on the volume of services performed. An easy example of a variable cost is bandages. The more patients a clinic sees the more bandages it will use. If they do not use up the bandages then they will not buy more. Therefore, as volume goes up the cost of bandages goes up.

Some costs are semi-variable costs — These are costs that vary based on volume but in a more indirect way. An example would be…..If an RN in a hospital can take care of 5 patients and there are 5 patients on the ward then the hospital only needs one RN. When the 6th patient arrives on the ward the hospital will need a second nurse, however they will not need a third RN until the 11th patient arrives. Because of this indirect relationship semi-variable costs often increase in what is referred to as a step-wise fashion (see Fig 7-3).

These costs help you to think about the cost of providing services to patients. Why?…Because costs play a valuable role in determining whether a line of business or a program is profitable. By looking at costs as fixed, variable, and semi-variable we are able to estimate costs more accurately.

An Additional Explanation of Direct and Indirect Costs
I want to make sure that the class fully understands the difference between direct and indirect costs by stating things a little differently. Sometimes it just takes a few times through the same material to capture new concepts!

A direct cost is a cost that is specifically associated with a ‘cost object’. A ‘cost object’ can be a particular unit, department, a particular patient, etc. Examples of direct costs include salaries, medical supplies, and utilities.

An indirect cost is a cost that cannot be specifically associated with a a particular ‘cost object’. For instance, facility costs, administrative costs, general marketing costs, etc.

You can think of it this way…. If we think of a a patient as a ‘cost object’ then we can see how we might be able to figure out the direct costs — For example we could take the salary of the doctor per minute by the number of minutes that the doctor spends with the patient, we could include the cost for all of the medical and non-medical supplies used specifically for that patient….and on and on. Because we can attribute these costs directly to the patient, these are called direct costs.

Not all costs are easily attributed to the patient (or other ‘cost object’). What about the cost of the marketing that the hospital conducts? We don’t know which ad the patient saw or how many ads the patient saw. We don’t even know if the patient came to the hospital because of an ad at all. What about the salary of the CEO? Clearly the hospital cannot run without a CEO, but how much of the cost of the CEO can be attributed to this specific patient? Because we cannot attribute a certain portion of these costs directly to this patient, they are called indirect costs.

I hope that this explanations helps to clarify your understanding.

Assignmnet GHA 2

Assignment Exercise 6 – I (p. 466) Allocating Indirect Costs

NOTE: (1) The question in the text refers to worksheet #2. I do not know what this refers to since there is no worksheet #2 in the text. Please use the attached template instead and DO NOT change the Direct Costs from the values given in the original Table 6-1 and Table 6-2 and shown in the template.

It is perfectly OK to upload an updated version of the template that I have provided to you.