SOLUTIONCASE STUDY FOR CHAPTER 8

SOLUTIONCASE STUDY FOR CHAPTER 8 - CASE STUDY FOR CHAPTER 8...

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CASE STUDY FOR CHAPTER 8 Estimating Hospitalization Costs for Regional Hospitals Cost estimation and cost containment are an important concern for a wide range of for-profit and not-for-profit organizations offering health-care services. For such organizations, the accurate measurement of costs per patient day (a measure of output) is necessary for effective management. Similarly, such cost estimates are of significant interest to public officials at the federal, state, and local government levels. For example, many state Medicaid reimbursement programs base their payment rates on historical accounting measures of average costs per unit of service. However, these historical average costs may or may not be relevant for hospital management decisions. During periods of substantial excess capacity, the overhead component of average costs may become irrelevant. When the facilities are fully used and facility expansion becomes necessary to increase services, then all costs, including overhead, are relevant. As a result, historical average costs provide a useful basis for planning purposes only if appropriate assumptions can be made about the relative length of periods of peak versus offpeak facility usage. From a publicpolicy perspective, a further potential problem arises when hospital expense reimbursement programs are based on average costs per day, because the care needs and nursing costs of various patient groups can vary widely. For example, if the care received by the average publicly-supported Medicaid patient actually costs more than that received by nonMedicaid patients, Medicaid reimbursement based on average costs would be inequitable to providers and could create access barriers for Medicaid patients. As an alternative to accounting cost estimation methods, one might consider using engineering techniques to estimate nursing costs. For example, the labor cost of each type of service could be estimated as the product of an approximation of the time required to perform each service times the estimated wage rate per unit of time. Multiplying this figure by an estimate of the frequency of service gives an engineering estimate of the cost of the service. A possible limitation to the accuracy of this engineering costestimation method is that treatment of a variety of illnesses often requires a combination of nursing services. To the extent that
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This note was uploaded on 03/11/2012 for the course MBA eco 5008 taught by Professor Smith during the Fall '12 term at University of Phoenix.

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SOLUTIONCASE STUDY FOR CHAPTER 8 - CASE STUDY FOR CHAPTER 8...

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