What would happen financially to a health services organization over time if its prices were set at:
a. Full costs
b. Marginal costs
Full costs
According to Investopedia, “Full costing is an accounting method used to determine the complete end-to-end cost of producing products or services.” Full costing is also called "full costs" or "absorption costing."
According to this method, every unit of the product is assigned all direct, fixed, and variable costs. This method includes the cost of direct materials and labor as well as a portion of the overhead costs associated with it in the final costing of every unit of the product.
A health organization that set its prices on full costs would be able to prevent any losses as the costs incurred by the organization in providing services is compensated with every patient treated. This method also makes calculating the costs and managing accounts easier. Although this method is taunted to have an arbitrary selection of some overhead costs and is not considered the best method for making managerial decisions, Yet it is still the preferred method as it helps in accurate
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This method of calculating costs could be beneficial or not depending on the organization and its size. In a healthcare setting, any healthcare institution is seen as delivering quality care and therefore most decisions regarding choice of the institution come down to the pricing. In order to compete for patients, the healthcare institution must bring its price down to the absolute margin. This will over time affect the institution badly as it will leave the institution without funds to replace the capital equipment. This can eventually lead to closing down of the financially weaker
When referring to health care economics, “cost” refers to the funds that are used to deliver health care to patients. Cost can also mean the amount of funds used to access health care or to deliver health care (Getzen, 2007). It is applied in many different ways such as, health care professionals applying economic principles like cost benefit analysis, or cost effect analysis to determine if the choice is good or bad. The principles help the government to provide the best intervention in health care (Getzen, 2007).
The new social contract between the health care system and employers, patients, and the government has given everyone involved some breathing room. They have provided a clearer picture of the costs of health care; however, it is evident that there is still work to be done regarding the transparency of complete and exact costs. For example; all hospitals have a price list called the chargemaster that includes nearly 20,000 health care procedures. The prices on this list are the prices that patients will most likely see on their bills; however, the terms are not standardized and many are bundled services that make it difficult to compare them with other institutions. It is obvious
Controlling is ensuring the validity and accuracy of all financial information within the firm. Controlling will become very profound as the industry overall undergoes fundamental change in regards to operations. Legislation imposed by the federal government regulates, to a certain extent, how health care organizations operate. As such, management must be able to control costs and assess the validity of the financially information presented to them. If the organization fails to do so, the results could be devastating. First, loses will occur due to the excessive lack of control. The organization may be forced to lower spending in some areas of compensate for the aggressive spending in others. In addition, the reputation of the firm could be harmed. Patients and other vendors may be unlikely do business with the firm for fear of the company's lack of financial security. Therefore, in order to ensure the continuity of the business, the firm must have adequate methods by which to check the validity of its financial information. Third party audits, independent audits, check and balances and management oversight all will help ensure that the overall financial position of the firm is sound and credible.
Economic analysis in medical education total cost of ownership is a concept that enables buyers of products or services to find out the total cost of owning or running that product or service is a scenario the author mentioned in the
The first factor to consider while determining the price and service decisions within the organization is the welfare of the society. The organization builds on the well-being of the society hence it services must be welfare oriented. This indicates that the Einstein Medical Center would have to adopt affordable prices offering more opportunities to the society members to
After getting the views and suggestions all discuss this with hospital management and other stakeholders of the hospital to come with a reasonable prices which will make sure the health care provide by the hospital is affordable to everyone and is best quality. As much the patient may wish the prices to be reduced the quality of the health care cannot be compromised to the expenses of providing cheap health care. The prices being suggested should be in a position to support the normal functioning of the hospital.
Financing the costs of health care, it is important to consider what plan is right for you. The two strategies mentioned in the beginning of this chapter include regulatory and competitive strategies. A key learning point in this chapter is learning the weaknesses of financing controls. Before using any strategies, it is important to know whether the plan is going to be affective or not. Another key learning point of this chapter is price control. Price control deals with regulating fee schedules for physicians and hospital payments (Bodenheimer & Grumbach, 2012). This is important because the form of price control is depended on the quantity of services provided. One thing that I would like to explore in this chapter is knowing more about controlling the type of supplies. How is supply control regulated so that providers are able to save their
The primary objective of accounting is to provide information useful for decision-making (McNair, Olds & Milam, 2013). Financial stability, financial health, and financial performance were, is and will always be a primary focus in healthcare for years to come. In fact, understanding financial performance in any business requires some global or summary measure of economic success (Cleverley, Song and Cleverley, 2010). Therefore, a financially “healthy” organization is one that is producing an operating margin sufficient to finance the current and future capital for its business (Harrison & Montalvo, 2002). Although operating margin is critically important, a healthcare organization should not rely solely on this measure. Therefore, according to Cleverley et al. (2010), a financially successful organization is capable of generating the resources needed to meet its mission. However, in planning for financial stability and health, health care administrators and financial managers need to strategically plan how to address the needs of their organization. The level of resources required by a healthcare organization depends primarily on the range and quantity of health services envisioned in the mission statement (Cleverley et al., 2010). Therefore, financially successful organizations must be capable of generating the amount of funds needed for debt and/or equity to finance the required level of
Additional costs of being in the hospital, post-operative care, follow up visit, such as, child minding.
Chapter five outlines the health care providers cost production process. The production functions are the relationship between the quantity the producer is willing to supply and the variables used to decide price and quantity for sale. The intention of the cost production is to convert input (i.e. labor, land, knowledge) into output/finished products or services. The variables used that influence the suppliers are input price, case mix, and technology. In the medical domain, the production function includes fixed input and variable input. In the short-term, the fixed input is restricted to a production cycle and duty, a fixed variable. Whereas, the variable input is an input whose quantity can change or adjust at any time.
In conclusion, a structure on lower cost is pertinent to providing the right model for the system. Achieving a prosperous medical outcome in the end requires a cost budget that will benefit not only the Health care organization but the patients as well. Another benefit for patients is to implement a low cost strategy that will allow patients to receive medical treatment and also pay out cost that meets the individual’s budget. Creating an income chart would also be a way to know what a patient can afford to pay.
This paper will be supply an overview about situation in implement of Activity Based Costing in the health care system based on Kaplan and Porter’s method. The main purpose of the paper is that analyzes advantages and disadvantages of this method when worldwide use of this method in health care based on researches in Europe and USA. In addition, basing on Porter’s ideas, there are a large number of ways which help us reduce cost in health care. It will be argued that whether Activity Bases Cost method is able to bring benefit in reducing costs to health care, especially hospitals, or not.
Cost accounting in healthcare has more important than ever before, however it is usually treated as being too complex, costly or requires numerous means for organizations in healthcare. Adding to the issue more vital programs to include electronic medical records, charting and billing systems have been the main target and cause for budget strains for several years. The healthcare industry is currently experiencing a symbolic change and concern from all the parties involved with a goal to lessen the cost of healthcare. These healthcare organizations that do not have a cost accounting system should make it a priority to develop one. “The driving force behind the development of cost accounting systems in health care organizations has been the
The adoption of the five strategies associated with costing will allow hospitals the ability to recognize and anticipate new changes, and allow providers the ability to adapt to healthcare reform through direct communication and action with their managers and accounting. This will enable hospitals the ability to competitively and fiscally combat the challenges arising in the healthcare marketplace. Furthermore, with many of the legislated reforms being implemented within three years, providers should actively reassess their costing programs now in an attempt to adapt to the impending change.
Cost allocation is essentially a pricing process within the organization whereby managers allocate the costs of one department to other departments. Typically, the overhead costs of the healthcare business, such as those incurred by administrators, facilities management personnel, financial staff, housekeeping and maintenance personnel, must be allocated to those departments that generate revenues for the organization. Departments that generate revenues are generally patient services (Gapenski,