Healthcare costs and prices

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Set up a forecasting model and estimate its usage in the healthcare organization. (PO2)

Discuss one difference between the types of cost information needed for external reporting and the information useful to the manager.

In an attempt to help accurately capture and track charges, many organizations have utilized barcoding for certain supplies and procedures. By accurately capturing patient charges, revenue can potentially be generated for the organization. Some examples of revenue-generating cost centers include the pharmacy, central supply, respiratory therapy, and the operating room.
Nurse leaders must also be cognizant that some charges may not generate revenue and could be termed nonrevenue cost centers. For example, having a security guard may protect the whole facility but does not generate revenue. The cost for the security guard would be spread across the overall patient census to calculate what the daily charge to have a security guard on site would cost the organization.
With the introduction of computers and computerized charting in nursing, the data collected from these information systems can be useful to help capture patient charges and various other data for healthcare organizations. One issue that remains a challenge for healthcare organizations is attempting to capture the nursing-care time utilized for each patient accurately. Historically, many healthcare organizations have attempted to utilize patient-classification systems to accurately capture nursing-care usage per patient (Finkler, Jones, & Kovner, 2013). However, with patient-acuity variability and the many tasks a nurse may complete for several patients in a given hour, capturing accurate and complete data on nursing-care time remains a challenge.
To assist them in controlling the costs for their department budgets, nurse managers must also be aware of how various funding sources set rates of payment. Medicare is an example of a cost-based payer. It will only pay a certain amount for specific charges. Managed-care organizations, insurance companies, and large employers typically negotiate directly with the healthcare organization and pay a set rate for guaranteed patient volume (Finkler, Jones, & Kovner, 2013). In a private practice, a healthcare practitioner may offer lower market prices for services than other providers, to encourage more patient volume. Another payment method is pay-for-performance, whereby providers are reimbursed for services based upon certain performance measures. This payment method has caused healthcare organizations to review and change current processes regarding how patient care is provided.
The budget process includes many steps. The preliminary step prior to the budget process is forecasting. Forecasting involves making predictions of future outcomes, which assists management in financial decision making (Finkler, Jones, & Kovner, 2013). Predictions can include the number of patients, patient acuity, and average length of stay (LOS) for a particular department over the next year, the amount of needed supplies, staffing needs, and many other potential variables to aid predictions for financial decision making in healthcare organizations. Generally, the financial department is a resource and can assist leaders with accessing historical data, analyzing data, and developing needed formulas.
Steps in the Forecasting Process
1. Collecting historical data over several years
2. Graphing the data for a visual representation of the information
3. Analyzing the data to determine if any patterns or trends exist
4. Utilizing formulas to project future variables
(Finkel, Jones, & Kovner, 2013)
Nursing has a variety of costs that generally include direct costs of patient care, indirect costs of patient care, patient-care-related costs, and overhead costs (Finkler, Jones, & Kovner, 2013). When forecasting workload predictions, it is helpful to consider seasonal trends that have occurred historically, such as slower patient volumes in the summer or busier winter months. These can assist leaders in their staffing predictions.
Looking at other historical data for a few years can also be beneficial to the nurse leader in forecasting. For example, perhaps a new manager came to the area, and many of the staff left in the last year as a result of the new leadership. Prior to that, the turnover was almost zero for that department. This unforeseen change or random fluctuation would not be considered usual for this department.
Some organizations may utilize the forecast process of nominal group technique. In this process, a meeting occurs with a group of individuals who write down their intended forecasts to present to the group leader without discussion. After the group leader decides on the forecast, rationale to support the forecast is provided to the group leader; then the original group meets as a whole to discuss the forecast submissions. Lack of communication and possible bias may be disadvantages of this forecasting process (Finkler, Jones, & Kovner, 2013).
The Delphi technique of forecasting involves the group members submitting their forecasts in writing to the group leader. The group leader may request additional information with supporting rationale, if needed. This technique avoids any face-to-face confrontation that might occur. Regardless of which process an organization utilizes to forecast, the forecasting process is a group effort, which can enhance the accuracy of the final forecast for an organization.
This week, we analyzed healthcare costs and prices and discussed forecasting concepts. We also reflected on the role of the nurse leader regarding these two topics. Next week, we will discuss unit variances; specifically the flexible budget, which is essential information to assist the nurse leader in the oversight of the budget.

Finkler, S., Jones, C., & Kovner, C. (2013). Financial management for nurse managers and executives. (4th ed.). St. Louis, MO: Saunders.
• Chapter 9: Determining Healthcare Costs and Prices
• Chapter 21: Forecasting
Recommended Articles:
Wharam, J., & Weiner, J. P. (2012). The promise and peril of healthcare forecasting. American Journal of Managed Care, 18(3), 139.
Lockwood, C. J. (2012). A crystal-ball view of healthcare in 2016. Contemporary OB/GYN, 57(12), 4–6.

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