DISCUSSION- TWO 1
Discussion Thread: Cost Analysis
Nicole L. Gardner
Financial and Resource Management
Liberty University
Author Note
Nicole Gardner
I have no known conflict of interest to disclose. Correspondence concerning this article should
be addressed to Nicole Gardner. Email: nlgardner@liberty.edu
DISCUSSION- TWO 2
Basic Cost Concepts
Understanding costs in a healthcare setting often times are overwhelming, but someone
has to do it. Some costs are considered stable while other costs are can change dramatically and
affect the functionality of the organization. A couple examples of basic cost concepts are both
direct and indirect costs (Jones, Finkler, Kovner, & Mose (2019).
Direct Costs
Direct costs are those that are specifically related to the costs that are associated to a
specific unit or department. Direct costs can be variable, meaning change at any given time. An
example of this would be if you worked on an inpatient unit and your average daily census was
13. At any given time, this can fluctuate, thus changing those direct costs. Specific examples of
direct costs include: medical supplies, pharmacy supplies, nursing salaries, etc. Direct costs can
be traced and have data to back up the numbers (Jones et al., 2019).
Indirect Costs
Indirect costs, on the other hand, cannot be associated with any unit or department, thus
not related to any patient care. Costs assigned to the unit from outside, such as marketing,
facility maintenance, staff education and insurance are examples of indirect costs to the unit.
Indirect costs have to be allocated, they benefit the over operation of the facility rather than one
unit or department (Jones et al., 2019).
Cost Estimation Techniques
Cost estimation at times can be very difficult, but this part of financial planning is
essential. Cost estimation is a tool for analysis of any future costs. These costs come from past
expenses, performance and data. Per A Practical Guide for Estimating the Costs of Primary
Care Transformation (2015), the most common way for a healthcare organization to complete
DISCUSSION- TWO 3
these cost estimations is by using the ABC method. This approach consists of four steps. Each
step looks at a wide variety of key information. An example of a normal hospital estimation cost
if the number of full-time equivalent (FTE) staff per job category is needed and what the costs
will be for each item ((A Practical Guide for Estimating the Costs of Primary Care
Transformation, 2015).
Break-Even Analysis
Break-even analysis is completed to develop a business plan and aids in controlling the
costs within the organization. Break-even analysis is a technique to find the specific volume at
which a program or service neither makes nor loses money. In order to calculate this analysis
information on fixed costs, price, and variable costs are required. The formula used is the direct
relationship between revenues and expenses. If revenues are greater than expenses, there is a
profit. If revenues are less than expense, there is a loss. If equal, it is break-even. Obviously, if
break-even or profit occurs, the service will most likely continue at the given organization. If a
loss is generation, additional support or research will need to be received to continue this service.
(Jones et al., 2019).
Traditional Cost-Finding Methods
Cost-finding was at first confusing for me to understand. I reviewed the text book and
came to an understanding that cost-finding in my area can be best explained by using the
example of DRG’s. Medicare pays hospitals based up the diagnosis’ DRG and not what the
hospital stay actually costs. If Medicare pays three days for a certain diagnosis, it is beneficial
for the hospital to pursue every avenue to get the patient out prior to or on day three (Jones et al.,
2019).
DISCUSSION- TWO 4
Costing Out Nursing Services
As discussed in the textbook, Financial Management, multiple methods were explained
as an approach to costing out nursing services (2019). After review, I found a better
understanding of this by using the example that a patient in an Intensive Care Unit costs more
than a traditional medical patient on a Medical-Surgical floor. Using this approach can help
organization justify and control costs. It also allows the hospitals to bill insurance companies at
higher rates due to the type of bed that the patient is occupying (Eckhart, 1993).
Conclusion
As nurse managers, we must put a lot of effort into the budget no matter what are we are
working at. This can be accomplished by monitoring supply usage to the length of stay for each
patient. Any and all efforts help when attempting to control costs to benefit the organization.
References
A Practical Guide for Estimating the Costs of Primary Care Transformation. (2015). Agency for
Healthcare Research and Quality. https://www.ahrq.gov/ncepcr/research-transform-
primary-care/transform/cost/guide.html
Eckhart, J. G. (1993). Costing out nursing services: Examining the research. Nursing
Economic, 11(2), 91-98.
Jones, C. B., Kovner, C. T., Finkler, S. A., & Mose, J. (2019). Financial management for nurse
managers and executives. Elsevier.
DISCUSSION- TWO 5
Reply to Tonya:
Tonya-
I thoroughly enjoyed reading your discussion post. I too myself found it interesting about
the two different approaches to costing out nursing services. Micro-costing is a very interesting
approach and I’m sure would provide precise and accurate data on how each individual nurse
performs and operates for each patient. I think that this approach, yes expensive, would hold
people to a higher standard and accountability than what we at times encounter with some nurses
in this day and age. I found an interesting article by Ricci de Araújo et al., comparing the micro
costing approach in a tradition ICU setting compared to the estimated approach. It found that the
micro-costing approach was a much more reliable approach to budgeting based on patient acuity
and departmental needs. It took into consideration how long the nurse were needed at the
bedside, how long it took them to chart, supplies used, as well as transportation time to take
patients off the unit for diagnostic testing (2021). Our hospital recently did research on how long
it takes for nurses to chart assessments on each floor. It found that in an ICU setting it takes a
nurse at least 3 hours out of her day charting the assessments and other pertinent information
needed to portray the patient’s hospital stay. Using that information, they are planning to attempt
to request different budgetary standards and get additional support for the nurses since they do all
primary care for all patients. This support will consist of nurse assistant to help with bathing,
vitals, feeding, ambulating, etc.
References
Ricci de Araújo, T., Papathanassoglou, E., Gonçalves Menegueti, M., Grespan Bonacim, C. A.,
Lessa do Valle Dallora, Maria Eulália, de Carvalho Jericó, M., Basile-Filho, A., & Laus,
DISCUSSION- TWO 6
A. M. (2021). Critical care nursing service costs: Comparison of the top-down versus
bottom-up micro-costing approach in brazil. Journal of Nursing
Management, https://doi.org/10.1111/jonm.13313
Reply to Vicki:
Vicki-
Great post on the effects of falls in the hospital settings. Like hospital acquired pressure
injuries, falls cost the hospital a lot of unnecessary money. Our hospital recently started multiple
“Get to Green” initiatives, falls were one. This was in the hopes of keeping our goal in the
“green” level for the entire year as part of our A3 goals. Multiple initiatives are being projected,
but the fall project is one that they are fiercely working on. Currently we use the Johns Hopkins
Fall risk score to assess patient’s level of risk for a fall while in the hospital. It takes into
consideration age, history of falls, devices in use and medications being administered. However,
our hospital is finding that when working short staffed and with an increased amount of travelers
on the inpatient units, falls are rapidly increasing, regardless if all precautions were appropriately
in place.
Upon reviewing the article that you put in your discussion post, I found it staggering as to
the amount of money that hospitals have to incur as part of the variable costs when falls occur,
especially with injuries. $9,389 on average with each fall adds up and can not only affect the
bottom line of any hospital budget, but also the patients that these falls are occurring too
(Hoffman et al., 2017). Direct costs are those that are specifically related to the costs that are
associated to a specific unit or department. Direct costs can be variable, meaning change at any
given time (Jones et al., 2019). I like how the article broke down the cost of the injuries based
DISCUSSION- TWO 7
upon the type. Femur and ribs were associated with the greatest cost among older adults who
sustain a fall while in the hospital (Hoffman et al., 2017).
References
Hoffman, G. J., Hays, R. D., Shapiro, M. F., Wallace, S. P., & Ettner, S. L. (2017). The costs of
Fall‐Related injuries among older adults: Annual Per‐Faller, service component, and
patient Out‐of‐Pocket costs. Health Services Research, 52(5), 1794-
1816. https://doi.org/10.1111/1475-6773.12554
Jones, C. B., Kovner, C. T., Finkler, S. A., & Mose, J. (2019). Financial management for nurse
managers and executives. Elsevier.
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