• Healthcare finance managers can use financial resources and
cost classifications for the purpose of allocating indirect costs to
direct costs while determining patient charges. For instance,
they can allocate indirect expenses to relevant activities by
utilizing cost drivers. The cost drivers need to be carefully
selected so that they can reflect the application of a specific
resource pool. This method is considered to be useful because
of its high accuracy and the rational nature of financial
management information. By adopting the activity-based
costing method, it will be possible to trace the indirect costs and
assign them to individual elements such as patients so that they
can be effectively charged by a healthcare facility. ABC system
is considered to be much more effective as compared to
traditional methods since it helps in making better decisions
relating to product mix and also helps in product price
calculations. Performance-focused activity-based costing is
another method that can help in allocating indirect costs to
direct costs. However, such a process involves a series of steps.
For instance, the actual resources that have been used or each
activity can be assessed by adopting methods such as surveys,
interviews, and on the basis of the actual time that has been
utilized (Carroll & Lord, 2016).
• Utilization rates are related to volumes and revenue generation.
The cost that arises in the health care setting is related to the
price of the delivered service and the utilization rate. Price is the
rate that has been set for the rendered service. On the other
hand, utilization rate relates to the volume of services that have
been provided. A suitable example is the total number of patient
visits in a healthcare facility. The process relating to revenue
generation involves the reimbursement that is done by multiple
payers or third-party payers. The utilization rate is likely to get
altered when there is a change in volume, and there is a decline
in the revenue that is generated. Physicians working in the
healthcare setting can reduce the utilization rate by offering a
better quality of care services so that patients would not have
to visit the facility often. When there is a decline in utilization
rates, the number of patient visits can reduce, and it can also
lead to a decline in the revenue that is generated. Samaris has
argued that the proper insight into utilization trends is critical to
adapt to the evolving healthcare domain as it can impact
revenue (Samaris, 2013).
References
Carroll, N., & Lord, J. C. (2016). The growing importance of cost
accounting for hospitals. Journal of health care finance, 43(2), 172.
Samaris, D. (2013). Anticipating utilization trends key to adapting in
an evolving market. Healthcare Financial Management, 67(4), 26-28.
