There are many ways in which healthcare financial managers use financial
resources and cost classifications to allocate indirect costs to direct cost when
determining patient charges. According to Nowicki, direct cost is described as
costs that are directly traced from a department such as labor and supplies,
whereas indirect cost (also known as overhead cost) is described as a cost that
is not traced from a department (2022). An example of indirect cost can be
heating and cooling. An example of how indirect cost can be allocated to direct
cost can be in radiology. In radiology where all types of images and scans are
performed, the direct cost would be the X-ray machines and medical staff to
perform. The indirect cost may include lighting, environmental services, and
housekeeping services. The indirect cost for each image and/ or scan would be
included in the budget by the financial manager but will also include the
financial cost of having the department cleaned thoroughly and the amount of
electricity for lighting needed.
According to Bragg & Koroly, U.S hospitals are losing millions each year due
to denials by health plans and government payers for critical care (2019).
Utilization reviews and rates are important to discover prospects to better
organizational omissions, efficient practices and enhance training (Bragg &
Koroly. 2019). It is important that financial managers prepare for these
declines and have a backup plan so that care can be delivered safely.
References:
Bragg, L. & Koroly, A. (2019) Utilization review: 5 reasons hospital lose
revenue. https://www.hfma.org/topics/hfm/2019/april/utilization-review--5-
reasons-hospitals-lose-revenue.html
Nowicki, M. (2022) Introduction to the financial management of healthcare.
Gateway to healthcare management.
