Healthcare financial managers use financial resources and cost
clarifications to allocate indirect costs to direct costs when
determining patient charges. They achieve this through the means of
cost accounting methods. There are a few different cost accounting
methods that have been develop over the years. They are Traditional
Costing, Activity-Based Costing, Time-Driven Activity Based Costing,
Performance-Focused Activity Based Costing, and Ratio of cost to
charges. The different cost to charges methods have pros and cons to
each, some like traditional costing are easy to use but lack in
accounting for differences in products/services provided. Others like
Performance-Focused Activity Based Costing (PFABC) offer a true
value of the cost to the hospital and what to charge the patient, but
these extra processes make it more difficult to use (Carroll & Lord,
2016). Therefore the indirect costs can be translated to direct costs
for patient charges.
Utilization rates are related to volumes and revenue generation. The
cost of healthcare is the price and the utilization rates (Yoder-wise,
2018). Utilization is the quantity of services performed. The number
of diagnostic test or patient visits would be considered utilization.
Revenue is the generated income from payers or reimbursement.
Higher utilization means higher volume and thus a higher revenue
due to amount of services being payed for.
References
Carroll, N., & Lord, J. C. (2016). The Growing Importance of Cost
Accounting for Hospitals. Journal of health care finance, 43(2), 172–
185.
Yoder-Wise, P. (2018). Leading and managing in nursing. St. Louis:
Elsevier Mosby.
