Read both classmates post below and identify whether or not you can or cannot control. For the costs that you can control, discuss the measures you can take to keep those costs within budget. Explain the long-term financial impact to the organization. 200 words minimum.
Classmate 1. Indirect Costs Wicht
Indirect costs in healthcare are those expenses that are not directly associated with direct patient care but, are necessary to support those departments that provide direct care/services. Also known as overhead cost, these are not unique to any specific department but are shared by all departments in a healthcare organization.
Examples of indirect cost centers within a hospital setting include Human Resources, Legal, Medical Records, Information Technology, Administration, and Housekeeping. When considering housekeeping, this is obviously a necessity to ensure all rooms and equipment are clean, garbage is removed, linens are washed, and rooms are ready for new patients to occupy them. Since housekeeping provides services to the entirety of the facility; the associated costs of personnel wages, labor costs, water and electricity, supplies, etc. must be accounted for and shared by every department since the service they provide is not part of each patient’s bill or directly a part of patient care or a procedure.
“The critical distinction for the manager is that indirect costs usually cannot be traced, but instead must be allocated or apportioned in some manner” (Baker, Baker, & Dworkin, 2017, para.2). All costs, including indirect, variable, product, fixed, and semi-variable must eventually be allocate to the departments that generate revenue (direct costs) in order to determine the full costs of producing patient services. Once the full costs are known, it is then possible to determine if payment of services is adequate to cover the costs of care or if prices of services (break even point), or other cost changes or cost savings measures are necessary to balance out or preferably, create a profit.
Classmate 2. Product Costs Carter
Product costs are costs that are directly associated to a product for a particular purpose which could include the direct costs to make the product, the cost of labor, or the overhead costs which normally are associated with manufacturing (Caplan, 2006). Since healthcare is a service the product costs would include the cost to provide the service such as the cost paid to the Physician to deliver the service. These product cost can be viewed as traceable to the cost object of the department, unit or division which are matched with revenue and recognized as a cost of providing a service to the patient (Baker, Baker, & Dworkin, 2017). Services that are rendered in surgical centers can include the cost of supplies needed for each procedure which are purchased and put in inventory until used and then recognized as a cost of providing services to the patient after being matched with revenue.
It is important for healthcare managers to know the differences between all the costs when determining financial status because they are responsible for knowing how much profits are actually being made, keeping costs at a minimum and being able to show the total of cost in each distinct area through financial statements.
Knowing what costs belong to which category is important in order to effectively create financial statements and reports and keep up with their costs responsibilities. When costs are high the knowledge of being able to categorize the costs is a must in order to know which area need further attention.
due 12/16 @9am eastern w/ plag report