Upload
stanbridge
View
338
Download
0
Tags:
Embed Size (px)
Citation preview
Copyright © 2008 Thomson Delmar Learning
Chapter 4Chapter 4
Basic Clinical Health Care Economics
Copyright © 2008 Thomson Delmar Learning
2
Objectives Objectives
Upon completion of this chapter, the reader should be able to: Analyze why health care must be managed as a
business Apply the cost equation to the mission statement of a
health care enterprise to discover why the enterprise may be thriving or struggling
Analyze the impact of at least three contemporary economic or social pressures driving health care enterprises to be managed in accordance with business principles
Copyright © 2008 Thomson Delmar Learning
3
ObjectivesObjectives
Apply the Break-Even formula to compute a break-even point for a piece of equipment your health care organization is planning to purchase
Discover how a health care enterprise is balancing quality and profit by assigning its satisfaction rating and margin to an appropriate square on the Nosek-Androwich Profit: Quality (NAPQ) matrix
Copyright © 2008 Thomson Delmar Learning
4
Principles of EconomicsPrinciples of Economics
Scarcity Resources exist in finite quantities, and consumption
demand is typically greater than resource supply
Choice Decisions are made about which resources to produce
and consume among many options
Preference Individual and societal values and preferences
influence the decisions that are made
Copyright © 2008 Thomson Delmar Learning
5
Health Care DifferenceHealth Care Difference
In a typical market, the buyer is also the payer
In health care, the payer is not the provider or the buyer
The actual payer is the third-party reimburser (the insurance company or government)
The end result is a skewed financial picture
Copyright © 2008 Thomson Delmar Learning
6
Traditional Perspective on Traditional Perspective on Cost of Health Care Cost of Health Care
Health care as altruism Altruism: the unselfish concern for the welfare
of others Ethics: the doctrine that the general welfare of
society is the proper goal of an individual’s actions
Early nursing generally focused on altruistic service, which evolved from early charitable institutions
Copyright © 2008 Thomson Delmar Learning
7
Traditional Perspective on Traditional Perspective on Cost of Health CareCost of Health Care
Need for health care determined by provider Paternalistic model of governance and control Health professionals controlled medical knowledge and
skill Knowledge and skill required extensive and expensive
education not shared with “outsiders” Health care professionals determined what health care
was needed and what to charge for it
Copyright © 2008 Thomson Delmar Learning
8
Traditional Perspective on Traditional Perspective on Cost of Health Care Cost of Health Care
Right to health care at any cost Prior to 1960s, Americans considered health
care a “right” American government established Titles XVIII
(Medicare) and XIX (Medicaid) of the Social Security Act, to control spiraling health care costs
Private insurers established their own requirements, beginning the overall budgeting of health care
Copyright © 2008 Thomson Delmar Learning
9
Traditional Perspective on Traditional Perspective on Cost of Health Care Cost of Health Care
Cost plus Includes actual cost incurred by provider plus
profit incentive Incentive was “the more you spend the more
you get” rather than “how can this be accomplished more economically?”
Copyright © 2008 Thomson Delmar Learning
10
Contemporary Perspective on Contemporary Perspective on Cost of Health Care Cost of Health Care
Health care as a business HCFA and TEFRA, which established
government payments at flat rates (prospective payment)
Emphasis among providers on providing care for less than prospective payment, thereby making profit
Cost became the focus of managers, administrators, and employees at all levels of health care
Copyright © 2008 Thomson Delmar Learning
11
Contemporary Perspective on Contemporary Perspective on Cost of Health Care Cost of Health Care
Need for care determined by the consumer Emphasis on cost has led to concerns that
safety and quality have suffered Total quality improvement (TQI) and
continuous quality improvement (CQI) were initiated to assure society that cost management was not compromising safety or quality
Emphasis on involvement of patients, health care consumers, and allied health care providers
Copyright © 2008 Thomson Delmar Learning
12
Contemporary Perspective on Contemporary Perspective on Cost of Health Care Cost of Health Care
Right to health care at reasonable cost Insurers determine reasonable cost Lack of consensus on what constitutes
reasonable cost is at the heart of contemporary controversy
Copyright © 2008 Thomson Delmar Learning
13
Contemporary Perspective on Contemporary Perspective on Cost of Health Care Cost of Health Care
Managed care Integrates financial and clinical care delivery
functions into a single organized system by contracting to be responsible for the clinical outcomes of an enrolled population for a fixed fee
Emphasizes delivery of a coordinated continuum of services across the care spectrum from wellness to death, using financial incentives to achieve cost efficiency
Copyright © 2008 Thomson Delmar Learning
14
Contemporary Perspective on Contemporary Perspective on Cost of Health Care Cost of Health Care
Managed care The only health services program generated from a
market response, rather than from a formal federal government legislative initiative
Is not about providing healthcare; it is about being a for-profit brokerage business
Care is rationed through requirements such as preapproval, physician choice, and copayment
Coordinated care is replacing the term “managed care”
Copyright © 2008 Thomson Delmar Learning
15
Contemporary Perspective on Contemporary Perspective on Cost of Health CareCost of Health Care
Socialized health care In theory, socialized medicine provides
complete medical and hospital care to all the citizens in a community, district, or nation (universal access)
Funding usually comes through taxation of citizens
Copyright © 2008 Thomson Delmar Learning
16
Future Perspective on Future Perspective on Cost of Health CareCost of Health Care
Future costs may be affected by expensive technologies, new diseases, and an increasingly aged population
Changes in demographics and cost may affect the way health care is provided
Copyright © 2008 Thomson Delmar Learning
17
The Cost Equation: The Cost Equation: Money = Mission = MoneyMoney = Mission = Money
There must be cohesion and consistency across the mission, vision, and strategic plan for the business
The health care facility must determine what is the cost in achieving its mission
The health care facility must decide if providing health care services not directly related to the mission is a viable option
Copyright © 2008 Thomson Delmar Learning
18
Business ProfitBusiness Profit
Revenue (income) minus cost (expense) equals profit
Every business must generate more income than it spends in order to remain in business
For-profit business The profit is distributed to stockholders and to maintain
and grow the organization Not-for-profit business
All monies are fed back into the business All profit is referred to as margin
Copyright © 2008 Thomson Delmar Learning
19
Fundamental CostsFundamental Costs
Direct cost Directly related to patient care (wages and
supplies) Indirect cost
Not explicitly related to care, but are necessary to support care (utilities, maintenance)
Fixed cost One that exists irrespective of the number of
patients for whom care is provided
Copyright © 2008 Thomson Delmar Learning
20
Fundamental CostsFundamental Costs
Variable cost Varies with the volume of patients Can increase or decrease with volume of
patients or costs of supplies
Copyright © 2008 Thomson Delmar Learning
21
Cost Analysis Cost Analysis
Budget A plan for how much will need to be spent in the
ensuing time period (generally one year) It is based on:
What is known about how much was spent in the past How that will inevitably change in the coming year
A cost prediction is a tool for developing a budget High-low cost analysis Regression analysis Break-even analysis
Copyright © 2008 Thomson Delmar Learning
22
High-Low Cost Analysis High-Low Cost Analysis
Not extremely accurate, but provides “good enough” estimate
Examines both fixed and variable cost information from the most recent five years for each category of expense
Both fixed and variable dollars must be adjusted upward to account for inflation
Copyright © 2008 Thomson Delmar Learning
23
Regression Analysis Regression Analysis
More precise than high-low analysis Examines all available past cost information
over a specific time period Only one dependent variable: cost Only one independent variable: volume,
which causes change in cost All cost information plotted on a vertical
axis
Copyright © 2008 Thomson Delmar Learning
24
Regression AnalysisRegression Analysis
All volume information plotted on a horizontal axis
Scatter diagram results Straight line through scatter diagram best
approximating all the points is used to predict cost at a specific volume of use
Analysis is carried out for each item for which cost needs to be predicted
Copyright © 2008 Thomson Delmar Learning
25
Break-Even AnalysisBreak-Even Analysis
Projecting whether and when profitability will be achieved is necessary for both proposed and well-established programs and services
Break-even analysis assists the provider in predicting the volume of services that must be provided (and for which payment must be received) in order for the cost of providing the services to be equally matched by the payment received, yielding neither a profit nor a loss
Copyright © 2008 Thomson Delmar Learning
26
Diagnostic, Therapeutic, and Diagnostic, Therapeutic, and Information Technology CostInformation Technology Cost
The most expensive items on the total budget are diagnostic, therapeutic, and information technologies
Managed care programs have begun requiring justification for and preapproval of use of complex, expensive technology
Concerns have arisen about rationing technology to those who can afford to pay
Copyright © 2008 Thomson Delmar Learning
27
Nursing CostNursing Cost
Fiscally, nursing is viewed as a cost center that does not independently generate revenue
Ongoing efforts to measure and establish the cost of the various components of nursing care are disappointing
Nursing cost is associated with budgeted and actual nursing care hours per patient day A measure of time rather than a measure of type or
level of care
Copyright © 2008 Thomson Delmar Learning
28
Patient Classification System Patient Classification System (PCS) (PCS)
The tool most broadly used to identify nursing cost A system for distinguishing patients based on their
acuity, functional ability, or resource needs
Patients with similar requirements for care are assigned to five progressively weighted categories of acuity The higher the acuity of the patients, the more nursing
resources the PCS assigns
Copyright © 2008 Thomson Delmar Learning
29
Relative Value Unit (RVU) Relative Value Unit (RVU)
An index number assigned to various health care services based on the amount of resources used
This approach provides a reasonably accurate per patient costing approach It does not account for the differences in costs
based on the type of health care worker
Copyright © 2008 Thomson Delmar Learning
30
Quality MeasurementQuality Measurement
An evidence-based concept of quality Grounded on scientific evidence that a diagnostic or
therapeutic approach to care improves patient outcomes
Four core components A mechanism that establishes consensus about what
constitutes best practices Strong feasible processes to accomplish such practices A disease prevention and health promotion component A system to review actual performance and outcomes
Copyright © 2008 Thomson Delmar Learning
31
Regulatory OversightRegulatory Oversight
The quality industry measures and tracks organizational performance The primary accrediting body is The Joint
Commission Accreditation signifies that the organization
meets the standard of practice and influences market perception
Copyright © 2008 Thomson Delmar Learning
32
Customer SatisfactionCustomer Satisfaction
No matter how superior providers feel their product is, if customers perceive it not to be needed or wanted, the product will fail
Commercial surveys measure how satisfied customers are with their care, environment, and interactions with the staff
Copyright © 2008 Thomson Delmar Learning
33
Health Care Site EconomicsHealth Care Site Economics
Economics focuses on how choices are made to overcome a scarcity of resources
Requires: Redesigning Restructuring Reengineering
Copyright © 2008 Thomson Delmar Learning
34
Health Care Provider EconomicsHealth Care Provider Economics
Economic risk is borne by individuals, as well as by organizations
Individual providers receiving direct payment from insurers bear risk when they must lower their usual fees to a flat rate in order to be included for payment by the HMO
Patients bear the risk of being unable to access services they regard as either optimal or as minimal, jeopardizing their health