Animated-simulation modeling facilitates clinical-process costing.

Traditionally, the finance department has assumed responsibility for assessing process costs in healthcare organizations. To enhance process-improvement efforts, however, many healthcare providers need to include clinical staff in process cost analysis. Although clinical staff often use electronic spreadsheets to model the cost of specific processes, PC-based animated-simulation tools offer two major advantages over spreadsheets: they allow clinicians to interact more easily with the costing model so that it more closely represents the process being modeled, and they represent cost output as a cost range rather than as a single cost estimate, thereby providing more useful information for decision making.

Resource cost analysis of cervical spine trauma radiography.

PURPOSE: To determine the resource costs of the technical component of cervical spine radiography in patients with trauma and the factors that drive resource costs, to provide a model for resource cost estimation, and to compare resource costs with other methods of cost estimation. MATERIALS AND METHODS: Direct measurement was made of technologist labor and supply costs of a cohort of 409 consecutive patients with trauma who underwent cervical spine radiography. Probability of cervical spine injury was determined by reviewing emergency department medical records. An animated simulation model was used to combine cost and injury probability estimates to determine resource costs. Sensitivity analysis explored factors that determined costs and estimated uncertainty in model estimations. Comparison was made with other cost estimates. RESULTS: The average technical resource cost for cervical spine radiography was $49.60. Both direct labor ($19.60 vs $13.33; P <.005) and film ($8.39 vs $6.76; P <.005) costs were greater in patients with high probability of injury than in those with low probability of injury. Overall costs in patients with high probability of injury exceeded those in patients with low probability of injury by 33%. Resource costs exceeded Medicare resource-based relative value unit reimbursements for all patients with trauma. CONCLUSION: Resource costs of the technical components of cervical spine radiography varied with patient probability of injury and were higher than Medicare reimbursements.

Extending simulation modeling to activity-based costing for clinical procedures.

A simulation model was developed to measure costs in an Emergency Department setting for patients presenting with possible cervical-spine injury who needed radiological imaging. Simulation, a tool widely used to account for process variability but typically focused on utilization and throughput analysis, is being introduced here as a realistic means to perform an activity-based-costing (ABC) analysis, because traditional ABC methods have difficulty coping with process variation in healthcare. Though the study model has a very specific application, it can be generalized to other settings simply by changing the input parameters. In essence, simulation was found to be an accurate and viable means to conduct an ABC analysis; in fact, the output provides more complete information than could be achieved through other conventional analyses, which gives management more leverage with which to negotiate contractual reimbursements.

Issues for academic health centers to consider before implementing a balanced-scorecard effort.

Because of changes in the health care environment, it is likely that strategic planning and management will become much more important to academic health centers (AHCs) than in the past. One approach to strategic planning and management that is gaining the considerable interest of health care organizations is the balanced scorecard. Based on a year's experience in examining this management tool, and on early implementation efforts, the authors critically evaluate the applicability of the balanced-scorecard approach at AHCs in relation to two fundamental questions: Does the decentralized nature of most AHCs mitigate the potential usefulness of the balanced-scorecard approach? Are the balanced scorecard's four perspectives (learning and growth, internal; customer; and financial) appropriate for AHCs, which are neither for-profit nor manufacturing organizations? The authors conclude that (1) the unique characteristics of AHCs may mitigate the full benefit of the balanced-scorecard approach, and (2) in cases where it is used, some key modifications must be made in the balanced-scorecard approach to account for those unique characteristics. For example, in a corporation, the key question from the financial perspective is "To succeed financially, how should we appear to our stockholders?" But in an AHC, this question must be revised to "What financial condition must we achieve to allow us to accomplish our mission?"

Strategic, operational, and marketing concerns of product-line management in health care.

Product-line management is a specialist strategy that focuses on specific products and markets. This article presents a typology of organizational approaches to implementing such a strategy and discusses the advantages and disadvantages of each. Finally, the relationship of the control of marketing to product-line strategy and decentralization is discussed.

Product lines in a complex marketplace: matching organizational strategy to buyer behavior.

Product-line strategy should be developed in relation to markets. This article focuses on designing product-line strategy in relation to four purchaser types: (1) traditional purchasers, (2) motivated purchasers, (3) HMO-type purchasers, and (4) PPO-type purchasers. In many cases, product-line strategy may have to adopt various combinations of the above.

Models of adult day care: findings from a national survey.

We examined a nationally representative sample of 60 adult day care centers to describe the state of this evolving care modality after a decade's growth. Results indicate that day care centers can be categorized into three models of care, each of which serves a distinctive subpopulation. Model appropriateness was tested with analysis of variance of differences in participant characteristics. Services, staffing, costs, and other program features are contrasted among the three models.

Entrepreneurship and state/mental health center relationships.

An effective Community Mental Health Center (CMHC) program in entrepreneurship--the provision of services in the marketplace at a profit to subsidize other programs--requires the support and encouragement of the state-level mental health authority. This paper discusses potential financial, programmatic, political, and managerial risks and rewards to CMHCs and to state authorities from such efforts. As each party faces certain risks as well as rewards from such efforts, it is important that they participate in a process of mutual risk reduction involving: Documenting and legitimizing the entrepreneurship program; Separating funding for seed monies and working capital for ventures, Restructuring the Centers' finances and/or corporate structure to reduce the problems of funds diversion and comingling, Negotiating in advance how the proceeds of the ventures will be used to benefit programs, and Providing technical assistance to enhance the probabilities of success in such ventures. For these steps to work the state authorities must be willing to give up some financial and programmatic control to motivate entrepreneurship on the part of CMHCs.

In pursuit of survival: managing revenues.

The changing nature of funding for mental health services has necessitated an increased command of financial management by providers of those services. When services were largely funded by government units, financial management could focus mainly on stewardship concerns. However, in the current environment of competition and mixed governmental and nongovernmental financing, financial management must encompass not only stewardship and the management of costs, but it must also increasingly focus on the management of revenues. This article presents a paradigm for approaching the management of revenues which includes both operating and nonoperating sources of funds. Building on this paradigm, a number of ratios are presented which are designed to aid decision makers in revenue planning as well as in determining the sources of problems when revenue goals are not met.

Cost per unit of service.

This article discusses various aspects of using cost per unit of service for decision-making purposes. A major emphasis in the article is upon problems in using cost per unit including: definitional problems, operational problems, and data collection problems. Finally, discussion focuses on interpreting "cost per unit" information.

Financial management and DRGs.

Healthcare providers face increasing financial risk as the federal government continues to refine the DRG-based prospective payment system. Healthcare providers that survive must establish systems that provide information in resource need, consumption and cost. The process illustrated in this article will help healthcare providers identify and establish the necessary systems.

Survival strategies for community mental health organizations: a conceptual framework.

Changing conditions call for each Community Mental Health Center (CMHC) to develop a survival strategy based on its own standards and values. The strategy must contain political, funding, programmatic, structural and role change components. A CMHC must orchestrate its strategy as part of an overall survival plan, but may be constrained by the degree of control it has over programs and resources. Major types of risks associated with entrepreneurial (viz., high control over programs and resources) and restricted models (viz., low control over programs and resources) are reviewed.

Managing rate adjustments by health care providers.

Health care managers must be prepared to assess the impact of changes in the environment that differ from the planning scenario used in developing the budget. Even though rate adjustments cannot now be made at frequent intervals for a variety of reasons like administrative actions, board policies and legal prohibitions, the effective administrator will be aware of the impact of infrequent adjustments. What we imply in this paper is that administrators must be able to assess the impact of cost and volume changes on the rate structure more frequently than once a year if timely decisions on rate adjustments are to be made. The model developed here offers a tool to aid decision makers in this task.