Costing Out Nursing Services

Steven A. Finkler
Hospital Cost Management and
Accounting, Vol.1,No.12,March 1990

1
 Introduction
WHY ARE CURRENT COSEING APPROACHES
WEAK？
WHY CHANGE THE COSTING APPROACH？
SHOULD COSTING BE LINKED TO DRGs？
AN APPROACH TO COSTING NURSING
SERVICES

2
Introduction
Nursing shortage has persist ,focus on the
issue of the cost to provide nursing
services to hospital patients.
DRGs having the impact of shortening
length of stay ,each day patient are in
hospitals they tend to be sicker and
require more care.
Use of agency nurses has caused nursing
departments exceed budgets by 20,50, or
even 100 percent. 3
 WHY ARE CURRENT COSEING
APPROACHES WEAK？
Nursing costs are currently averaged into
the perdiem in most hospitals.
Different patient have different nursing
requirements.
determine different amounts of resource
consumption.
Most hospitals have in place a working
patient classification system.
Patient resource consumption will
generally match that which is expected
based on the classification system. 4
 WHY CHANGE THE COSTING
APPROACH？
New York New Jersey,patient is paid on a
DRGs basis,in most states still do charge
on a non-prospective payment basis.
Variable billing a way to better justify
hospital bills,increase overall revenues to
the hospital.
Main benefit to improved costing for
nursing services is that we can generate
information for better management
decisions.
Flexible budget systems can provide better
analysis and control of costs,and
productivity can be monitored better if we
know more about our costs.more accurate 5
 SHOULD COSTING BE LINKED TO
DRGs？
determination of the cstegories for cost.
do our costing based on the type of patient.
DRGs are a system for grouping patient.
nursing patient classification system, can
sample a group a group of patients from each
DRGs and find out,how many days of the
patients stays.
DRG-based cost information is valuable.

6
 AN APPROACH TO COSTING
NURSING SERVICES-Ⅰ

Nursing care costs staff costs of direct

patient care, patient care related costs
overhead.
for improved costing of nursing services
that nursing patient classification systems
are currently in place in almost every
hospital.

7
 AN APPROACH TO COSTING
NURSING SERVICES-Ⅱ

Acuity Level Hours of care

1 2.8
2 3.5
3 4.5
4 5.9
5 8.4

RVL Leve2 = 3.5 hours = 1.25

Leve1 2.8 hours
8
 AN APPROACH TO COSTING
NURSING SERVICES- Ⅲ

Acuity Level Hours of care RVU

1 2.8 1.00
2 3.5 1.25
3 4.5 1.61
4 5.9 2.14
5 8.4 3.04

9
 AN APPROACH TO COSTING
NURSING SERVICES- Ⅳ

Total nursing costs: $129,548

#of Patient Days at Level 1 100days

 each acuity level: 2 220days
 3 350days
 4 110days
 5 40days
10
 AN APPROACH TO COSTING
NURSING SERVICES- Ⅴ
Acuity Patient × RVUs = Total
Level Days RVUs
1 100 × 1.00 = 100.00
2 220 × 1.25 = 275.00
3 350 × 1.61 = 563.50
4 110 × 2.14 = 235.40
5 40 × 3.04 = 121.60
 820 1,295.50

Total Nursing Costs = Cost per RVU

 Total RVUs
11
AN APPROACH TO COSTING NURSING
SERVICES- Ⅵ

Acuity Patient × RVUs × Cost/ = Total

Level Days RVU Cost
1 2 × 1.00 × $99.99 = $199.98
2 4 × 1.25 × $99.99 = 499.95
3 0 × 1.61 × $99.99 = 0.00
4 1 × 2.14 × $99.99 = 213.98
5 0 × 3.04 × $99.99 = 0.00
 7 $913.91
12
An approach to coasting nursing
services
The best costing of nursing services requires
direct continuous observation of each patient
and assignment of actual resources consumed.
Patient classification systems,have placed us
in a position to be able to substantially
improve the assignment of nursing costs to
patients in an economical way.
The RVU system is quite simple and
inexpensive ,assuming that your hospital has a
patient classification systems. 13
 Cost Accounting Emergency
Services

John Moorhead
Hospital Cost Management and
Accounting, Vol.1,No.2,May 1989

14
 Introduction
COST ELEMENTS
PATIENT CLASSIFICATION
THE NURSING ACUITY SYSTEM
DIRECT NURSING COSTS
INDIRECT NURSING COSTS
OTHER LABOR
MATERIALS
DEPARTMENT AND INSTITUTIONAL OVERHEAD
PRICING DECISIONS
PRODUCTIVITY
15
 Introduction
Emergency departments have traditionally
been viewed as loss leaders for hospitals,
that provides opportunities for profits in
other departments.
The resulting management decision-
making process for planning,budgeting,
and control requires more specific cost
information.
Cost accounting requires a definition of
the product. The patient as the product in 16
 COST ELEMENTS
1.direct labor: salaries and fringe benefits
of direct care providers
2.indirect labor: salaries and fringe of
administrative and support personnel,such
as managers,clerical, and orderlies/ aides
3. Supplies:categorized as “major” or
“minor”
4.department over head: including capital,
teaching and support services.
5.institutional over head: administrative
and support costs,such as plant operation,17
 PATIENT CLASSIFICATION
Emergency department patient-specific
costs has focused on costing by
diagnosis.average labor time per diagnosis
to assign diagnoses to one of six or seven
service levels.
a summation of relation relative values for
a particular patient,an assignment can be
made to a level of service.
18
 THE NURSING ACUITY SYSTEM
to identify “by task the time required to
provide care for the patients.”measure the
actual time spent with each patient.
Baptist has described a procedural costing
method that can be used to “allocate the
actual direct and indirect costs incurred by
each revenue-producing cost center to the
services it produced during a given bsse
period.”

19
Sample of Activities and Assigned
Relative Values
 Activity Time Relative
Allotted Value
 Triage 2.8min. 3
 Initial Assessment 5.5min. 6
 Vital signs 3.1min. 3
 I.V. start 8.0min. 8
 Patient teaching/ 6.4min. 6
discharge instructions
 EKG 7.4min. 7
 Administration of medications 3.2min. 3
(includes preparation) 5.6min. 6
6.2min. 6
 Venipuncture 4.8min. 5
 Insertion of NG tube 8.7min. 9
 Gastric lavage for O.D. 36.8min. 37 20
 Structure for Determining Total
Annual RVUs
Service Level RVUs Annual Annual
Volume RVUs
1.Minimal 0 3000 0
2.Brief 1-3 5600 ？
3.Limited 3-15 6500 ？
4.Intermediate 16-30 7800 ？
5.Extensive 31-45 4500 ？
6.Comprehensive 46-60 930 ？
7.Critical Care over60 170 ？
Total Relative Value Units ？
21
 INDIRECT NURSING COSTS
Budgeted direct nursing salaries $796,374
multiply by 32.8% $261,210
divide by RVUs $x.xx/RVU
Percentage of Time Spent in Various Activity
Categories
Activity Categories Percentage of Time
Direct care 32.8
Indirect care 26.9
Unit related 20.3
Personal 20.0 22
 OTHER LABOR

Mangers’ costs are fixed and assigning them

on a relative value basis would not contribute
to the decision-making processes within the
department. Management is perceived as a
service from which all patients benefit.

23
 MATERIALS

Most department charging structures are

designed to capture material resource
consumption through individual supply
charges at least for “significant” items.
“Minor supplies are a relatively small cost.As
Dieter explains,”In studies I have completed,a
direct correlation has consistently been
identified between a procedure’s acuity level
and its utilization of nonchargeable supplies.”
24
DEPARTMENT AND INSTITUTIONAL
OVERHEAD

Total costs assigned to the overhead category

are divided by budgeted volume for the
department to provide the basic charge per
patient.

25
 PRICING DECISIONS
Begins with a basic fee same for each patient.
A charge based on the assigned servicelevel.
There is a very close tie between the cost
accounting and the productivity management
systems.”Ideally,”according to Dieter,”these
two systems share the same data base of
standards for the labor components of cost per
procedure.”
“the challenge for hospital is to keep costs low
while continuing to provide high quality
patient care.” 26