Identifying Types of Healthcare Organizations

Facing potential decreases in reimbursements from Medicare and Medicaid, the hospital recognizes that it must seek ways to control cost. As a result, you have suggested to the hospital administrator that it is important that the leadership team have a solid understanding of costs associated with business operations. Like most businesses, healthcare organizations have both fixed and variable costs. Provide examples of associated fixed costs and variable costs at the healthcare organization where you work, or choose a healthcare organization such as a solo/group practice, hospital, community health center, etc.

Identify the type of healthcare organization, and explain why the cost is classified as fixed or variable.
Discuss why it is important for the healthcare organization to understand, classify, and control these costs.
Define the term break-even analysis and its relationship to managing costs.
Should healthcare organizations, especially nonprofits, consider “break-even” costs in establishing rates and fees? Why or why not?
Explain the role of fixed and variable cost in setting rates or charges for services provided by the healthcare organization. Which do you think is the most important, and why?
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Solution Preview

The following study provides information on fixed and variable costs in a large urban public teaching hospital:
http://www.ncbi.nlm.nih.gov/pubmed/10029127

Based on the cited reference, examples of variable costs in this setting include medication, diagnostic and therapeutic supplies, patient care supplies, and healthcare worker supplies. These costs are categorized as variable due to the fact that they change depending on the volume of patients serviced; if a hospital sees more patients in a given time frame, these costs associated with patient care will rise, and vice versa.

Fixed costs in this setting include capital expenditures, building maintenance, utilities, and employee salaries and benefits. These are considered fixed because they generally do not vary over the short term and they stay constant with changes in patient volume.

It is essential to classify and analyze these costs to address current challenges in healthcare financing and keep the hospital’s finances solvent. In the …