Question

Why is it important for finance managers to be able to classify costs in a variety of different ways? How has the ACA changed how providers look at costs?

Answer 1

Why is it important for finance managers to be able to classify costs in a variety of different ways?

ANS

Cost classification is a process of cost accounting. It is of utmost importance for the managers to classify the cost because it will help them to make informed decisions. These decisions will departments in the company or team or projects work on budget. These budget constraint will help in tightening the cash outflow and manage funds efficiently.  This will help to reduce the cost and maximize future profits. Classification of cost puts similar cost structure under one group.

Cost classification as part of cost accounting classifies cost into fixed and indirect costs related to manufacturing of products or providing services. Cost can be classifies into number of ways such as following

• Direct Cost
• Fixed Cost, Variable, Semi-Variable Cost
• Indirect Cost
• Production costs,
• Cost based on time
• Avoidable and Unavoidable Cost
• Controllable and Uncontrollable Cost
• Notional costs
• Normal and abnormal costs
• Sunken Cost
• Opportunity Cost

The above list is not the exhaustive list. Cost classification helps management to set up cost control programs. Cost control Program optimizes the expenses and efficiently manage capital and provide with savings. SO Cost classification helps to reduce cost by setting up cost control program to optimize expenses.

How has the ACA changed how providers look at costs?

Ans

ACA has changed the way providers look at cost because changes in ACA will have both Short term and Long term impact. Short term impact will lead to an increase in the patient taking insurance and long term effect would require changing in the norms and implementing care delivery model.

1. The most immediate expected impact of the ACA for providers will be a sudden rise in patient populations.

2. The cost of premiums, deductibles, and out-of-pocket costs have risen.

3. ACA has required the providers to cover preventive services such as cancer screenings and immunizations.

4. ACA has also led to some insurers to invest on scale.

5. It changed the way physicians and hospitals are paid, shifting toward more value-based payments.

6. ACA reduces wasteful and expensive readmissions and encouraged efficient redesign of care

ACA's are affecting doctors income in ways such as

1.More services are covered.

2. More patients with coverage

3. Low income people will get insured and hence be provided with subsidized treatment from specialists. They will buy coverage resulting in subsidized treatment.

4.Physicians will have to deal with higher Out-of-Pocket Payments

5. decrease in income will make the providers to turn to jobs in other medical institutions.

6. Rising Penalties Will Reduce Reimbursements.

7. Changing payment and care models.