Question

Just like any industry, healthcare has its own language. Healthcare managers must be able to classify various costs associated with day-to-day operations. For this discussion, you will incorporate the course textbook readings to discuss the assigned costs listed below.

In your initial response, explain the cost assigned to you and give an example of that type of cost as it relates to a healthcare facility (i.e., physician practice, hospital, long-term care facility, urgent care, specialty group practice, or surgery center). Include in your response why it is important for the healthcare manager to know the differences between all the costs listed when determining financial status.

Costs
Direct Costs
Indirect Costs
Product Costs
Period Costs
Fixed Costs
Variable Costs
Semi-variable Costs

Answer 1

Direct costs – In healthcare direct costs are those costs that are easily identified and assigned to a healthcare service being provided. Examples of direct costs in a healthcare setting are cost of supplies that are used to deliver a service, salary of physician and procedure specific staff etc.

Indirect costs - In healthcare indirect costs are those costs that are not easily identified and assigned to a healthcare service being provided. In other words they are overheads. Examples of indirect costs in a healthcare setting are costs of general support staff, insurance costs, cost of facility and administration etc.

Product costs – In healthcare product costs are those costs that are incurred only if a specific service is provided. For instance suppose that a health care organization provides heart surgeries. Then its product costs will be supplies that are used in the surgery, cost of the heart or the cardiac surgeon, cost of the associate doctors assisting the surgeon etc.

Period costs - In healthcare period costs are those costs that are incurred even if services are not provided and the costs will be incurred with the passage of time. Again take the example of the health care organization that provides heart surgeries. For this organization the period costs will be general and administrative expenses, utility expenses and expenses relating to general supplies.

Fixed costs - In healthcare fixed costs are referred to those costs that do not change in a short term irrespective of the number of services provided. Suppose that the healthcare organization is running on a rented facility. In such a case the annual rents will be regarded as a fixed cost because the rent expense will remain fixed even if 1 heart surgery is done of 100 surgeries are done.

Variable costs - In healthcare variable costs are referred to those costs that change with the number of services provided. In the example of the health care organization that provides heart surgeries variable costs will be the cost of supplies that are used in surgeries. The more the number of surgeries the higher will be the total variable costs.

Semi-variable costs - In healthcare semi-variable costs are referred to those costs that are neither fixed nor variable in nature. These remain fixed at certain level of operations while may vary proportionately at other levels of operations. Examples for a heath care organization are maintenance costs of the organization or the hospital or the nursing care facility. Even salary expenses for a health care organization are semi-variable in nature. For instance salary bill of doctors will be fixed but salaries of doctors and assistant staff hired on short term basis (like a vaccinator during a vaccination campaign) will be variable.