Essay on Cost Management in Hospitals

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Hospitals must analyze their cost behaviors to determine whether they are efficiently working with their patients. This sample essay, written by one of our professional writers, illustrates how hospitals function from a business point of view and how they can better allocate funds to succeed and improve their infrastructure. While there is a great deal of information regarding the ethics of medicine in the United States, such information is not a focus of this piece.

Cost management in hospitals

Hospitals must balance being a consumer-driven entity geared towards making a profit and being a social service entity which serves to heal the sick. Hospitals must also balance costs in relation to their volume by ensuring that patients are being discharged quickly so as not to increase their expenditure per patient. However, this could put client care into jeopardy if patients are being discharged too early. It's not only difficult for patients to manage their healthcare finances, it's difficult for hospitals as well. Managing all these concerns can be a difficult and complex process for hospitals to complete successfully. However, without effective cost management, a hospital could not be a viable working enterprise.

In their analysis of what drives costs in hospitals, MacArthur separated into four different cost classifications. These categories include logistical, balancing, quality and change transactions. Logistical transactions deal with the movement of hospital supplies, balancing transactions deal with coordinating health care services, quality transactions deal with ensuring that patients are receiving quality services and change transactions deal with patient care. Hospitals must ensure that they balance each of these transactions regarding the volume of patients they see. While at the same time not sacrificing patient care. The variety of transactions involved in healthcare management costs highlight the importance of cost allocation. 

Managing the costs of healthcare

In managing cost allocation health care providers must decide between managed consumerism or managed competition according to Jamie Robinson.

“The performance of the delivery system is enhanced by consumer and provider incentives that align the pursuit of individual self-interest with the social interest in promoting a high-quality, cost-effective system of care” (1478).

Health care organizations must determine which transactions are the most important and will be allocated the most money. Determining which department receives more money will determine if they are pursuing consumer interests or competing with others in the market. These decisions also determine whether insurance companies will provide funding for necessary procedures or operations. If an organization is more focused on consumer care than they may be more willing to work with state-run insurance agencies.

Health care organizations aren’t run in vacuums which don't interact with any other organizations. They must interact with health insurance companies to ensure that they receive funding. Hospitals may make certain decisions regarding which insurance providers they will work with. These decisions may also influence what services a hospital will offer. As MacArthur discussed in her analysis a healthcare organization that offers more services incurs more costs along the way and must determine how these costs will be allocated. This is another predicament for a healthcare organization as increased services in a hospital ensure increased care for patients; however, it also means the hospitals will incur more costs.

Health care organizations should be a social service organization geared to solely providing consumers with optimal health care. However with needing to manage costs, ensuring that health insurance agencies will cover procedures, ensuring that costs are calculated effectively regarding volume and in some health care organization cases turning a profit, caring for just the consumer can be a difficult endeavor. To add to this difficulty is competition from other health care organizations who are also looking to turn a profit or corner the market in providing healthcare services. By ensuring that the costs are allocated efficiently in a healthcare organization, they can successfully provide consumer services while effectively competing with other organizations. 

References

MacArthur, J. B. and H. A. Stranahan. 1998. Cost driver analysis in hospitals: A simultaneous equations approach. Journal of Management Accounting Research (10): 279-312.

Robinson, Jamie. 1998. Managed Consumerism in Health Care. Health Affairs (24): 1478-1489.