Accounting in a Health Care Environment

Introduction

Knowing ones capacity for achieving success in a truly original format while dealing with accounting and financial areas is truly a gift. Being able to arrive at a logical conclusion regarding cost per volume (patient) cannot be measured without knowing the volume as it relates to the cost. Bring ing preparation to a situation that will yield the break even analysis that has the ability to create a thriving business venture is a gold mind to an office that finds its self at a cross roads in productivity.

Relevance of DRG analysis

Diagnostic Related Group (DRG) is efficient in viewing patient diagnoses for operational and cost management decisions. A patient is assigned a DRG based on primary diagnosis and the number and severity of their complications and co morbidities. DRG analysis breaks down both conditions and procedures so that they are grouped separately. For example, the elderly would cost more than the young (elderly require longer recovery time); major trauma would be more costly than minor trauma. The breakdown of cost by DRG allows managers to see changes in cost drivers while removing variables required when dealing with different patients and their varying levels of care.

In order to show a calculation of the breakeven points, in numbers of treatments, for each type of DRG, the weighted average contribution margin approach is illustrated as follows:

M J P

Sale Price 1700 2600 900

Variable cost 1000 1200 600

Contribution Margin 700 1400 300

Time required(in hr) 2 5 1

Contribution Margin per Hr. 350 280 300

Fixed Cost 500000 280000 110000

Break Even Point 714.28 200 366.67

Contribution Margin 41.18% 53.85% 33.33%

Weighted average contribution margin = Contribution M*Wm+ Contribution J * W j + Contribution p * Wp =41.85 * .5 + 53.85 * .3 + 33.33 * .2 = 43.41%

When formulating...