Whatever Happened to the Invisible Hand of Capitalism?

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The Invisible Hand of Capitalism?

vitaly

By Vitaliy Katsenelson CFA

Just as the well-meaning economist of the Soviet Union didn’t know the correct price of sugar, nor do the good-intentioned economists of our global central banks know where interest rates should be.

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Assessment

Even more important, they can’t predict the consequences of their actions.

Here’s why?

http://contrarianedge.com/2016/03/16/whatever-happened-to-the-invisible-hand-of-capitalism/

Conclusion

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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SURVEY: On Nurse Caregivers and Unions

By MCOL

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Nurses Survey: The 4 Takeaways

 •  87% of patients or their caregivers feel some level of stigma associated with their or the person in their care’s current health condition.
 •  44% reported feeling embarrassed to talk about their current health condition.
 •  43% felt their health condition isn’t something that’s regularly talked about and is rarely represented in the media.
 •  99% patients and their caregivers say that stigma can negatively impact or slow perceived healing of a patient with a current health condition.

Source: Convatec Group Plc via PRNewswire, May 18, 2022

UNIONS: https://www.msn.com/en-us/health/medical/unions-tempt-nurses-to-change-their-principles/ar-AAY2cUg?li=BBnb7Kz

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Activity-Based-Medical-Cost Accounting and Management

A Non-Traditional Accounting System

[Dr. David Marcinko MBA and Staff Writers]CPA

Sooner or later you will want to ascertain and then demonstrate the cost effectiveness of your medical care. By using the process of Activity Based Cost (ABC) management, you will be able to do so.  But, if you’re using a traditional accounting system, you won’t know a thing about your activity costs. Here’s how. 

Traditional Cost Accounting Methods 

In a traditional medical practice cost accounting system, costs are assigned to different procedures and services based on volume.  In others words, office costs are spread over the entire office’s product line and you may not know the true profitability of any single medical activity. So, if the office is doing more “procedures” than general medicine, for example, more indirect office overhead costs will be allocated to the procedural portion of the practice. 

ABC management, on the other hand, determines the actual costs of the resources that each service consumes. Because general medicine requires more human resources than “technical procedures,” ABC management will assign more costs to the general medical portion of the practice. 

Accordingly, most physicians, office managers, and their accountants are surprised that a prior notion of office profitability is different than previously thought. ABC management is just more accurate in measuring medical service profitability than traditional accounting methods. 

Medical Activity Cost Drivers 

Examples of medical activities that are office cost drivers include such items as monitoring vital signs, taking radiographic images, removing dressings or casts, performing laboratory tests or veni-punctures, surgical set-ups or operative procedures; etc.  

However, in the office setting, the most economically important activities are listed as specific CPT codes for each medical specialty.  The most important end result of ABC management is the shift of general overhead costs to low volume services from high volume services. These effects are not symmetrical as there is a bigger dollar effect on the per-unit costs of the low volume service.  

ABC Managerial Accounting Improvements 

ABC management improves office managerial cost accounting systems in three ways: 

  1. It increases the number of cost pools used to accumulate general overhead office costs. Rather than accumulate overhead costs in a single office-wide pool, costs are accumulated by activity, service or procedure.
  2. It changes the base used to assign general overhead costs to services or patients. Rather than assigning costs on the basis of a measure of volume (employee or doctor hours), costs are assigned on the basis of medical services or activities that generated those costs.
  3. It changes the nature of many overhead costs in that those formerly considered indirect, are now traced to specific activities or services. The office service mix may then be adjusted accordingly, for additional profit.   

Methodology 

In order to perform an ABC analysis for your medical office, calculate the cost of delivering a single unit of medical or surgical activity using only the work component of the resource based relative value scale (RBRVS).

Do this by adding up your office’s average variable expenses for the prior 1-3 years.  Now, count the number of work resource based relative value units (RBRVUs) delivered for each CPT code for the same time period, using the latest edition of the Federal Register to obtain the latest list of RVUs by CPT code. Then divide total variable expenses by the total number of work RVUs in order to arrive at the marginal cost of a single unit of service for the time period being evaluated.

For example, if your office had variable expenses of $480,000, and produced 80,000 work RVUs last year, it cost $6, on top of the office’s fixed expenses, to deliver one unit of work product. So, if an HMO plan offers to reimburse you at a rate of $11 per member, per month, and you can expect to reasonably deliver on average of one RVU pm/pm, you’ll earn enough on the contract to cover your marginal costs and some of your fixed and direct expenses. 

CASE MODELs: CVPA 4 and CVPA 3

dhimc-bookAssessment

Remember, this method assumes that you have the excess operating capacity and time slots, available and unused, to see the additional patients of the new plan without adding extra overhead expenses to service the contract.

If not, or if you plan for capitation to become a major portion of your practice, you might want the capitated contract(s) to cover all your office expenses, so be sure to include both the fixed and other direct costs to your variable cost calculations. ABC determines the actual costs of resources rendered for each activity and represents a real measure of practice profitability. Office service mix can then be changed to either maximize revenues or better suit your practice personality.

A Caveat

Suppose however, that a medical service is competitively priced but still shows that the CPT code is unprofitable. For example, the costs of special requests can adversely affect office profits. Yet, special patient requests are one of the biggest reasons that a CPT code or procedure isn’t profitable.

In this case, look closely at activity costs and determine which ones are being performed inefficiently. Improving the efficiency of those kinds of medical services, or referring them out or abandoning them all together, will increase office profitability.

MORE: ABCM

Conclusion

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Understanding Medical Cost Accounting

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A Subset of Managerial Accounting

By Dr. David E. Marcinko MBA CMP®

By ME-P Staff Reporters

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SPONSOR: http://www.CertifiedMedicalPlanner.org

Managerial and medical cost accounting is not governed by generally accepted accounting principles (GAAP) as promoted by the Financial Accounting Standards Board (FASB) for CPAs. Rather, a healthcare organization costing expert may be a Certified Cost Accountant (CCA) or Certified Managerial Accountant (CMA) designated by the Cost Accounting Standards Board (CASB), an independent board within the Office of Management and Budget’s (OMB) Office of Federal Procurement Policy (OFPP).

The Cost Accounting Standards Board

CASB consists of five members, including the OFPP Administrator who serves as chairman and four members with experience in government contract cost accounting (two from the federal government, one from industry, and one from the accounting profession). The Board has the exclusive authority to make, promulgate, and amend cost accounting standards and interpretations designed to achieve uniformity and consistency in the cost accounting practices governing the measurement, assignment, and allocation of costs to contracts with the United States.

Codified at 48 CFR

CASB’s regulations are codified at 48 CFR, Chapter 99.  The standards are mandatory for use by all executive agencies and by contractors and subcontractors in estimating, accumulating, and reporting costs in connection with pricing and administration of, and settlement of disputes concerning, all negotiated prime contract and subcontract procurement with the United States in excess of $500,000. The rules and regulations of the CASB appear in the federal acquisition regulations.

North American Industry Classification System (NAICS) codes are used to categorize data for the federal government.  In acquisition they are particularly critical for size standards.  The NAICS codes are revised every five years by the Census Bureau.  As of October 1, 2007, the federal acquisition community began using the 2007 version of the NAICS codes at www.census.gov/epcd/www/naics.html

Cost Accounting Standards

Healthcare organizations and consultants are obligated to comply with the following cost accounting standards (CAS) promulgated by federal agencies:

  • CAS 501 requires consistency in estimating, accumulating, and reporting costs.
  • CAS 502 requires consistency in allocating costs incurred for the same purpose.
  • CAS 505 requires proper treatment of unallowable costs.
  • CAS 506 requires consistency in the periods used for cost accounting.

The requirements of these standards are different from those of traditional financial accounting, which are concerned with providing static historical information to creditors, shareholders, and those outside the public or private healthcare organization.

AssessmentTwo Doctors

Functionally, most healthcare organizations also contain cost centers, which have no revenue budgets or mission to earn revenues for the organization.  Examples include human resources, administration, housekeeping, nursing, and the like.  These are known as responsibility centers with budgeting constraints but no earnings.  Furthermore, shadow cost centers include certain non-cash or cash expenses, such as amortization, depreciation and utilities, and rent. These non-centralized shadow centers are cost allocated for budgeting purposes and must be treated as costs http://www.CertifiedMedicalPlanner.org

MORE:  CASE MODEL EOQ 1

Conclusion

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PODCAST: Ten Largest Medical Device Companies

By Eric Bricker MD

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