Cost effectiveness and cost efficiency

Cost effectiveness and cost
efficiency.

Outlines:
The cost definition.
The types of nursing costs.
The theory of cost.
The definition of cost effectiveness.
The definition of cost efficiency.
The principles of efficiency.
The measuring of cost effectiveness and efficiency.

Outlines:
 The activity based costing steps.
 The levels of cost hierarchy.
 The stages of cost effectiveness and containment.
 The approaches to control health care cost.
 The definition of managed care.
 The strategies used by managed care organization to control costs.
 The definition of costing out nursing services.
 The benefits of costing out nursing services.

Outlines:
The methods for costing out nursing services.
The strategies used to mange nursing services mores
productively.
The implication of cost effectiveness and efficiency in
nursing service administration.
The summary.

:Introduction
The cost of health care delivery is growing at an outstanding rate as a
result of availability of more health care facilities, increase in number of
health care providers, as well as application of expensive new
technology in the care domain. These changes in the health care
delivery impose a financial pressure on hospital services specially
nursing services. Consequently health care facilities are now
compelled (obligated) to reexamine their methods of care delivery and
develop creative approaches to contain (control or restrain) cost while
providing the expected high level of quality.

The cost definition:
The cost is the money expanded for all resources used,
including personnel, supplies and equipment.

The types of nursing costs:
Direct nursing cost: Is the cost used by the hospital to provide
service to patient. The cost of nurse labor and the supplies
that they and physicians use are examples of direct costs.
In direct nursing cost: Is the cost used by the hospital to
provide service to patient. These costs include: building and
capital equipment use, occupancy services, departmental,
faculty and central administration, library operations and
technical services.

The theory of cost:
 Demand –pull theory of inflation: this theory suggests that increases in
the cost of health care occur from excess demand and spending on
health care with an insufficient supply of goods and services to
accommodate the demand.
 Cost –push theory of inflation: this theory suggests that higher prices
result from the rising costs within the health care business.
.

The definition of cost effectiveness:
In the business: the effectiveness is the success or financial
validity of an organization.
In nursing: the effectiveness is primarily relates to quality
outcomes being achieved. Is concerned with doing the
right things in provide the patients care with low cost and
high quality.

The definition of cost efficiency:
The cost efficiency: Is a state in which the inputs and
methods used to produce a product or service result in the
maximum feasible outcome. It is the accomplishment of
objectives with the lowest expenditure of resources.

The definition of cost containment
Process of maintaining organizational
costs within a specified budget;
restraining expenditures to meet
organizational or project financial
targets.

The principles of efficiency
The principles
related to
interpersonal
relation
The principles
related to
system in
management

The principles of efficiency:
The principles related to interpersonal relation:
Goals and ideas should be clear and well defined.
Change should be evaluated and management should not
ignore.
Competent counsel is essential.
Management can strengthen discipline or adherence the
rules.
Justice or equal enforcement on all.

The principles related to system in management:
Records, including adequate, reliable and immediate
information about the expenses of equipment and personal
should be available as a basis for decision.
Dispatching or production scheduling is recommended.
Standardized schedules.
Standardized conditions.

The principles related to system in management:
Standardized operations can be facilitated through the use
of.
Written instructions.
Efficiency rewards should be given for successful completion
of tasks.

The measuring of cost effectiveness and efficiency:
The activity-based costing : can be used in utilization
management and case management to truly combine the
financial aspects of patient care namely both the efficiency
and effectiveness of service delivery. Is an exciting
management tool that links financial information with
operation, by determining the cost of specific activities and
processes. Examples are the number of machine setups or
product design changes required of a particular product line.
e.g.(hemodialysis machine and its equipment )

The activity based costing steps:
Cost assignment process: begins with the identification of
activities that consume resources.
Cost assignment activity: includes actions, jobs and tasks
that are performed during the course of the day such as the
provision of patient care, production of financial statements or
scheduling patient care visits.

The levels of cost hierarchy
Unit-level
costs
Batch-level
costs
Business-
level cost
Enterprise-
related cost

The levels of cost hierarchy:
Unit-level costs: are directly assignable to predetermined
cost objectives based on characteristics associated with the
patient. Examples include per unit visit for labor, patient
identifiable supplies and equipment.
Batch-level costs: include all the supporting services that are
performed from admission through discharge. Example are
billing, records management, scheduling and nurse
management.

The levels of cost hierarchy:
Business-level cost: it is the category that has no direct
relationship to the patient care. Example include accounting
activities, recruitment, interest expense and marketing.
Enterprise-related cost: it is usually has no relation to cost
objectives such as utilities and taxes.

The stages of cost effectiveness and containment
Cost awareness
Cost monitoring
Cost management

Cost incentives:
Cost avoidance
Cost reduction

Cost control

The stages of cost effectiveness and
containment:
Cost awareness: It focuses the employee attention on costs.
It increase the organizational awareness of what cost are, the
process available for containing them, how they can be
managed and by whom.
Cost monitoring: It focuses on how much will be spent where,
when and why. It identifies reports and monitor costs.

The stages of cost effectiveness and containment:
Cost management: It includes conceptual and physical acts
to curb (limit) unnecessary spending through planned and
practical
use of personal, material and physical resources for maximum
productivity. It focuses on what can be done by whom to
contain costs.
Cost incentives: It motivate cost containment and reward
desired behavior.

containment:
Cost avoidance ‫:تفادى‬ It means not buying supplies,
technology or services, the costs of them should be
analyzed carefully and the least expensive and less
effective items avoided.
Cost reduction: It means spending less for goods and
services, the amount of reduction depend on the size of the
agency, previous, efficiency, skills of mangers and cooperation
of employees.

containment:
Cost control: It is effective use of available resources
through careful forecasting, planning, budget preparation,
reporting and monitoring.

The approaches to control health care
cost:
Regulation(government intervention)regulatory initiatives as:
Certificates of needs.
Economic stabilization programs.
Professional standards review organization.
Prospective rate setting.
Prospective payment system.

The approaches to control health care
cost:
Competition:
Competitive contracting.
Managed care organization.
Health maintenance organization.
Preferred provider organization.
Cost sharing.
Medical saving accounts.
Managed competition.

The definition of managed care :
Managed care: Is a system of care in which a designated
(selected) person determined the services that the patient
uses, its goal is to decrease unnecessary services, thereby
decreasing costs, ensure timely and appropriate health care.

‫مهم‬The strategies used by managed care organization to control
costs:
There are five strategies to control costs:
Provider networks and selective provider: It contracting at a
favorable reimbursement rate, this strategy restricts
consumers choice of provider.
Payment methods with risk sharing: Reimbursement
includes an incentive for providers to limit the cost care.
Gate keeping: The goal of this practice is to prevent
unnecessary resource utilization.

The strategies used by managed care
organization to control costs:
Utilization review: This refers to a variety of practices that
require appropriate use of resources by clinicians:
preauthorization is the requirement that specified services,
such as hospitalization or emergency room care be approved
before they providepreauthorization
Favorable selection of clients: one criticism of managed care
organization is that many seek to enroll younger and healthier
individuals who will require fewer resources.

The definition of costing out nursing
services:
Costing nursing care: Is the process of estimating the
monetary(fiscal or financial) value of providing nursing care
to patients. It is thus of major importance that nursing
acquires a cost allocation ( allowness) system that can
define and measure the consumed time of providing nursing
care by different personal categories per patient and its cost.
It can be estimated per hour, per patient, or per day.

The benefits of costing out nursing
services:
Charging out nursing services makes it possible for the
customer to pay for the care.
Customers start to realize that direct care has a price value.
Hospitals can receive compensation for what they provide,
maximizing profits.
Nursing can be viewed as a revenue-generating center
rather than cost.

Cont. The benefits of costing out nursing
services:
Charging a fee for services helps enhance the
professionalism of nursing through the traditional pattern of
reimbursement for services.
Costing out nursing services to enhance the use of human
resources, contains costs and mention quality.
Using a cost accounting system to assess and change the
nursing department helps establish a reputation for innovation
and leadership.

The methods for costing out nursing services:‫مهم‬
Per diem or cost per day: It used for both rate setting and
reimbursement is calculated by dividing the total nursing care
cost by the number of patient days for a specific period.
Cost per diagnosis:(diagnostic related group) It used to reduce
reimbursement costs
for patient payment, categories patients based on diagnosis
and number of days of hospitalization by using four methods
which are reduce the prices paid for resources, reduce the
length of stay, reduce the intensity of services provided and
finally improve efficiency.

Cont. The methods for costing out nursing
services (remove this method) :
Cost per Relative Intensity Measures: (RIM) It is calculated by
dividing the total nursing costs for hospital by the total minutes of
care estimated or nursing resource used to provide care to all
patients then by dividing the number of minutes used by the total
hospital population including adjustments for downtime, such a
sick leave and vacation time, is calculated and finally the cost of
care for each patient is determined by multiplying the RIM by the
minute of care required by the patient as estimated by an
equation.

The methods for costing out nursing
services:
Patient classification system: It is the method that grouping
patients according to some observable or interfered
characteristics. It focuses on a mean to categorize patients
according to assessments of their nursing needs that can be
quantified to determine a measure of nursing effort interfaced
with nursing care system.

services:
The basic criteria of patient classification system:
The must identify patients in conjunction with each other so
that they can be classified into relatively clear categories of care.
There, must be a systematic and organized approach to the
classification and integration of various patient types
components.

services:
The basic criteria of patient classification system:
The timing of each classification must be identified so that the
number of classification and time taken to deliver care can be
consistent with the service offered.
The calculation must make provision for the utilization of
human resources and their application to the requirements for
each patient care.

services:
Work-sampling technique: It is an industrial engineering
technique in which data an individual from outside the primary
work group observes the activities of a selected sample of
employees on regular intervals, records their activities and
generalize from the observed sample to estimate the percentage
of the employer total time that workers spend in each task.

services:
Time and motion studies: all nursing procedures are timed and
norms established for each task. The average level of the worker
doing the task also determined. when the average time of each
of them known direct costs of labor are determined and added to
cost materials. Calculation by knowing the specific tasks
performed on a unit on a given day.

The strategies used to mange nursing care
productively:
Do more with no more.
Use generic(common, standardized ) care plan.
Develop new flow sheet to streamline( update) documentation.
Use group counseling and teaching methods.
Package nursing programs and information.
Increase use of ambulatory surgery facilities and day surgery
admission programs.

The strategies used to mange nursing care
productively:
Effectively mange materials and shared services.
Think competitive marketing and consumer choice.
Develop new product.
Create a learning culture with staff.
Maximize the contribution of professional nursing.
Consider matrix staff when the nurse has competencies at
least two services and can float between services.
Develop and use nursing productively standard and implement
control system.

The implication of cost effectiveness and
efficiency in nursing service administration:
Promoting the role of nursing as a core resource in cost
effective care and as a critical contributor to decision making on
health care spending.
Offering nurses educational opportunities to gain knowledge of
political skills, economic principles budgeting and resource use
and cost effectiveness in health.
Supporting leadership and management development that
include the role of nurses in resource management, decision
making and policy development.

Promoting and supporting research and evaluation that links
and validates costing methodology to nursing and health out
come.
Encouraging the development of data base system that permit
comparison of out comes across setting to the best approcah to
care and to most effective design of nursing system.
Facilitate information dissemination and interactive networking
on cost effectiveness research.

 Establishing professional networks with relevant stakeholder for promoting
quality and cost effectiveness.
 Promoting quality to recognize and support nursing roles in promoting cost
effectiveness.
 Budgetary planning of nursing services from the nursing services
department.
 Establishing valid and reliable patient classification system.
 Planning the beat use time by cutting down all time wasting and devoting
more time for really important issues.

Increase the number of trained auxiliary personal to reduce
indirect care time consumed by professional nurses.
Alternative new system of nursing care delivery system for
cost effectiveness.
Employee orientation increase employee socialization to the
job and decrease turn over and absenteeism which lead to
decrease cost.

The summary :
The cost effectiveness is ready to receive manuscripts ‫مخطوطات‬on
all aspects of economic evaluation in health care and also
encourages submissions on health policy
Issues relating to resource allocation and the trade-offs between
economic, ethical and social criteria for decision-making. The
cost efficiency for a media schedule, refers to the relative
balance of effectively meeting reach and frequency goals at the
lowest price.

Contact us:- 011-25464531, 9818569476
E-mail:- nursingnursing@yahoo.in

Cost effectiveness and cost efficiency

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Cost effectiveness and cost efficiency