The Science Journal of the American Association for Respiratory Care

1997 OPEN FORUM Abstracts

Financial Tools for Today's Manager

Kevin L. Shrake, MA, RRT, FACHE, Sunday, December 7, 1997.

There are numerous financial reimbursement models that are present in our current healthcare environment. These include models such as fee for service, case rates, per diems, DRGs, and capitation. This creates a very schizophrenic environment for Cardio-Pulmonary managers to function within. For that reason it is important that managers have the appropriate financial tools to function in this environment. In order to meet the strategic plan of most healthcare organizations, it is appropriate for managers to develop programs that fit the financial management trends that are current in today's environment. Such programs include therapist driven protocols, hospital case management, disease management, and system integration. An effective cost accounting system is an important aspect of financial management. This includes developing a micro cost analysis of all of the Cardio-Pulmonary procedures that are performed within a division. This would include identifying direct costs such as labor, direct materials, and equipment depreciation, as well as accounting for indirect costs such as building depreciation, laundry, and corporate overhead. During this lecture the presenter will include techniques on how to do micro cost analysis on labor components of procedures. In addition, information will be presented in regards to items that are currently considered direct overhead items, direct material, or direct equipment allocations. Under the category of direct equipment, formulas will be presented regarding depreciation tables. In purchasing capital equipment it is important to be able to determine the equipment pay back time period. This entails evaluating the equipment cost, the collected revenue associated with the equipment, as well as the direct costs, indirect costs and net profit by year. Once the net profit by year has been calculated, a pay back period in either months or years may be calculated. In determining whether your service line is profitable, it is important to calculate the net profit on the portion of the business that generates revenue and incurs expense. When revenue is fixed you are a cost center rather than a revenue generator and profit is calculated on your ability to reduce costs. If you can reduce the length of stay or reduce other ancillary costs associated with specific DRGs or disease states, overall net profit is improved. Under a capitation model, disease management programs that stress health prevention and minimize hospitalizations can be very effective programs in supporting the overall profitability of managing populations of patients on a fixed per member, per month premium concept. In summary, the most successful financial tool that RCPs can possess is adding value to their organization. This can be accomplished by either decreasing costs, improving quality, or improving access to care.

AARC 50th Anniversary, December 6 - 9, 1997, New Orleans, Louisiana.

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