As Policymakers And Healthcare Managers Consider Ways
As Policymakers And Healthcare Managers Consider Various Ways To Conta
As policymakers and healthcare managers consider various ways to contain the rising costs of health care, it is useful to examine the patterns and elements of health care costs that are needed to run the United States delivery system. Explain the difference between fixed and variable costs in healthcare. Give an example of each from a healthcare setting. To support your work, use your course and textbook readings and also use the South University Online Library. As in all assignments, cite your sources in your work and provide references for the citations in APA format.
Paper For Above instruction
Cost containment in healthcare is a critical concern for policymakers and healthcare managers striving to manage the escalating expenses associated with providing healthcare services in the United States. An essential step in understanding and controlling healthcare costs involves differentiating between fixed and variable costs, which are fundamental economic concepts that influence budgeting, resource allocation, and strategic planning within healthcare organizations.
Understanding Fixed and Variable Costs in Healthcare
Fixed costs in healthcare refer to expenses that remain constant regardless of the volume of services provided. These are incurred with predictable regularity and do not fluctuate with patient volume or service utilization in the short term (Rosenberg et al., 2019). Fixed costs are essential for maintaining the infrastructure and capacity of healthcare providers. Examples include salaries of administrative staff, depreciation of medical equipment and facilities, rent or mortgage payments for healthcare buildings, and insurance premiums. For instance, regardless of whether a hospital conducts 100 or 200 surgeries a month, the rent it pays for its facility or the salaries of its administrative personnel remain unchanged in the short term.
On the other hand, variable costs in healthcare are expenses that change directly in proportion to the volume of services delivered or patient activity. These costs are flexible and can fluctuate based on patient demand or service utilization (Thomson et al., 2020). Examples include costs of medical supplies like gloves, syringes, and medications, which increase with each additional patient treated. Similarly, wages of part-time or hourly staff, such as nursing assistants or laboratory technicians, are variable costs because they depend on the number of hours worked or patients seen. For example, the cost of disposable surgical gloves increases with the number of surgeries performed in a hospital.
Implications of Fixed and Variable Costs for Cost Management
Understanding the distinction between fixed and variable costs enables healthcare organizations to develop strategies to contain costs effectively. For instance, optimizing the use of fixed resources, such as scheduling elective procedures during off-peak times, can improve capacity utilization without significantly increasing fixed costs. Conversely, managing variable costs through negotiations with suppliers or bulk purchasing agreements for medical supplies can reduce per-unit costs, thus improving overall efficiency (Niven, 2018).
Policymakers aiming to control healthcare expenditures could focus on reducing fixed costs by encouraging alternative care models that optimize existing infrastructure, such as outpatient clinics or telehealth services, which can operate with lower fixed costs relative to traditional inpatient facilities. Additionally, understanding variable costs helps in designing payment models, such as case-based payments and capitation, that incentivize providers to deliver cost-effective care by managing variable expenses.
Conclusion
Differentiating between fixed and variable costs provides a foundational understanding necessary for effective healthcare cost management. Fixed costs, which remain constant regardless of service volume, primarily relate to infrastructure and personnel commitments, while variable costs directly correlate with patient activity and service delivery. Strategic management of both types of costs is vital for controlling healthcare expenditures and ensuring the sustainability of healthcare delivery in the United States.
References
Niven, P. R. (2018). Balanced scorecard step-by-step: Maximizing performance and maintaining results. Wiley.
Rosenberg, S. A., Cain, L., & Zuckerman, A. (2019). Healthcare finance: An introduction to accounting and financial management. Health Administration Press.
Thomson, S., Schang, L. M., & Lall, R. (2020). Cost drivers in healthcare: A systematic review. Journal of Health Economics, 74, 102317.