Cost Method Vs Direct Method
The costs for services that are provided in each department of a medical facility must be analyzed and allocated. These costs are indirect and are usually allocated by using two common methods known as the direct method and step-down method. The direct method is used “ to allocate costs from the general services departments to each patient service department in one step” (Smith, 2014). The direct method calls for financial accounting to document the immediate movable expenses that is in each cost pot and to choose a cost controller for the indirect pot (Smith, 2014). The step-down method is almost like the direct method, the only difference is that it has three interceding steps when determining how to allocate the costs. The
step-down …show more content…
Patient level cost allocation methods consists of the financial accounting depart- ment to document and keep up with the expenses per each patient that is being treated instead of keeping track of the department expenses as a whole. Patient level cost allocation is not always preferred because of the technicality of the process of having to track every encounter with …show more content…
The relative value units just calls for data on how much each service will cost. “The use of relative value units as a cost driver for allocating costs from the depart- ment level down to the level of the individual patient is based upon the relative value of services provided” (Smith, 2014). There are challenges involved with the RVU method because it takes quite a bit of work and time to create the measures involved with this method. There are times
Cost Allocation Methods 3
when there is not enough time or resources handy to use the RVU method and when this is the case, the ratio of cost charges can take the place of the relative value unit method (Smith, 2014).
Ratio of cost to charges method’s use “as a cost driver for allocating costs from department level down to the level of the individual patient is based upon the relative charges of services provided” (Smith, 2014). The difficulty found in this method is that if the charges for the services reflect old prices, then the ratio of cost would be a considerable cost driver versus
step-down …show more content…
Patient level cost allocation methods consists of the financial accounting depart- ment to document and keep up with the expenses per each patient that is being treated instead of keeping track of the department expenses as a whole. Patient level cost allocation is not always preferred because of the technicality of the process of having to track every encounter with …show more content…
The relative value units just calls for data on how much each service will cost. “The use of relative value units as a cost driver for allocating costs from the depart- ment level down to the level of the individual patient is based upon the relative value of services provided” (Smith, 2014). There are challenges involved with the RVU method because it takes quite a bit of work and time to create the measures involved with this method. There are times
Cost Allocation Methods 3
when there is not enough time or resources handy to use the RVU method and when this is the case, the ratio of cost charges can take the place of the relative value unit method (Smith, 2014).
Ratio of cost to charges method’s use “as a cost driver for allocating costs from department level down to the level of the individual patient is based upon the relative charges of services provided” (Smith, 2014). The difficulty found in this method is that if the charges for the services reflect old prices, then the ratio of cost would be a considerable cost driver versus