Rvu In Healthcare Case Study
To stay afloat in today’s economy, healthcare organizations need to reorganize and simplify inefficient processes and understand the types and amount of resources they need to deliver care across the establishment. This can only be achieved by applying effective cost allocation methods to indirect costs, including direct allocation and the step-down method. Further, in regard to patient-level costs, these organizations should practice common cost allocation methods by taking into account cost drivers, such as relative value units, the ratio of cost to charges and activity-based costing.
Under the direct method of allocating costs, the cash flows from all operating activities need to include the amounts for lines such as cash from customers and cash …show more content…
For example, a routine check-up visit at the doctor’s office would be assigned a lower RVU than a triple-bypass surgery at the hospital. A physician caring for two or three complex patients would accumulate more RVUs than one caring for ten “simpler” patients, as work is measured and rewarded rather than a higher quantity of patients. “The essence of an RVU is that costs associated with providing services are compiled for all services, and costs for each service are measured against the average” (Smith, 2014, sec. 4.4). It takes some serious time and effort to develop RVU assessments, but when carried out using an in-depth history of service costs, it can result in accurate estimates for a …show more content…
According to the CGMA, this process has six steps: identifying activities and activity pools; directly tracing and/or estimating costs to those activities; assigning costs to activity cost pool; calculating the cost driver’s rates; assigning costs to cost objects; and preparing the reports (2011-2014). This method provides a more accurate means of costing, which in turn helps to make better pricing decisions. Because expert managers are slow to learn and understand this process, and the software is not advanced enough to simplify ABC, the direct and step-down methods are the preferred allocation methods for “determining full costs at the level of the department in healthcare organizations” (Smith, 2014, sec.
Under the direct method of allocating costs, the cash flows from all operating activities need to include the amounts for lines such as cash from customers and cash …show more content…
For example, a routine check-up visit at the doctor’s office would be assigned a lower RVU than a triple-bypass surgery at the hospital. A physician caring for two or three complex patients would accumulate more RVUs than one caring for ten “simpler” patients, as work is measured and rewarded rather than a higher quantity of patients. “The essence of an RVU is that costs associated with providing services are compiled for all services, and costs for each service are measured against the average” (Smith, 2014, sec. 4.4). It takes some serious time and effort to develop RVU assessments, but when carried out using an in-depth history of service costs, it can result in accurate estimates for a …show more content…
According to the CGMA, this process has six steps: identifying activities and activity pools; directly tracing and/or estimating costs to those activities; assigning costs to activity cost pool; calculating the cost driver’s rates; assigning costs to cost objects; and preparing the reports (2011-2014). This method provides a more accurate means of costing, which in turn helps to make better pricing decisions. Because expert managers are slow to learn and understand this process, and the software is not advanced enough to simplify ABC, the direct and step-down methods are the preferred allocation methods for “determining full costs at the level of the department in healthcare organizations” (Smith, 2014, sec.