Lab Budgeting and Cost Accounting Under Drgs

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Lab budgeting and cost accounting under DRGs
Medical Laboratory Observer, Feb, 1985 by W. Glenn Cannon

Cost accounting is not a solution to management problems. It is a management tool designed to provide information that facilitates sound decisions. The two primary objectives of cost accounting are 1) to match cost with revenue and 2) to match resource consumption with the units of service provided. Under the DRG system, matching revenue with cost and evaluating appropriate utilization levels must be done on a patient-by-patient or case-by-case basis. These are hospital management functions. Overutilization of services for a patient will drive costs above the level of the fixed payment rate for a particular diagnosis. Since the cost of a particular test can no longer be matched against a specific dollar amount of revenue, laboratory managers now will have the most significant impact by producing lab services as efficiently as possible in terms of costs. Controlling resource consumption is the lab's prime concern, and the cost/output ratio is the laboratory manager's key performance measurement. In hospitals, two distinct management components require cost data: individual service centers providing unique aspects of patient care and independent physicians who determine the types and quantity of service the different centers provide. Each of these centers--nursing, emergency room, radiology, and the laboratory, for example--has a unique set of economic factors affecting its ability to operate efficiently and maintain viability. The department head for each center has control over labor used, supplies consumed, and support services consumed (laundry, housekeeping, etc.), and is expected to absorb some administrative overhead. Physicians, however, control the center's scheduling function. They do so by ordering tests and other services. Which patients receive lab services or how much each patient receives is irrelevant to the laboratory manager. But if...
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