Direct and indirect cost management in health care

They are direct costs, indirect costs, intangible costs, opportunity cost, average cost, incremental cost and marginal cost.

Direct and indirect cost management in health care

The distinction between "direct" and "indirect" costs may appear intuitive and self-explanatory. Direct costs are traceable to the production of a specific good or service.

The operative word is "specific. Indirect costs are those necessary to keep your business in operation. Think of them as the prerequisites for the production of any specific good or service.

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When you know the true costs of production, you can price both competitively and accurately. The distinction is equally important when filing your tax returns. Certain costs, both direct and indirect, are tax-deductible.

Direct costs Direct costs are expenses that a company can easily connect to a specific "cost object," which may be a product, department or project.

This includes items such as software, equipment and raw materials. It can also include labor, assuming the labor is specific to the product, department or project.

For example, if an employee is hired to work on a project, either exclusively or for an assigned number of hours, their labor on that project is a direct cost. If your company develops software and needs specific pregenerated assets, such as purchased frameworks or development applications, those are direct costs.

Labor and direct materials, which are used in creating a specific product, constitute the majority of direct costs.

Direct and indirect cost management in health care

For example, to create its product, an appliance maker requires steel, electronic components and other raw materials. Two popular ways of tracking these costsdetermining whether and when your company actually uses materials in production, include last in, first out LIFO or first in, first out FIFO.

This can be helpful when the costs of materials fluctuate in the course of production. The majority of direct costs are variable. For example, smartphone hardware is a direct, variable cost because its production depends on the number of units ordered. A notable exception is direct labor costs, which are usually fixed, and remain constant throughout the year.

Indirect costs Indirect costs go beyond the expenses associated with creating a particular product to include the price of maintaining the entire company. These overhead costs are the ones left over after direct costs have been computed, and are sometimes referred to as the "real" costs of doing business.

These include items such as cleaning supplies, utilities, office equipment rental, desktop computers and cell phones. While these items contribute to the company as a whole, they are not assigned to the creation of any one service.

For example, clerical assistants who maintain the office support the company as a whole instead of just one product line. Thus, their labor can be counted as an indirect cost. Other common indirect costs include advertising and marketing, communication, "fringe benefits," such as an employee gym, and accounting and payroll services.

Much like direct costs, indirect costs can be both fixed and variable. Fixed indirect costs include things like the rent paid for the building in which a company operates.2 | Health Industry Post: News and analysis of current issues affecting health care providers and payers What is PHM: defining the parameters PHM is a model for helping providers and payers assess the populations they serve across the continuum of care.

Replacing an Employee. Replacing an existing employee involves two different types of costs -- direct and indirect. Direct costs are the easiest to calculate and include advertisements, recruiting fees, sign-on bonuses, salary and benefit costs. There were a number of different health care reforms proposed during the Obama reforms address cost and coverage and include obesity, prevention and treatment of chronic conditions, defensive medicine or tort reform, incentives that reward more care instead of better care, redundant payment systems, tax policy, rationing, a shortage of doctors and nurses, intervention vs.

Health care in the United States is provided by many distinct organizations. Health care facilities are largely owned and operated by private sector businesses.

58% of US community hospitals are non-profit, 21% are government owned, and 21% are for-profit. According to the World Health Organization (WHO), the United States spent more on health care per capita ($9,), and more on health care.

A. A1C A form of hemoglobin used to test blood sugars over a period of time. ABCs of Behavior An easy method for remembering the order of behavioral components: Antecedent, Behavior, Consequence.

Aug 06,  · The direct costs of treating schizophrenia include cost of hospitalization (short- and long-term), outpatient follow-up, residential and day care, pharmaceutical interventions, laboratory testing and social security payments, whereas the indirect costs are mainly related to the loss of productivity 1, 3, 10,

Direct Costs and Indirect Costs Defined | Examples