Determining the costs of surgical operations

Summary Cost determination and cost analysis: the first is needed to determine the second. There are many ways to match activities with the cost driver, depending on the environment in which the activities occur. Equally important is how the various cost components are allocated when determining the total cost of a procedure. The surgical procedure (inguinal hernia, total hip replacement, etc) is referred to as the cost driver when cost accounting for surgical operations. Activities occur when the surgical procedure takes place and therefore consumes various resources. The resource may comprise human effort, such as nursing or house-keeping personnel, or it may comprise equipment, disposable supplies, or instrumentation. To accurately determine the cost of a surgical procedure, resource consumption must be allocated in an amount consistent with how much is used for that particular surgical procedure. If the activity is consistent from one procedure to another, resource allocation can be assigned on a per-case basis. This is true of many overhead costs associated with running surgical operations or activities that are standardized, such as the indirect cost of all clerical and scheduling staff. This is also true of the direct nursing care in the ASC/SDA area when preparing a patient for surgery. Although there may be minor differences between patients, in general the amount of activity (time spent with each patient) is fairly consistent. This is in contrast to the phase II recovery period in the ASC/SDA unit, where nursing care quite varies from patient to patient. In this circumstance, cost allocation is based on minutes of care in that unit. When determining cost allocation, it is important to recognize that circumstances differ among institutions. How procedure-related activities are allocated and how the per-unit value is determined may vary between surgical suites. Activities driven by surgical procedures first need to be identified. These range from the obvious (all direct-care providers) to the not so obvious (facilities support personnel) working in the operating room suite. In some institutions, the cost of the physical space and utilities may not enter directly into cost calculation because larger institution may allocate a cost based on many factors associated with services the patient may receive outside the operating room. The value that is assigned to a surgical procedure may or may not be truly related to the consumption of institutional resources. The problem with some of these allocation schemes is that they overcost some procedures, driving their margins falsely lower, and undercost other procedures, making “winners” out of hidden losers. Your responsibility lies in making sure your costing scheme yields information that is reproducible and accurate and that the scheme can be used to minimize costs in the surgical environment. If you manage a freestanding surgicenter, the physical space and utility cost as well as other “cost of doing business” must be included in the cost-percase calculation. In today's climate of medical cost control, determining the cost of surgical operations is no longer an academic exercise. It is imperative to accurately identify procedure costs, thus permitting sound decisions in order to remain competitive in today's health care environment.