Cost Effectiveness And Cost

Efficiency.

Prepared by:
DR.
Ahmed Mohammed Zinhom
 :objectives
By the end of this lecture each participant should be able to:

Define The cost.

Discuss The types of nursing costs.

 illustrate The theory of cost.

Define cost effectiveness.

define cost efficiency.

enumerate principles of efficiency.

Explain The measuring of cost effectiveness and efficiency.

::objectives
 List The levels of cost hierarchy.

 enumerate The stages of cost effectiveness and containment.

 Discuss The approaches to control health care cost.

 define costing out nursing services.

 Explain The benefits of costing out nursing services.

:objectives
 Verbalize The methods for costing out nursing services.

 Draw The strategies used to manage nursing services

more productively.

 Explain The implication of cost effectiveness and efficiency

in nursing service administration.
 :Outlines
 Introduction.

 The cost definition.

 The types of nursing costs.

 The theory of cost.

 The definition of cost effectiveness.

 The definition of cost efficiency.

 The principles of efficiency.

 The measuring of cost effectiveness and efficiency.

 :Outlines
 The activity based costing steps.

 The levels of cost hierarchy.

 The stages of cost effectiveness and containment.

 The approaches to control health care cost.

 The definition of costing out nursing services.

 The benefits of costing out nursing services.

:Outlines
 The methods for costing out nursing services.

 The strategies used to mange nursing services more

productively.

 The implication of cost effectiveness and efficiency in

nursing service administration.
 Introduction:
The cost of health care delivery is growing at an

outstanding rate as a result of application of

expensive new technology in the care domain.

These changes in the health care delivery impose a

financial pressure on hospital services specially

nursing services.
 Consequently health care facilities are now compelled
to reexamine their methods of care delivery and
develop creative approaches to contain cost while
providing the expected high level of quality.
:The cost definition
The cost is the money expended for all
resources used, including personnel, supplies
.and equipment
 :The types of nursing costs

:Direct nursing cost-1

Is the cost used by the hospital to provide service to
patient. The cost of nurse employment and the supplies
. that they use are examples of direct costs
.
 2-In direct nursing cost:

Is the cost used by the hospital to provide service to

patient. These costs include: building and equipment

use, occupancy services, and central administration,

library operations and technical services

 :The theory of cost
 Demand –pull theory of inflation:

‫نظرية التضخم المبنية على العرض والطلب‬

 this theory suggests that increases in the cost of

health care occurs from excess demand and
spending on health care with an insufficient supply
of goods and services to accommodate the
demand.
 Cost –push theory of
inflation
‫التضخم نتيجة ارتفاع التكاليف‬
this theory suggests that higher prices result
from the rising costs within the health care
business.
The definition of cost effectiveness

Cost effectiveness is the extent to which an

organization or program produces particular
outputs (which are concrete and measurable) or
outcomes (which may not be measurable).
 The definition of cost effectiveness

Cost effectiveness is a very important for health *

. insurers

The effectiveness is primarily relates to quality *

. outcomes being achieved
The cost efficiency:

 cost efficiency is defined as the extent to which

an organization or program maintains a particular
level of production with fewer resources,
 or increases the level of goods or services it
produces with a less than proportionate increase
in the resources used
Efficiency measures whether healthcare
resources are being used to get the best value
for money.
 Cost efficiency is concerned with the
relation between resource inputs (costs,
in the form of labor, or equipment) and
either intermediate outputs (numbers
treated, waiting time, etc) or final health
outcomes (lives saved, life years gained,
quality adjusted life years.
 Efficiency implies that society
makes choices which maximize the
health outcomes gained from the
resources allocated to healthcare.
 The definition of cost
containment
Process of maintaining organizational
costs within a specified budget;
restraining expenditures to meet
organizational or project financial
targets.
:The principles of efficiency
 Goals and ideas should be clear and well defined.
 Change should be evaluated.
 Competent counsel is essential.
 Management can strengthen discipline or adherence
to rules.
 Justice or equal enforcement on all.
:The principles of efficiency
 Records, including adequate, reliable and immediate

information about the expenses of equipment and

personnel should be available as a basis for decision.

 production scheduling is recommended.

 Standardized schedules.

 Standardized conditions.
:The principles of efficiency

Standardized operations can be facilitated through the use

of.

Written instructions.

Efficiency rewards should be given for successful

completion of tasks.
The levels of cost hierarchy

Unit-level costs-
Batch-level costs-
Business-level cost-
Enterprise-related cost-
 :The levels of cost hierarchy
 Unit-level costs: are directly assignable to predetermined
cost objectives based on characteristics associated with the
patient.
Examples patient identifiable supplies and equipment.
 Batch-level costs: include all the supporting services that are
performed from admission through discharge. Example are
records management, scheduling and nurse
management.
:The levels of cost hierarchy
 Business-level cost: it is the category that has no
direct relationship to the patient care. Example
include accounting activities, recruitment, and
marketing.
 Enterprise-related cost: it is usually has no relation
to cost objectives such as utilities and taxes.
The stages of cost effectiveness
:and containment

Cost awareness- 1
Cost monitoring- 2
Cost management- 3
Cost avoidance- 4
Cost incentives- 5
The stages of cost effectiveness and
:containment

 Cost awareness: It focuses the employee attention on costs.

It increase the organizational awareness of what cost are, how

they can be managed and by whom.

 Cost monitoring: It focuses on how much will be spent

where,when and why.
 :The stages of cost effectiveness and containment
 Cost management: It includes conceptual and physical acts

to limit unnecessary spending through planned and practical

use of personal, material and physical resources for maximum
productivity. It focuses on what can be done by whom to contain
costs.

 Cost avoidance: It means not buying supplies, technology or

services, the costs of them should be analyzed carefully and the
most expensive and less effective items avoided.

 Cost incentives: It motivate cost containment and reward

desired behavior.
 Exercise: match

1. Cost
focuses on how much will be spent -1
awareness . where, when and why
It increase the organizational-2
2. Cost awareness of what cost are, how they
monitoring .can be managed and by whom
motivate cost containment- 3
3. Cost
the most expensive and less- 4
management .effective items avoided
4. Cost incentives It focuses on what can be done by- 5
whom to contain costs
5. Cost
avoidance
 :Costing out nursing services
Costing nursing care: Is the process of estimating
the monetary value of providing nursing care to
patients. It is thus of major importance that
nursing acquires a cost allocation system that can
define and measure the consumed time of
providing nursing care by different personal
categories per patient and its cost. It can be
estimated per hour, per patient, or per day.
 The benefits of costing out nursing
:services
 Costing out nursing services makes it possible for the

customer to pay for the care.

 Customers start to realize that direct care has a price value.

 Hospitals can receive compensation for what they provide.

 Nursing can be viewed as a revenue-generating center

rather than cost.

 Cont. The benefits of costing out nursing
:services

 Charging a fee for services helps enhance the

professionalism of nursing through the traditional
pattern of reimbursement for services.
 to enhance the use of human resources, contains
costs and mention quality.
 The methods for costing out nursing
:services
1- Per diem or cost per day:
It used for both rate setting and
reimbursement is calculated by dividing the
total nursing care cost by the number of
patient days for a specific period.
 Exercise
Suppose that you are a hospital director 
You have 1000pounds direct nursing cost 
and 2000pound indirect nursing cost in a
day
The patient stay30 day in the hospital 
Calculate the nursing cost for each
.patient per day
2- Cost per diagnosis:(diagnostic related
group)

It used to reduce reimbursement costs for patient

payment, categorize patients based on diagnosis
and number of days of hospitalization.
(package)
 The methods for costing out nursing
:services
3- Time and motion studies: all nursing procedures are
timed and norms established for each task. The average
level of the worker doing the task also determined. when the
average time of each of them known direct costs of labor are
determined and added to cost materials. Calculation by
knowing the specific tasks performed on a unit on a given
day.
4- Patient classification system:
 It is the method that grouping patients according
to some observable or interfered characteristics.
It focuses on a mean to categorize patients

according to assessments of their nursing needs

that can be quantified to determine a measure of
nursing effort interfaced with nursing care system.
The strategies used to manage nursing
:care productively

 Do more with no more.

 Use generic (common, standardized ) care plan.

 Develop new flow sheet to update documentation.

 Use group counseling and teaching methods.

 Increase use of day surgery admission programs.

 ,:Cont

 Effectively manage materials and shared services.

 Think competitive marketing and consumer choice.

 Develop new product.

 Create a learning culture with staff.

 Maximize the use of professional nursing.

 Consider matrix staff when the nurse has competencies at

least two services and can float between services.

 Develop and use nursing standard.

The implication of cost effectiveness and
:efficiency in nursing service administration
 Promoting the role of nursing as a core resource in cost

effective care and as a critical contributor to decision making on

health care spending.

 Offering nurses educational opportunities to gain knowledge of

political skills, economic principles budgeting and resource use

and cost effectiveness in health.

 Supporting leadership and management development that

include the role of nurses in resource management, decision

making and policy development.

 Promoting and supporting research and evaluation that links

and validates costing methodology to nursing and health

outcome.

 Encouraging the development of data base system that permit

comparison of out comes across setting to the best approach to

care and to most effective design of nursing system.

 Facilitate information dissemination and interactive networking

on cost effectiveness research.

 Promoting quality to recognize and support nursing roles
in promoting cost effectiveness.

 Budgetary planning of nursing services from the nursing

services department.

 Establishing valid and reliable patient classification

system.

 Planning the best use of time by cutting down all time

wasting and devoting more time for really important
issues.
 Increase the number of trained auxiliary personal
to reduce indirect care time consumed by
professional nurses.