ORMED MIS™ Decision Support for Healthcare

Finance Management - Healthcare

Cost Accounting and Budgeting:
Cost Methodology

Ormed uses a unique technique to develop detailed, accurate procedure level costs. Rather than focus the standard setting process at the procedure level, we define an intermediate step, department service units.

Service units represent department level outputs (days of care, acuity levels, tests, dollars of supplies, etc.) that combine in various ways to produce the continuum of patient procedures. This reduces the standard setting burden and, using up to nine service units per department, ensures detailed, highly accurate standards.

Standards for each service unit can be engineered, ratio of cost to charges, historical or budgeted, and can be detailed to whatever level is appropriate. Direct expenses of each department are analyzed for fixed and variable components.

Cost Accounting charge items

As a result of using this service unit cost methodology, different approaches to cost accounting can be used by different departments, including:

  • Bill of Materials/ Engineered Standards
  • Multiple Relative Value Units
  • Single Relative Value Unit
  • Ratio of Cost to Charges

This flexibility allows the facility to use detailed standards where available, and other approaches as appropriate. The decision on the appropriate standards setting option can be made at the department or procedure level.

Cost Accounting Account Standards

Cost Allocation

Ormed provides a number of accurate and flexible cost allocation options to ensure that accurate full costs are developed.

The system has the ability to allocate overhead directly on an account-by-account basis for direct fixed costs. In addition, you can assign transfer units to record variable department interrelationships, such as meals per patient day and laundry pounds per procedure. Finally multiple simultaneous linear equations can be used to cross allocate other overhead departments using multiple statistical tables and user-defined statistical weighting. As a result, Ormed accurately reports the overhead portion of full-costs at the department, procedure, and patient level.

Once the service units are defined, we work with the facility to input appropriate account, department and procedure level assumptions. The patient billing system establishes the link between procedures and discharges. Once the definitions and assumptions are in place, the cost accounting system can be used for cost analysis at the service unit, procedure, discharge or product level.

The Ormed system can also be used for modeling by entering volumes at the patient or procedure level; the system will then determine the projected service units and related account balances, and staffing requirements.