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The Procedure Cost Analysis & Reporting engagement includes three phases and typically takes between 12-16 weeks to complete. Three site visits by HCI consultants are included in this study. The three phases are as follows:

A more detailed outline of each of these phases is explained below:

Phase I - Development of Activity Based Cost by Procedure - Field Work 1-2 days

The general process is as follows:

  1. First, HCI consultants meet with hospital management to review the engagement.
  2. Existing hospital charges are reviewed for completeness and accuracy with regard to the procedural cost analysis process, and recommendations for changes may be made.
  3. HCI consultants meet with departmental directors and other key personnel in order to discuss existing patient charges, direct care personnel, and fixed and variable departmental expenses.
Phase II - Development of Activity Based Cost by Procedure - Field Work 1-2 days
  1. HCI performs a comprehensive review of the resources used in providing services. These include labor, materials, and related departmental expenses.
  2. Allocated costs at both the departmental and hospital level are developed.
  3. Procedural "Cost Sheets" are created for items that comprise the largest amounts of revenue and volume (90-95% of the total) for each department. You can see a sample cost sheet here.
  4. Our consultants review these Cost Sheets with department directors, revising data when necessary.
  5. We develop procedure cost standards for each department. (We also document our methodologies and rationales to ensure accuracy.)

Phase III - Validation of Procedure Cost

There are two steps taken here:

  1. We use charge item volumes to verify that the earned standard costs appear accurate in comparison to actual costs from the General Ledger system. This is essentially a quality-control step.
  2. HCI revises procedural costs where needed.

Phase IV - Procedure Cost Reporting Development - Field Work 1 day

  1. Work with facility information services administrators to define the accumulated database file that will be set up in the HIS system and accessed by the PCR program.
  2. Set up and complete the facility tables required by Microsoft Access identifying physician, specialists and clinic codes, financial class and payor codes, service codes, and any other optional demographic codes.
  3. Work with the finance administration to determine the most appropriate manner of estimating payment and discount calculations on unpaid accounts, and incorporate this procedure into the program.
  4. Create the Procedure Cost Reporting database utilizing the cost standards developed in the Procedure Cost Analysis phase and the information obtained from the facility information system.
  5. Compare the Procedure Cost Analysis cost data to actual operating expenses and identify any variances.
  6. Provide detailed instructions that outline the steps needed to periodically update facility information and the database.
  7. Meet with facility Administrative personnel to review standard reports and results. Conduct a training session with facility representatives responsible for the Procedure Cost Reporting database.
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