ACCOUNTING

Cost Pressures and Variance Analysis in Hospitals

Cost Pressures and Variance Analysis in Hospitals

Introduction

During last few years, cost control initiatives in the health care industry have focused principally on the retail sector. This fashion is barely surprising, provided the high profile and size of the retail pharmacy market. On the contrary, the hospital sector has acquired comparatively little concentration. Without a doubt, within the limitations of their overall finances, hospitals have been principally left to their individual devices, to classify their reimbursement strategies and come to a decision how to manage and control their expenses. Today, the environment in the hospital sector is experiencing a noticeable change. Governments are turning out to be more and more concerned about escapee costs and inflating shortfalls in their hospitals, an issue that is more often than not attributed to a mixture of inequality, waste, inefficiency, and lack of precision. In an endeavour to reduce expenses and raise the broad standard of hospital care, governments in a number of countries have started to shift from cost based reimbursement for services turn into prospective payment systems that disburse providers a preset amount as per the particular definitions. In general the prospective payment systems are characteristically based on DRGs or diagnosis related groups, a system that assembles patients on the source of factors for instance as their secondary or primary diagnosis, problems and co morbidities, age, procedures and sex (Kinney, 2001, pp.325).

Discussion

The reimbursement of health care is a most important concern for the health care reform. Without any doubt the standard mode of payment to the providers of health care is the reimbursement. Often the payer is a government entity or an insurance firm. But how these disbursements are made is the fundamental issue. Another significant concern is the continuous trade off between the bottom line profit and efficiency of the government against the freedom of providers and patients (West & Mahon, 2003, pp.69).

Retrospective and Prospective Payments

The difference between retrospective and prospective payments is the most significant one in administration of health care. Administrators have incredible power to settle on what measures are medically essential for every patient and how much will be compensated. The prospective payment forms are in fact a kind of managed care, a system where the spender lays out what is essential for every patient and brings into the knowledge of the provider as to which expenses will be disbursed for and which will not. This kind of prospective reimbursement has the benefit of being all-inclusive. Alternatively, "fee-for-service" reimbursements or retrospective payments maximize the liberty of providers and patients to decide what processes are best for every individual. The fundamental difference between retrospective and prospective reimbursement is the point of completeness in opposition to the liberty of patients (Carnett, 1999, pp.19).

The United Kingdom, in 1948 founded a pioneering worldwide healthcare system called the NHS or National Health Service. In the far-sighted words of its originators, the NHS was designed to offer all the citizens of United Kingdom an all-inclusive medical care “from the cradle ...