Cost Calculations and Market Imperfections

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Understanding cost calculation is a relevant role of a healthcare manager when it comes to the financial aspect of an organization. In the area of producing goods or offering services, cost control is of importance. In order for Memorial Hermann’s home health services to be considered efficient, its cost has to match the quality of services that it provides or its costs and quality of services offered should be better and reasonable than its competitors (Lee, 2009). A cost efficient healthcare organization could bring about increase in profit and could aid in improving the market share of the organization which provides competitive advantage to the organization.
In calculating costs, there are two options that a manager should think of which are: direct and indirect costs. Direct costs are the costs that come about due to the production of a product or service line while indirect costs are costs that are not related to the product or service produced, hence, fixed costs (Berkowitz, 2011). Examples of direct cost for home healthcare services are employees’ expenditures (wages, benefits, and compensation), supplies, operation and maintenance of vehicle, and depreciation and amortization of vehicles and office equipment. Examples of indirect costs are supportive department costs (like nursing, administrative etc), and overhead costs (Ho-Sihn, 2009).
In calculating home care nursing services, assuming Memorial Hermann Hospital provides a 9 skilled nursing services visits per episode (60days) for its home health patients (CMS, 2013), it has a population of 11.2% of patients 65 years old and over (U.S Census Bureau, 2013), and its average cost per visit for skilled nursing services $129.56 (CMS, 2013). The minimum cost per visit that...

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