Where (1)D - Hospital-Wide Total Annual Depreciation;

1

T

FORMULAS

Table 4

CALCULATION OF Depretiation

All computations are carried out for a hospital with n cost centers, including k non-clinical cost centers. Put differently, ordinal ranks of i cost centers vary from 1 to k for administrative and paraclinical cost centers and from k+1 to n - for clinical departments: i=1, ..., k, ..., n.

(1)

(2)

(3)

where (1)D - hospital-wide total annual depreciation;

ai - annual depreciation of capital and minor equipment for i - th cost center (capital equipment, minor equipment, means of transport);

pi - annual depreciation of structures and equipment for i - th cost center;

(2)ei -book (or replacement) value of capital equipment;

mi -book (or replacement) value of minor equipment;

ti -book (or replacement) value of means of transport

I -non-allocated inventory of capital and minor equipment;

Ka -equipment appreciation factor;

Na -useful life of equipment, years.

(3)si -space occupied by i - th cost center;

B - book (or replacement) value of buildings and structures;

Kp -buildings and structures appreciation factor;

Np -useful life of buildings and structures.

Table 5

CALCULATION OF DIRECT COSTS

(4)

ci2= ci1 (5)

where(4)CD -hospital-wide total direct costs

ñ1, ñ2, ñ9, ñ10, ñ14, ñ18(1) - costs under allocation Chapters 1, 2, 9, 10, 14, 18(1) of the budget appropriation code (chapter 18 - in part);

(5) -labor surchage factor (aggregate payroll taxe rate).

Table 6

CALCULATION OF INDIRECT COSTS

(6)

where (6)CIhospital-wide total indirect costs;

ñ3(r),ñ4, c18(2)- costs under allocation Chapters 3, 4, 18(2) of the budget appropriation code (chapter 18 - in part); Chapter 3 is separated into r components (r = 1,...,20), while Chapter 18 is included in part other than classified into direct costs (see. Formula 4);

si -value for i-th cost center of the indirect cost apportionment statistic chosen for allocation Chapter (or part thereof) 3(r), 4, 18(2) of the indirect costs;

C-hospital-wide costs under allocation Chapter 3(r), 4, 18(2) of the indirect costs.

Table 7

CALCULATION OF FULL COSTS

(7)

where(7)CT-hospital-wide total full costs;

ÑD-hospital-wide total direct costs (see Formula 4);

ÑI -hospital-wide total indirect costs (see Formula 6);

D -hospital-wide total depreciation (see Formula 1).

STEP-DOWN COST ALLOCATION

If i are the numbers assigned to the cost centers in the hierarchy formed for the purposes of step-down cost allocation, then:

i = 1, ..., k, ..., n,

whereby k - is the number of administrative and paraclinical cost centers, while n - is the total number of cost centers. Hence, in the step-down allocation table non-revenue generating cost centers will be placed downward on the lines 1 through k, while clinical departments will occupy lines k + 1 through n. The problem is to apportion full costs of the cost centers 1 through k onto full costs of the cost centers k + 1 through n. The output will show final costs of clinical departments after step-down cost allocation of full costs of non-clinical departments.

Consider step-down cost allocation process for the first (upper) clinical department numbered k+1:

(8)

The last on the list is the clinical department n. The step-down allocation formula for this cost center is similar to the previous one.

(9)

Let us disclose essential components of formulas (8) and (9), shedding at the same time more light on step-down allocation methodology:

- final costs of revenue-generating ( clinical) department n, after full costs of administrative and paraclinical cost centers are allocated onto n-th department through step-down allocation procedure. Let us reiterate that we deal with n-k revenue-generating departments; their rank numbers increase from k+1 to n. Correspondingly, full costs of the cost centers 1 through k become subject to step-down allocation;

, , ..., - final costs of i-th cost center (i = 1, ..., k) after full costs of upper-ranking cost centers are allocated onto i-th cost center through step-down allocation procedure, and subject to step-down allocation onto the lower-ranking cost-centers. Only administrative and paraclinical cost centers participate in step-down cost allocation process. That is why i varies in the range of 1 through k.

- full costs of n-th cost center, calculated according to the formula (7), that is before costs of administrative and paraclinical cost centers were stepped down onto n-th cost center;

- value for the n-th clinical department of the appportionment statistic chosen for allocating full costs of the k-th cost center. E.g., if Intensive Care Unit is ranked n and full costs of the Security cost center are apportioned onto Security according to depreciation, than the value of will equal depreciation at the Security department.

- value for the i-th cost center of the apportionment statistic chosen for allocating full costs of the k-th cost center. The total of k-th apportionment statistic for all the cost centers, located below k, yields the weight sum for calculating the share of the i-th cost center in given apportionment statistic.

Tables 9 and 11

STEP-DOWN ALLOCATION OF FIXED COSTS AND WAGES AND SALARIES

To calculate values in tables 9 and 11 it is sufficient to substitute fixed costs or wages and salaries costs for the full costs , , ..., in Formula 9.

Table 12

COSTS, REVENUES, AND FINANCIAL GAINS (LOSSES) FROM CHANGES

IN CLINICAL VOLUME

Impact on costs

In value terms: (10)

In percent: (10a)

where (10-10à)- absolute change in final costs for i-th cost center;

-final costs of i-th cost center;

-final fixed costs of i-th cost center;

-change in the number of patient discharges.

Impact on revenues(on the assumption that reimbursement is based on patient discharges)

In value terms: (11)

In percent: (11à)

where (8 - 8à) - revenue of i-th cost center.

Profit/Loss

(12)

where (12) -amount of profit/loss

Profit/loss margin

(13)

where (13)MRi - profit/loss margin (profit/loss-to-costs ratio) in percent of i-th cost center.

Change in wages and salaries:

In value terms: (14)

In percent: (14a)

where (14-14a)Wi -absolute change in wages and salaries of i-th cost center.

Wi -full wage and salary costs of i-th cost center.

Wi -final wage and salary costs of i-th cost center.

 -share of department-wide savings on fixed costs allocated to increasing wages and salaries

Table 13

CROSS-ELASTICITIES IN SHIFTING COSTS ACROSS HOSPITAL COST CENTERS WHILE KEEPING BREAK-EVEN POINT CONSTANT

(15a)

(15á)

(15â)

(15ã)

where (15à-15ã) - elasticity of shifting bed-capacity between i-th and j-th clinical departments;

- elasticity of shifting patient flow between i-th and j-th clinical departments as measured in patient-days;

- elasticity of shifting patient flow between i-th and j-th clinical departments as measured in patient-days.