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Cost Estimation Methods for VAResearch Paper

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Financial aspects are an increasingly significant part of decision making in the health care sector. Precise determination of health care cost is an important part of this procedure. This paper offers an outline of methods of defining the cost of the U.S. Department of Veterans Affairs (VA).Department of Veterans Affairs controls a nationwide system of hospitals and clinics. Health economists generally employ billing data and information to appropriate the cost of several U.S. health services (United States Department of Veterans Affairs (VA)). However, Department of Veterans Affairs does not normally bill patients for their care. Therefore, Department of Veterans Affairs uses alternative methods in estimating the cost of the health care services it provides. The purpose of this paper is to discuss different health care cost methods that are used to estimate the cost of hospital inpatient stays, outpatient visits, and also facility treatment innovations at the United States Department of Veterans Affairs (VA) (Barnett, 2003). The different cost methods chosen signify a trade-off between the cost of research and its level of accuracy.

Cost determination is dependent on structures that utilize financial data. This particular paper will start by defining the costs incurred by Department of Veterans Affairs. Thereafter, the paper will outline and discuss five different cost methods used to estimate the cost of health services provided by VA. The first cost method to be considered is direct measurement, which is an approach that is particularly beneficial for determining the cost of distinctive care to Department of Veterans Affairs and the cost incurred for new interventions. The second method to be discussed is pseudo-bill method, which is also referred to as the list costing method. This particular method is dependent on utilization of data and also a compensation plan or program that is external to VA for the estimation of cost. The third method used for estimation is cost regression. In definition, a regression analysis is employed to ascertain the association between the cost and the features of in-patient stays that are non-VA and thereafter apply it to the VA data. The other two cost methods for estimating the costs of healthcare provided by VA are the average cost for every visit. This encompasses the outpatient visits made to VA. The other method includes reduced list costing. These methods are focused on enhancing the accuracy of Department of Veterans Affairs in terms of utilizing its data and estimating its costs (Barnett, 2003).

Direct Measurement

Direct measurement is a beneficial and in theory, a precise way and method of determining health care cost. This approach is generally employed to project the cost of new interventions and programs distinctive to United States Department of Veterans Affairs (VA). Direct measurement can be employed to calculate the cost of a diagnostic examination, process, or other health care service. Direct cost measurement approaches are employed to determine the cost of pioneering interventions, comprising grown-up day health programs and specialized elderly and hypertension treatment center (Barnett, 1999).

The cost of every unit of service can be determined simply by dividing the total direct cost of providing that particular service by the amount or number of units of service that are actuated. In order to ascertain the quantity level of the labor employed, an activity analysis has to be carried out. The specialist or forecaster might have to observe personnel or employee time in a direct manner, request the personnel to maintain journal entries of their activities or even pilot a survey of the management. The cost of every kind of personnel is obtained or calculated from accounting information and data, for example, financial management system data. The cost of capital can be attained by conducting a survey of the market to study and pick up rental rates at regular intervals (Smith and Barnett, 2003).

However, it is imperative to take note that it is not possible to employ this particular approach to obtain the costs of capital for each service. For instance, it is not possible to find a market for renting out operating rooms for hospitals. A conducted survey or administrative records kept can be employed to determine the volume of services. For instance, the unit cost for making a visit to a particular outpatient healthcare facility is obtained by dividing the total cost incurred by the health care facility by the number of outpatient visits that it offers at a particular period of time (Barnett, 1999).

The major benefit of making use of direct measurement as a cost estimation method is that it is not reliant on the suppositions necessitated by other methods of cost estimation. The downside to this particular approach is that it requires a lot of labor which, can prove to be very costly for the health care facility. Due to the diversity levels in health care, very few research studies completely depend on the direct measurement approach as a cost estimation method (Barnett, 1999).

Alternative methods are employed to gain a measurement of the overhead expenses or other costs of health care that are incurred by the patients. The overhead costs incurred by the health care facility in providing care to the patients include the costs of different services, for example, administration expenses, medical records keeping, housekeeping, maintenance of the facilities and also costs of sustaining other departments that offer support in providing patient care (Barnett, 1999).

In a much as the cost and amount of work of a particular program or department can be determined by use of a direct cost study, when patient care is provided in a hospital, it is beyond the extent of the majority of the research studies to directly measure the costs incurred by all the hospital departments. The amount of overhead ought to be distributed to each department. Most of those who undertake the analysis, opt to make use of a cost report provided by the hospital in seeking out this information and data. In addition, this particular method might be employed to determine the cost to be incurred for a new intervention (Barnett, 1999).

Considering the fact that cost-effectiveness analysis is focused on the effect of the intervention on all health care cost, the predictor ought to also collect information on succeeding ambulatory care, inpatient costs in hospital stays, long-standing care, and other services employed by the participants in the research study. Due to the high level of expenses amounting in the direct cost measurement method, alternative methods that are discussed below are employed to determine these costs (Barnett, 1999).

Itemized List Costing / Pseudo-Bill

The second cost estimation method that is considered for VA services rendered in the paper encompasses the combination of utilization data together with a payment or billing schedule. The subsequent number of services used by a particular patient is equivalent to the detailed bills of health care providers. Therefore, this approach is at times also referred to as the pseudo-bill approach. The cost unit for every single item might be the rate of Medicare payment, the rate of charges for an associated college medical center or also a different non-VA source (Health Economics Research Center, 2015). This method has been employed in numerous researches and studies. For instance, Wade et al. (1996) undertook a research study concerning colon cancer using this particular approach.

Considering the fact that outpatient charges and bills are significantly less intricate compared to charges for hospital stays, the discussion for this cost estimation method first takes into consideration the creation of a pseudo-bill for outpatient services. The discussion also takes into account the physician bill and thence offers a description of how pseudo-bill can be created for the ambulatory care rendered by health care facilities, for instance hospital-based emergency rooms and treatment centers, ambulatory surgery centers, and self-supporting centers for diagnosis. Lastly, the section ends with a discussion on how to construct pseudo-bills for the healthcare facility and physician constituents of inpatient hospital stays (Barnett, 1999).

Outpatient Pseudo-Bills

U.S. Department of Veterans Affairs exemplifies outpatient services by use of the similar codes that are employed by private health care providers in the United States to charge and bill for the services provided. This in turn makes it conceivable to form a pseudo-bill for VA ambulatory care that is equivalent to a private sector bill (Health Economics Resource Center, 2015).

VA employs current procedures and terminology (CPT) codes to distinguish the services delivered by physicians as well as other providers. On the other hand, with regards to medical provisions, equipment, and a number of particular services, the organization uses Medicare Health Care Procedures Coding System codes. Health care payers as well as those who pay for Medicare, both state and federal, have payment timetables that are centered on these codes. In particular, the rates for Medicare are open to the general public and well laid out and therefore are the most accessible ones. As is known, Medicare is a program that is accounted for nationally at the state and federal level for health care expenditures. More often… [END OF PREVIEW]

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