Healthcare Finances Discussion Post
Baker, Baker, & Dworkin (2017) define fixed costs as the costs that do not tend to show variation in total when activity levels (or volume) of the operations change. Rent expense is a good example of fixed costs. Rent of a place used for the organization would remain fixed irrespective of the fact whether it was used in operational activities or not.
Semi-fixed costs are the costs which vary when the activity levels (or volume) of operation changes. These costs differentiate from the variable costs by the virtue that the variation is not directly proportional. Step pattern is the most frequent pattern identifiable for semi-fixed costs, which are also referred to as semi-variable costs (Baker, Baker, & Dworkin, 2017). One of the commonest examples of semi-fixed costs in a healthcare organization encompasses salaries of the supervisors. A single supervisor is capable of performing a wide range of activity levels. The addition of another supervisor as per increase in demands of the operational activities (increase in volume) would lead to the rise in the step pattern.
The costs which vary in direct proportion to changes in the activity levels (or volume) of operations are known as variable costs (Baker, Baker, & Dworkin, 2017). Food for the group home residents is an example of variable costs. The costs spent on food tend to vary depending upon the number of residents living at the residence at a given time. It may show fluctuations depending upon the recommended diets for them.
The categorization of costs is important from two perspectives. Firstly, it should allow performance in tune with the planning and budgeting of the institution. Secondly, the organization must provide outcomes without compromising the quality of healthcare delivered to the consumers. If it is safe to perform a surgery in an ambulatory surgery center with lower costs, it would help in bringing down fixed input costs for the facility. This example depicts an important concept of categorizing costs.
Baker, J. J., Baker, R. W., & Dworkin, N. R. (2017). Health Care Finance. United States: Jones & Bartlett …