Financing Healthcare

Financing Healthcare

Financing Healthcare 150 150 Peter

Financing Healthcare

Before beginning work on this assignment, please review the expanded grading rubric for specific instructions relating to content and formatting.

A Cost-Effective Analyses (CEA) is an example of one of the established processes used by finance managers in healthcare. By using a set of tools related to different types of program costs, managers can evaluate and/or compare programs so that informed choices can be made. CEAs assist managers in determining which program will provide quality outcomes when compared to the costs the organization would incur. Although this sounds like a simple process, there are many variables to consider.

Step 1: Research and discuss the following terms in a 1- to 2-page document:

Opportunity cost
Initial costs
Continuing costs
Induced costs
Averted costs
Fixed costs
Variable costs
Step 2: Using one of the studies listed below, research the topics and then formulate two processes to achieve positive outcomes. Then, compare the costs of the two processes by conducting a CEA. You may have to create control and outcome numbers, as well as estimate the costs of each component of the CEA. Use of a comparison table is encouraged. See an example below:

How to do a basic cost-effectiveness analysis. (n.d.). Retrieved from

Increase the number of children receiving an annual flu vaccine in a pediatric clinic.
Decrease the number of ‘no-show’ patients with appointments in a physician’s office practice.
Decrease resident falls in a 100-bed nursing home.
Decrease medication errors in a 500-bed acute care hospital.
Decrease wait time in a hospital emergency department (ED).
Step 3: Finally, from research, how can the program’s quality outcomes be measured? No calculations are necessary.

Sample Paper

Step 1

Opportunity cost

Opportunity costs refer to the benefits that an organization may not benefit from selecting one alternative. Opportunity cost is significant to the organization as it helps determine the amount of money it may lose if they invest in one inventory (Siverskog, 2022). In healthcare, the concept of opportunity cost is fundamental in assisting hospital management in making effective investment decisions due to the scarcity nature of resources. The opportunity cost of investments in healthcare can be quantified or measured best by the health benefits obtained, for instance, quality-adjusted life-years gained and life-years saved, which would have been accomplished if the money was spent on the next best healthcare program or alternative involvement.

Initial cost

The initial cost can be defined as the typical expense of obtaining the existing inventory at hand when importing healthcare supplies. Having the right initial cost is crucial for healthcare by providing a better organization image by accounting for profits realized and accurately tracking costs. In conclusion, initial costs are significant since they assist healthcare management in maintaining the correct Moving Average Cost and reporting the firm’s profit margins correctly.

Continuing costs

It can be defined as the healthcare expenses incurred after investing in a particular facility while the equipment is in use. Continuing costs include operational costs such as repairs and maintenance in the emergency room. Continuing costs understanding is very significant in healthcare. It allows the management to make sure facilities and machines remain efficient in their day-to-day operations through maintenance and repairs being done to them.

Induced costs

These are expenses employed by multiple tasks that cannot be allocated to particular cost objects. Induced costs play a critical role in programs of healthcare generating health impacts in the short run.

Averted costs

It refers to expenses that may be eliminated by avoiding performing a particular task. Generally, averted costs are regarded as variable expenses. Knowing averted expenses is significant to healthcare to avoid unnecessary costs, thus saving on the limited resources.

Fixed costs

Refers to costs that healthcare firms must make payment for, autonomously of any particular activities in healthcare. They are determined over a time specified that does not get altered with the production level. And they are less likely to be controlled by healthcare than variable costs (Posteucă, 2018).

Variable costs

These are costs with varying proportions to the volume of products stock produced by the business. In simple terms, variable costs are expenses that vary. Some of the variable costs in healthcare include medication, patient care supplies, and healthcare worker supplies.

Section 2

The section seeks to address Cost-Effectiveness Analysis (CEA) in detail for the two processes that are patient education and healthcare staff training. Cost-Effectiveness Analysis can be defined as examining both the health results and the cost of one or more involvements or interventions. It simply compares participation to another by estimating the number of expenses or expenses in gaining a unit of the health result, for instance, death prevented, or life-year gained. Therefore, it brings together data on expense intervention with estimations of the health outcomes or the effect achieved. It is an effective method that helps deeply explore the resource use to comprehend the money value achieved through intervention from distinct settings. Below is a table comparing the two interventions selected for the discussion addressing a sample of fifty women subjected to patient education and training. It aimed at decreasing the number of patients with appointments in a physician’s office practise by sending SMS massively and advertising in the newspaper to measure results or outcomes.

Control Massive SMS Advertisement in Newspaper
50 patients 50 patients 50 patients
15 patients booked appointments in a physician’s office 35 patients booked appointments in a physician’s office 20 patients booked appointments in a physician’s office
20 additional patients booked appointments in a physician’s office Five additional patients booked appointments in a physician’s office


The interpretation of the table is that to obtain the additional women who managed to attend as a result of receiving massive SMS is obtained by subtracting those who attended in the first group with the control (35-15 = 20 additional patients booked appointments).

Computations of the costs

Cost Massive SMS Advertisement in Newspaper
Coordinator (Staff) One coordinator for 14 days – $300 One coordinator for 14 days – $500
Electricity 140 units – $100 25 units – $20
Paper outlook $0 Decorations – $200
Equipment Smartphone – $500 Computer – $1000
Administrative Airtime to send SMS – $150 Office expenses (stationery, among others) – $200
Total costs $1050 $1920


The total costs must be divided by the outcome to compute every activity’s cost-efficiency or effectiveness.

Massive SMS = $1050 cost/20 additional patients booked appointments = $52.50 per additional patients booked appointments

Advertisement in Newspaper = $1920 cost/5 additional patients booked appointments = $384 per additional patients booked appointments

For that reason, massive SMS sending is considered the most cost-effective compared to the advertisement in newspapers when aimed at decreasing the number of patients with appointments in a physician’s office.

Step 3

Cost-Effectiveness Analysis (CEA) gauges elective interventions’ costs and health gains. CEA gives a strategy for prioritizing the portion of resources for climate and health interventions by identifying projects that can yield the best improvement in health for the least resources (Lauer et al., 2019). Measuring quality programs in healthcare is significant as it nurtures enhancement and implementation of the best practices, ultimately improving patient results. From the research above, patient education, which is the procedure of influencing the behavior of the patient and producing the changes in the skills, attitude, and knowledge essential in maintaining and improving health, can be measured by allowing patients to repeat instructions in their own words and give responses and observing return demonstrations to check mastery of the basic psychomotor skills by the patient (Nathan, 2017).

On the other hand, healthcare training can be measured by checking on the satisfaction of the staff by getting answers to questions like did the staff enjoy the training? Did the trainees get impressed with the trainer? And did the staff feel it was a proper use of their time? Secondly, the training program’s quality will be measured using knowledge acquisition. Therefore, it informs the healthcare management if concepts passed across in training were learned or not, which helps in improving patient results in the end.


Lauer, J. A., Morton, A., & Bertram, M. (2019). Cost-effectiveness analysis. Global Health Priority-Setting, 69–86.

Nathan, W. T. (2017). How to measure value. Value Management in Healthcare, 25–48.

Posteucă, A. (2018). MCI through improving variable and fixed costs: Material, environment, and Labor costs. Manufacturing Cost Policy Deployment (MCPD) Profitability Scenarios, 241–262.

Siverskog, J. (2022). Opportunity cost in healthcare priority setting. Linköping University Medical Dissertations.