Uses of Cost Information in the Healthcare Industry

HMO and PPO negotiations. The cost of services must be known before negotiating discounts.
Pricing determination. The charges for services rendered frequently bear no resemblance to the cost of providing the service.
Marketing decisions for new services. Accurate cost estimates will help when making decisions concerning entering new product lines or methods of delivery.
Expansion or elimination of existing services. Full and incremental cost information about existing services must play an important role in marketing decisions.
Replace existing services. Cost accounting will determine if it is less expensive to purchase certain services from an outside contractor.
Facility expansion. Determining the cost effect of plant expansion will assist in determining the feasibility of such actions.
Equipment purchases. The cost effect of equipment purchases includes not only the capital expenditures but also the operating cost in terms of labor, supplies, and other expenses.
Budgeting based on productivity. An operating budget may be prepared based on variable workload units as determined by the cost model.