Accounting for Mixed Practice Costs
[Understanding Hybrid Overhead Costs]
By Gary L. Bode
By David Edward Marcinko
Efficient medical office costing operations and a skilled, knowledgeable and motivated workforce is a sustainable strategic competitive advantage in today’s complex healthcare environment – Cecelia Teresa Perez; RN
Medical office business costs may generally be divided into fixed, variable, and mixed (micro) overhead costs. However, the concept of mixed (micro) costs has yet to be fully explored.
A mixed (semi-variable) cost is one that contains both fixed and variable elements. For example, a photocopy machine may be leased for $1,500 per year plus 2 cents per copy. In this case, the yearly lease is the fixed element while the per unit element copy charge varies depending on use. Although the fixed element versus variable element distinction may become blurred, and can change from institution to institution or office to office; definitional consistency is important for mixed cost tracking purposes.
In another example, a CT scanner can be leased for $150,000 per year plus $100 dollars per scan. In this case, the yearly lease is the fixed element while the per unit copy aggregate charge varies depending on the number of scans performed.
To further illustrate, assume that during a particular year the CT scan is used 1,000 times. The cost of the lease will then be $250,000; made up of the $150,000 in fixed cost plus $100,000 (1,000 X $100) in variable costs. Even if the leased CT scan is not used a single time during the year, the hospital will still have to pay the minimum $150,000 charge, but for each time the machine is used, the total cost of leasing it will increase by only 100 dollars.
Remember, this is a cost analysis and does not necessarily represent a revenue, charge or profit analysis.
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