NR 552 Week 2 Cost Concepts Write-Up Example

Cost Concepts Write-Up: A 30-Day Heart Failure Transitional Care Program Costed From the Hospital's Perspective, With the Service Bounded, Fixed and Variable Inputs Separated and the Opportunity Cost Priced

Student Name

College of Nursing, Chamberlain University

NR 552: Economics of Healthcare Policy

Instructor Name

Month Day, Year

Cost Concepts Write-Up: A 30-Day Heart Failure Transitional Care Program Costed From the Hospital's Perspective, With the Service Bounded, Fixed and Variable Inputs Separated and the Opportunity Cost Priced

Perspective Before Figures

This write-up costs the program from the hospital's perspective: the costs that would appear on the hospital's and its home health agency's books. That choice matters, because the same program looks different to different parties. For Medicare, a prevented readmission is a saving. For a hospital paid a fixed amount per admission, a prevented readmission can be lost revenue, partly offset by lower penalties under the Hospital Readmissions Reduction Program, which cuts Medicare payments when a hospital's readmissions for heart failure and certain other conditions run above the expected level (McIlvennan et al., 2015). Economic evaluation texts stress that perspective should be stated first because it decides which costs and savings count (Drummond et al., 2015).

The Service, Bounded

The service is a 30-day transitional care program for adults discharged home after a heart failure admission. It includes a registered nurse visit at home no later than the third day after discharge, lasting about 90 minutes with travel adding 30, which covers medication reconciliation, a weight and symptom review and teaching; four weekly phone calls of about 20 minutes each; and program coordination, including enrollment before discharge and communication with the patient's clinician.

Outside the count: physician or nurse practitioner follow-up visits, which happen with or without the program; medications; any readmission costs or savings; and patient and family time. Those belong in other analyses or other perspectives.

Fixed Against Variable

Over a one-year window, inputs sort as follows.

Variable, per enrolled patient: nurse time for the home visit (2.0 hours at a loaded rate of $58 per hour, $116); nurse time for four calls (1.33 hours, $77); coordination and documentation (1.0 hour, $58); mileage ($18); and a home scale and teaching materials ($45). Total variable cost: $314 per patient.

Fixed, per year: a half-time program coordinator ($52,000 with benefits); initial and refresher training for nurses ($6,000); and a license for the remote documentation module ($8,000). Total fixed cost: $66,000 per year.

Over a longer window, almost everything becomes variable. The coordinator's salary is fixed for a year but could be removed if the program ended, and the software license is fixed only for the contract term.

Average and Marginal Cost

With 480 patients enrolled a year, the average cost per patient is the variable cost plus a share of the fixed cost: $314 plus $66,000 divided by 480, or about $137.50, giving $451.50 per patient.

The marginal cost of enrolling one more patient, once the program is running, is only the variable cost of $314, because the coordinator and the license are already paid for. This matters for decisions about expanding eligibility. Adding 100 patients, for example those discharged to assisted living, would cost about $31,400, not $45,150, because the fixed costs are already covered. It also matters for the first year, when average cost is higher if enrollment ramps up slowly: at 240 patients, average cost would be $314 plus $275, or $589 per patient.

Opportunity Cost

The largest cost of the program does not appear in the budget above. The agency's nurses already work at capacity, and the program's roughly 2,080 nursing hours a year, 960 for home visits and 1,120 for calls and coordination, would come from time now used for other patients, mainly early visits after joint replacement. If the hospital does not hire additional nurses, the true cost of the program includes the value of the displaced orthopedic visits: later wound checks, possibly more wound complications found late and less satisfied surgical patients.

The budget above already values that nursing time at wages, about $120,500 a year across 480 patients, which is roughly one full-time nurse. What the wage figure cannot show is what the hours would otherwise have produced. If the hospital hires one additional nurse, the budget figure is close to the true cost and orthopedic care is unchanged. If it does not hire, the wage cost appears on paper but the real cost is the displaced orthopedic visits, and their value may be higher or lower than the wages. Treating the cost of a replacement nurse as the price of avoiding displacement gives a practical anchor: about $120,000 a year buys the program without taking anything from orthopedic patients. Anything less than a new hire means someone else's care pays part of the bill.

Why the Hospital Perspective Is Not the Only One

From Medicare's perspective, the program's cost would be whatever fee the hospital charged, and its benefit would be the readmissions it prevents, each worth the full payment for an admission. From the patient's perspective, the program costs an hour or two of time at home and brings the possibility of avoiding a return to hospital, which for many older adults means days of disruption, deconditioning and family burden. From society's perspective, all of these count together, along with caregivers' time.

The hospital perspective is the right one for this write-up because the hospital would run and pay for the program and must decide whether to staff it. But it is the narrowest view. A program that looks marginal to the hospital could look clearly worthwhile to Medicare or to patients, and the difference suggests a case for shared funding, for example a payer contributing a per-patient fee. Stating the perspective at the start makes this visible; hiding it would make the program's value look fixed when it depends on whose books are being read.

What the Figures Do and Do Not Show

These figures show what the program would cost the hospital to run. They do not show whether it is worth running. That depends on how many readmissions it prevents and what each prevented readmission is worth to the hospital, which, as noted above, depends on the payment rules. A later cost-effectiveness comparison will bring outcomes in. A report of costs alone should not be read as an argument for or against the program. National guidance on cost-effectiveness analysis recommends reporting results from both the health sector and societal perspectives so that readers can see how conclusions change (Sanders et al., 2016); a hospital-perspective costing is one input to that fuller picture.

The next step is to set these costs against outcomes.

References

Drummond, M. F., Sculpher, M. J., Claxton, K., Stoddart, G. L., & Torrance, G. W. (2015). Methods for the economic evaluation of health care programmes (4th ed.). Oxford University Press.

McIlvennan, C. K., Eapen, Z. J., & Allen, L. A. (2015). Hospital Readmissions Reduction Program. Circulation, 131(20), 1796-1803. https://doi.org/10.1161/CIRCULATIONAHA.114.010270

Sanders, G. D., Neumann, P. J., Basu, A., Brock, D. W., Feeny, D., Krahn, M., Kuntz, K. M., Meltzer, D. O., Owens, D. K., Prosser, L. A., Salomon, J. A., Sculpher, M. J., Trikalinos, T. A., Russell, L. B., Siegel, J. E., & Ganiats, T. G. (2016). Recommendations for conduct, methodological practices, and reporting of cost-effectiveness analyses: Second Panel on Cost-Effectiveness in Health and Medicine. JAMA, 316(10), 1093-1103. https://doi.org/10.1001/jama.2016.12195