Title: Section 456.1 - Introduction

Section 456.1 Introduction. (a) Cost finding is the apportionment or allocation of the costs of the nonrevenue-producing centers to each other and to the revenue-producing centers and final program centers on the basis of statistical data reflective of the amount of service rendered by each center to the other centers.

(b) In general, each nonrevenue, ancillary revenue or program revenue center has a total expense of operation which can be described in an algebraic equation comprised of its own direct expense plus some fraction of the total expense of the operation of each of the other centers.

(c) Also, each center has a relationship to each of the other centers that can be described by a statistical allocation basis which is reflective of the relative amount of service rendered.

(d) Cost finding is a mathematical process used to solve the problem of allocating expenses to each center and subtotal expense in each ancillary or program center after the allocation of nonrevenue centers has been accomplished.

(e) While there are a number of methods that can be and have been used (direct allocation, single step down, multiple step down, matrix inversion, etc.), the matrix inversion process which solves equations simultaneously is the most accurate. This process recognizes all the services provided by one reporting center to all other centers. The complete recognition of services is not possible to the same degree in the other cost-finding processes. Although it is anticipated that the matrix inversion process will be used, the uniform system of statistical allocation is applicable to any process.

(f) This Part discusses the segregation of costs, the source for the compilation of data and other information pertinent to the cost allocation process.

(g) When the single step-down method of cost allocation is employed, the cost centers involved in the step down shall be arrayed in the following sequence:

Depreciation, Leases and Rentals

Depreciation on Major Movable Equipment

Interest on Capital Debt

Fiscal Services

Administrative Services

Plant Operation and Maintenance

Grounds

Security

Laundry and Linen

Housekeeping

Patient Food Service

Cafeteria

Nursing Administration

Activities Program

Non-Physician Education

Medical Education

Medical Director's Office

Medical Records

Utilization Review

Social Service

Transportation

Laboratory Service

Electrocardiology

Electroencephalogy

Radiology

Inhalation Therapy

Podiatry

Dental

Psychiatric

Physical Therapy

Occupational Therapy

Speech and Hearing Therapy

Pharmacy

Central Service Supply

Medical Staff Service

Ancillary--Other--A

Ancillary--Other--B

Ancillary--Other--C