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• Steps 1-4 to Dev. Cost Based Fees
  

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3. 8 Steps to Developing Cost Based Fees

The 8 steps in the development of cost based fees:
1-4 are covered, 5-8 covered in module II

1. Identify the functional cost center areas
2. Identify services provided in each cost center
3. Collect cost data and allocate costs to each functional cost center
4. Allocation of overhead costs to functional cost centers
5. Determine the relative values of services/procedures
6. Collect utilization data on services provided
7. Determine total units of service provided
8. Determine cost of each service

• Visits and Procedures
• Counseling
• Laboratory
• Pharmacy

Steps 1-4

1. Identify the functional cost center areas

• Utilization data must be available for each type of service in order to determine costs and to set fees
• Sub-centers can be rolled into a single cost center

2. Identify services provided in each cost center

Within each cost center, there are several services that will be included in each category. The table below details the many activities that may be measured and reflected in the cost center data.

3. Collect cost data and allocate costs to each functional cost center

Allocating expenses, including salaries, wages, fringe benefits, and all other program expenditures is the most important element in determining the cost of providing services.

• This process must be done appropriately and consistently to capture the real costs that occur in each cost center
• It may be done in a variety of ways
• The methodology must accurately represent expenditures in each cost center

The first task is to allocate all staff into the cost centers

• Allocate each and every person who has worked during the reporting period into one or more functional cost center(s).
• Allocate an individual into as many functional cost centers as are appropriate.
• It is important to allocate staff based precisely on the functions they provide, NOT on job title. For example, a nurse practitioner may not be providing nurse practitioner functions at all times. She may variously provide support for the laboratory, for the pharmacy, for counseling, and as an administrator.
• Individuals who are paid by contract or are per diem also need to have their time allocated.
• It is not the method of payment for services that becomes important but the time staff spends in particular cost centers performing related duties.
• The best way to accomplish staff allocation is through a time study. Ideally, the time study should be done at two different points of time during the year. These should represent “typical” time periods.

• Tstudy.pdf
• Also Allocation of Staff by Time Study in Excel format

Placing data on the spreadsheet

• Once the time study has been completed, the information is put on the “Alloc-Staff” spreadsheet
• To begin the process, move to Part A of the spreadsheet
• Enter the names of the staff that worked any time in the family planning program during the timeframe of the analysis
• These names will automatically be filled in on Part B of the spreadsheet
• Then allocate the percent of time the individuals worked in each cost center
• Enter this in decimal form (i.e.: 0.4; 0.6, etc.)
• Looking at the sum of the decimals checks the entries. (The check column must equal 1.0)
• Once the percentage of time has been allocated, go to Part B of the spreadsheet (below Part A) and enter the amount paid to each staff person in the last column
• Include Fringe Benefits with the amount paid
• These Fringe Benefits should be available, by individual, from your accounting department
• If they are not available by individual, put the total FB paid in “Other Expenses.”
• By inserting these amounts in ”total paid”, this spreadsheet will automatically spread the total amount into the appropriate cost centers based on the percent of time allocated on Part A

4. Allocation of overhead costs to functional cost centers

• Of equal importance is the allocation of “other than personnel expenditures” incurred by the program
• Some of these expenses may be allocated 100% into a single cost center while others will be spread over two or more cost centers depending on their use and function
• The methodology for allocating these expenditures will vary from program to program
• Track the usage through inventory control and usage
• Allocate the expenditure based on the square footage utilized by each functional area
• Use the percentage of staff salaries in each cost center
• These include all other expenses incurred by the agency for the reporting period
• Other expenses plus staff expenses represent all cash outlays for the year
• Allocation of donated goods and services:
• Include personnel that are donated or volunteers that provide services to the agency
• Equipment (or the depreciation on donated equipment), supplies, laboratory services, medical or clinical goods, or office space
• Allocate those individuals that volunteer in your program or are donated by some other agency
• If these individuals were not available you would: have to pay for those services on the open market or have to do without their services
• The final step in completing the report is to add the square footage for each cost center
• A total of all the square footage must be determined
• To obtain the square footage, you need to either measure the facility (facilities if you are in multiple sites) or have a floor plan(s) and determine from that the square footage used by each functional cost center
• Insert the actual number of square feet used in each cost center in this column

Section: Main 1 2 3 4

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URL: http://www.hcet.org/training/Mmatters/ModI/3DevCost.htm
 Last update: 04/17/08