What a “Happy Meal” Has in Common With Overhead Costs

fast food isolated on white backgroundWhen you order a combo meal at a fast-food restaurant, the bill is for a sandwich, side and drink. You don’t get charged separately for the lettuce, tomato, pickles, ketchup, wrapper, carton and cup. The same concept applies to a hospital. If you get an X-ray, you’re charged for the X-ray. There’s not a separate charge for the registration clerk, the technician who performs the test, the electricity that was used to run the equipment, etc. However, all of these things—and many more—are costs that are necessary in operating a hospital.

These overhead costs must be assigned to the various patient care-related service lines of the hospital. This is done through the use of overhead allocation statistics. The regulations have several different options for assigning the costs, as well as options for the statistics that can be used.

Tip #9:

Periodic time studies, in lieu of ongoing time reports, may be used to allocate direct salary and wage costs of overhead departments (Pub 15-1, §2313).

There are specific criteria for the time studies in section 2313. You should familiarize yourself with the criteria and periodically review the time studies of your hospital to ensure they are in compliance.

Further guidance is available on the Centers for Medicare and Medicaid Services (CMS) website:

Provider Reimbursement Manual

Questions? Please contact Marie White at 612.253.6546 or mewhite@eidebailly.com.



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