Issues in nursing labor costs allocation

Prospective payment has created a desire for improved internal operating efficiency by nurse executives and hospital administrators. Identifying nursing costs is one step in obtaining those efficiencies. Improved nursing cost allocation methods have been developed but these systems are costly to implement. Finding a low cost alternative to such systems would be valuable. The authors present direct comparisons of conventional daily and acuity based nursing labor costs allocation systems. Consistent with the findings of others, they demonstrate substantial differences between these methods. There is a high correlation of nursing labor costs with the patient's ancillary costs. However, the correlation is not sufficiently strong to use as a proxy for nursing costs. Consequently, nurse executives should strive to implement nursing cost allocation systems.