Cost analysis helps evaluate contract profitability.

A cost-accounting analysis can help group practices assess their costs of doing business and determine the profitability of managed care contracts. Group practices also can use cost accounting to develop budgets and financial benchmarks. To begin a cost analysis, group practices need to determine their revenue and cost centers. Then they can allocate their costs to each center, using an appropriate allocation basis. The next step is to calculate costs per procedure. The results can be used to evaluate operational cost efficiency as well as help negotiate managed care contracts.