8pg- Activity Based Accouting Paper

ABSTRACT

Health has become very expensive in the United States. A very big percentage of people are finding it hard to fund their medical expenses. To deal with this problem, the reduction of healthcare costs and the increase in performance management are two major components that are required. The management and accounting practices of the health industry have been highly affected by the need to reduce the costs and improve the performance of the sector. Activity based accounting, which is often borrowed from the private sector, is one of the main strategies that most institutions in the health industry are trying to apply to improve the performance of the sector. This research paper intends to analyze the case of the health industry and how it has applied activity based accounting. The research will also analyze the process of implementation of activity based accounting in the industry and the benefits that it has had in the areas within which it has been implemented.

INTRODUCTION

Healthcare systems in almost all countries face the pressure of delivery effective but cost-efficient care in the face of increasing demands. Healthcare has faced a great challenge of providing affordable healthcare services. These pressures have led to the development of various initiatives and strategies to improve the quality of healthcare delivery in the country. Activity based accounting is one strategy that has been applied by various US healthcare organizations to improve the efficiency of the care they provide. This strategy assigns costs according to the activities performed; making it easier to track the consumption by each. The purpose of this research paper is to help explain how activity based costing works, its strengths, limitations, successes, and downfalls in the healthcare industry.

CHALLENGES IN HEALTHCARE COSTING

1. Tholemeier, R. (2016). Making Healthcare Affordable: Implementing True Continuous Costing. PR Newswire.

The article indicates that the actual costs of offering healthcare remain hidden regardless of the way we pay for care. People pay for health care in one way or another. For example, pay for health care in the form of reduced global competitiveness, increased debt, reduced net wages, reduced jobs, and high taxes. This is something that individuals do not realize such as the business of offering healthcare. The article offers the programs and strategies that reduce volume for delivery of healthcare services to decrease the aggregate of the healthcare bill.

2. McBain, R. K., Jerome, G., Warsh, J., Browning, M., Mistry, B., Faure, P. I., & ... Kaplan, R. (2016). Rethinking the cost of healthcare in low-resource settings: the value of time-driven activity-based costing. BMJ Global Health, 1(3), e000134. doi:10.1136/bmjgh-2016-000134

The article reveals that both the low and middle-income accounts for more than 80% of the infectious diseases in the world. Besides, the allocation of the judicious resources means a great difference between the entire patient population and individual patients. The understanding of the cost of healthcare is fundamental in the allocation of the healthcare resources. Some of the allocated resources include medicine and staff in ways that are fair, just, efficient, and effective. The article indicates the health costs that are not understood and instead undermines the efficiency and effectiveness of service delivery.

3. Arredondo, R. (2014). Why revisit your cost-accounting strategy. Healthcare Financial Management, (7). 68.

This article helps to demonstrate the importance of developing new cost-accounting strategies by explaining the challenges that are currently being faced in the United States healthcare industry. The author believes that there is a high level of resources and ineffective allocation of resources that is causing the cost of healthcare to be higher than it is supposed to be. Activity based cost accounting has been suggested as one of the techniques that the organizations in the healthcare industry can reduce the costs of operation.

ABOUT ACTIVITY BASED ACCOUNTING

4. Spence, J., &Seargeant, D. (2015). Implementing a trustworthy cost-accounting model. Healthcare Financial Management, (3). 84.

This article gives a comprehensive analysis of the activity based cost accounting model and its benefits in managing the costs of the health industry. The article explains that the cost management should be done on the activity level in order to understand the true costs of healthcare service delivery. The challenge with many healthcare organizations is that they have outdated cost management models that are preventing them from tracking the true costs of each of the activities performed in the system. This system assigns costs to each activity individually therefore the tracking of costs can be easier for involved organizations. In summary, through this article, one can develop an idea of how the activity based accounting model works and what makes it different from the conventional accounting models.

APPLICATION IN HEALTHCARE

5. Chapman, C., Kern, A., &Laguecir, A. (2014). Costing Practices in Healthcare. Accounting Horizons, 28(2), 353-364. doi:10.2308/acch-50713

This article provides a detailed analysis of how activity based costing can be applied in the healthcare industry within the rising costs of healthcare service. It gives a detailed attention into how the costing is done within the healthcare industry. The article makes a consideration of the interdependencies between the major elements of the healthcare industry that make it different from other industries. For instance, the relationship between the diagnosis related group systems and costing activities has been explained. In particular, the diagnosis related group systems require a more detailed costing model for them to be effective. These and other factors contribute to the disintegration of the jurisdiction of cost management.

6. Giuseppe Grossi and Assoc. Prof. Ileana Steccolini, P., &Campanale, C. (2014). Time-driven activity-based costing to improve transparency and decision making in healthcare : A case study. Qualitative Research In Accounting & Management, (2), 165. doi:10.1108/QRAM-04-2014-0036

This article discusses the potentialities of the application of activity based costing in the improvement of cost management within healthcare organizations. In addition, this article analyses how this costing system can help to improve transparency within the health industry. The study found that the activity based costing system helps to develop a higher consistency between the healthcare service activities and the resource allocation. This system was found to increase the chances of better resource allocation and minimized resource wastage on activities that were not very important. The level of transparency during the use of this system was also found to be better.

7. Cannavacciuolo, L., Illario, M., Ippolito, A., &Ponsiglione, C. (2015). An activity-based costing approach for detecting inefficiencies of healthcare processes. Business Process Management Journal, 21(1), 55-79. doi:10.1108/BPMJ-11-2013-0144

This article was developed to create methodological framework to determine how the implementation of an activity based costing system integration with the existing healthcare system cost management models can help to benefit the organization. The article identifies some inefficiency in the integration of the activity based accounting and the existing accounting models and how they affect service delivery. The study findings pointed out that the effectiveness of the Business Process Management methodology in producing significant information about the resource consumption and the costs of the activities is important in the integration process. This is important in highlighting the opportunities and barriers that exist in the existing accounting system that would enhance or hinder the integration process.

BENEFITS OF ACTIVITY BASED ACCOUNTING

8. Kaplan, R. S., Witkowski, M., Abbott, M., Guzman, A. B., Higgins, L. D., Meara, J. G., & ... Feeley, T. W. (2014). Using time-driven activity-based costing to identify value improvement opportunities in healthcare. Journal of Healthcare Management, (6). 399.

This article analyses the early stage implementation of the activity based costing system in various healthcare organizations. The article specifically analyses the impact of the implementation of this costing system in the improvement of value for patients. The article found that this system helps to improve the quality of service delivery. Most importantly, this costing method was found to have a positive impact on the reduction of healthcare costs. The organizations that have implemented this system were found to have lower costs of service provision. The study that this system be implemented in more organizations to help deal with the issue of the rising healthcare costs.

9. Cokins, G., & Scanlon, C. (2017). Measuring and managing patient profitability: activity-based costing is an imperative for health systems seeking to ensure the profitability of their enterprises under value-focused health care. Healthcare Financial Management, (4). 34.

This article explains how the health industry can deal with increasing pressure from the public and the government to deliver value at a minimized cost. The article suggests that this problem can be managed by creating innovative methods of cost management. Activity based accounting is the major technique that has been suggested as a method of reducing the costs of the healthcare system. The article provides some benefits of using this system. The activity based costing model helps the healthcare organizations to track the resource allocation to various activities more effectively hence increasing the chances of reducing costs and increasing the transparency of the healthcare system.

10. Kaplan, R. S. (2014). Improving value with TDABC. Healthcare Financial Management, 68(6), 76-84.

This article explains more about time-driven activity based accounting. This system traces the activities that the patient goes through throughout the variety of care for any specific medical conditions. It identifies the real cost of each resource that has been used, like the personnel, ward, consumables, and all equipment, in both outpatient and in-patient settings. The system also documents the amount of time that has been spent on each of the resources. Lastly, it supports the ability to combine all the cost information in the various organizations that deliver healthcare to a single patient through the course of the care.