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Accounting and Medicine: An Exploratory

Investigation into Physicians’ Attitudes

Toward the Use of Standard

Cost-Accounting Methods in Medicine

Greg M. Thibadoux Marsha Scheidt

Elizabeth Luckey

ABSTRACT. Research studies demonstrate wide varia-

tion in how physicians diagnose and treat patients with

similar medical conditions and suggest that at least some

of the variation reflects inefficiencies and unnecessary

medical costs. Health care researchers are actively exam-

ining ways to reduce variations in practice through

standardization of medicine to reduce the cost of treat-

ment and ensure the quality of outcomes. The most

widely accepted form of this standardization is Evidence

Based Best Practices (EBBP). Furthermore, financial

health care providers such as hospitals and managed care

organizations are investigating methods to tie resource

usage to medical protocols in their efforts to monitor and

control health care costs. Such proposals are contentious

because they report on physicians’ medical practice

behaviors (such as the number of tests ordered, use of

specific therapies, etc.) and such reports could potentially

be used to influence their clinical behaviors. The intent of

this exploratory study was to examine physicians’

perceptions about linking a standard costing system to

EBBP guidelines. The authors interviewed nine practic-

ing physicians asking each physician to respond to the

question, ‘As a physician working in a hospital environ-

ment, what are your reactions to and concerns with

combining standard costing techniques with EBBP?’ The

interviews were in-depth and free form in nature. The

physicians’ responses were recorded and analyzed using

Grounded Theory Methodology. Using this methodol-

ogy the field data was categorized into two major themes.

The most important theme centered on ethics and the

second theme was concerned with the implementation

and use of a standard cost system in regard to EBBP. If

physicians’ worries about ethical dilemmas and imple-

mentation issues are not resolved, then it is likely that

doctors would be unwilling to participate in any efforts to

develop or use a standard cost-reporting system in med-

icine. While this study was exploratory in nature, it

should provide future guidance to accountants, health

care researchers and health care providers about physi-

cians’ issues with the use of standard costing methods in

medicine.

KEY WORDS: diagnostic related groups (DRGs),

evidence based best practices (EBBP), grounded theory

methodology, health care ethics, physician practices

Introduction

Healthcare costs in the United States have been

rising at an alarming rate over the last several dec-

ades, outpacing the Consumer Price Index. Cur-

rently, nearly 16% of the Gross Domestic Product

(GDP) is spent on health care (Kolata, 2006), and it

is projected to rise 7.3% annually for the next dec-

ade. By 2013 health care spending is projected to be

Greg M. Thibadoux, Ph.D. is a Professor of Accounting at the

University of Tennessee at Chattanooga. He has published

extensively on cost accounting and the business aspects of

healthcare in such journals as the Journal of Accountancy,

the CPA Journal, and Health Care Financial Manage-

ment.

Marsha Scheidt, DBA, CMA, is a Professor of Accounting at

the University of Tennessee at Chattanooga. She has pub-

lished exensively on cost accounting and information systems

in such journals as the Journal of Accountancy, the CPA

Journal, and Management Accounting Quarterly.

Elizabeth Luckey, B.S., CPA is a staff professional at Ernest &

Young, Nashville, Tennessee.

Journal of Business Ethics (2007) 75:137–149 � Springer 2007 DOI 10.1007/s10551-006-9241-z

$3.4 trillion and 18.4% of GDP (Centers for Medi-

care and Medicaid Services, 2004; Davis, 2003).

In part rising costs have been attributed to an

increasing use of unwarranted tests and treatments

performed primarily as defensive medicine against the

threat of malpractice lawsuits and in some cases pos-

sibly to increase revenue flow. These inefficiencies are

often termed by researchers as clinical variations,

although few researchers are willing to attribute such

variations to a specific cause. But regardless of the

reasons for variability, most researchers believe that

these variations may represent inefficiencies in prac-

tices. According to Dr. Blanton Bessinger, president

of the Minnesota Medical Association, fewer varia-

tions in practice would result in less unnecessary

medicine and lower medical costs (Adams, 2001).

Carnett (1999) in Quality Management Health Care

states that a leading cause of inadequate care can be

traced to clinical variations unaccounted for by pa-

tient variations. Recently, the Wall Street Journal

reported, ‘‘The Rand Corporation found that

Americans get the right treatment only half the time,

and other research shows the U.S. could reduce

health-care spending by 30% merely by eliminating

unnecessary care, operating more efficiently and

improving quality’’ (Landro, 2004).

In theory, one way to reduce clinical variations

and thereby control rising costs in healthcare, is to

encourage physicians to follow standard practice

guidelines known as Evidence Based Best Practices

(EBBP), clinical pathways, clinical practice guide-

lines, and standards of quality. These are all methods

for defining a general plan for diagnosis and treat-

ment of a disease including the appropriate tests and

the best treatment regimes. These guidelines are

based on results of scientific studies that provide

evidence about how to achieve the best outcomes in

the most cost-efficient manner. Many studies have

reported on the efficacy of using such standards. For

example, Flores et al. (2002) found that ‘‘clinical

path guidelines can improve health processes and

outcomes, including shorter hospital length of stays

and reduced utilization of resources.’’

Independent of the issue of clinical standards, stra-

tegic and financial healthcare planners have expressed

interest in the standardization of medical costs as a tool

for budgeting, planning, and variance analysis. For

example, Cleverly and Cameron (2002) in Essentials of

Health Care Finance have proposed a model for stan-

dardizing medical treatment costs for specific disease

classifications. The model could be used for planning

purposes, for reporting and for variance analysis.

The authors believe it is only a matter of time

before EBBP guidelines are tied to standardized costs

and that such efforts will increasingly require the use

of sophisticated cost-accounting methods. In fact, it

was recently announced that 28 major companies

including Sprint, Corp., Lowe’s Cos., J. C. Penney,

and BellSouth Corp, were making available physi-

cian ‘scorecards’ to their two million employees.

These ‘scorecards’ would include information about

the quality of care and would give patients financial

incentives to use doctors who were cost-efficient

quality care providers. The ‘scorecard’ will include

information about how well the physician performs

in comparison to accepted medical guidelines and

how effective she or he is at controlling the cost of

care, information that will in part come from

accounting systems (Landro, 2004).

While the use of cost-accounting methods in

medicine can be expected to provide much useful

information particularly to institutional providers,

third party payers and consumers, there will be

resistance from physicians. It is to be expected that

many physicians will decry this as a pernicious form

of ‘cookbook’ medicine, and that it will create a

number of ethical dilemmas. If accountants are to

become more involved in the business aspects of

health care delivery, they must be fully aware of

the many ethical concerns that physicians have

about the application of management techniques to

their clinical practices. Without such awareness,

accountants may end up creating accounting sys-

tems that jeopardize physicians’ relationships to

health care institutions, to third party payers, to

their professional commitment, and finally to their

patients.

It was the intent of the authors to investigate what

problems and concerns and also what (if any) ben-

efits physicians believe will result from combining

standard costs with EBBP guidelines to measure the

quality and the efficiency of medical treatment. Of

particular interest, will be whether such actions

create ethical dilemmas for practicing physicians.

Research methodology and the results of this study

are discussed after an introductory consideration

of evidence-based medicine and standard cost-

accounting techniques in health care.

138 Greg M. Thibadoux et al.

Standard costing in health care

In order to develop a standard costing model, one

must first determine the cost object (product or

service), secondly, define the inputs required for

producing the product or service, and finally,

determine acceptable standard quantities and costs

for the inputs. In health care all three of these steps

have been problematic and sources of contention.

Each issue is discussed below.

Products in health care

Exactly what is a product for a physician and for a

health care institution? Is the product the patient, the

disease category, the inputs such as x-rays, surgery,

drug therapy or is the product the change in the

patient’s health status? In fact, all of these and other

measures have been at some time defined as a cost

object in medicine.

Traditionally, there was little concern about the

cost object or its inputs on the part of physicians or

hospitals during most of the 20th century. Since

physicians were able to charge insurance companies

or Medicare, a ‘‘usual, customary, and reasonable fee’’

and expect near full reimbursement and reimburse-

ments (revenues) to hospitals were based on actual

costs incurred. Under these schemes, cost information

was primarily used to document expenses for tax

purposes and financial reporting and was used only

incidentally for planning and decision-making.

Typically for physicians, practice costs were

aggregated and collected in a chart of accounts

system which included categorizations for: labor

expenses, benefits, supplies, lab costs, facility costs,

etc. Products were essentially the services and

procedures that were billed out under standard

insurance codes. For hospitals, costs were allocated

to revenue-producing departments and then divided

by patient days to calculate cost per patient day

(patient day being the product). In summary, his-

torically the health care product for physicians has

been inputs used to treat patients, and for hospitals,

the product has been patient days (without any re-

gard for the type of patient or for their health status).

The traditional methods of paying physicians for

services rendered and for reimbursing hospitals on a

cost-plus basis provided incentives for physicians and

hospitals to maximize the number and costs of tests

and procedures performed and to generally over-

utilize institutional resources.

To address this problem, in 1983, Medicare

launched a new hospital payment system known as

Prospective Payment System (PPS). The PPS paid

for hospital costs on a prospective basis meaning that

rather than reimbursing the hospital for the cost of

the services after the fact, they would pay for health

care services that were provided with a predeter-

mined fixed price. The amount of reimbursement

was based on patient classification by Diagnostic

Related Groups. ‘‘The DRG system takes all possi-

ble diagnosis from the International Classification of

Diseases, 9th Revision, Clinical Modification system and

classifies them in to 25 major diagnostic categories

based on organ system ... These 25 categories are

further broken down in 511 distinct medically

meaningful groupings called DRGs. Medicare con-

tends that all resources required to treat a given

DRG entity should be similar for all patients with a

DRG category’’ (Cleverley, 2002).

Under this system, the costs of overutilization of

resources are now a financial risk to the provider (the

hospital) who is responsible for the costs of all tests

and procedures. It is important to keep in mind that

hospital resources used to treat patients are generated

by physicians not employed by the hospital. Prior to

the introduction of PPS, hospital revenues were

directly related to resources used and hospitals had

basically no incentive to monitor or control physi-

cian’s clinical behaviors. But now in order to

maintain financial solvency, hospitals have to mon-

itor and to some extent control physician practices

(the ultimate sanction being the loss of admitting

privileges). The prospective payment methodology

also affected physician behaviors outside of the

hospital since the Medicare system was adopted in

part by many managed care organizations that con-

tracted with practicing physicians. Given the

acceptance of the DRG as a health care product,

Cleverley has shown how standard costs for a DRG

classified patient can be calculated.

Developing standard costs in health care

Cleverley has developed a concept termed a Standard

Treatment Protocol (STP) which is analogous to a

Accounting and Medicine 139

standard job-order cost sheet for a manufacturing

firm. The STP is calculated in following manner.

• Step 1. Identify the DRG classification. One would first select the DRG of interest such

as cardiac disease-by-pass surgery.

• Step 2. Define general inputs. The general in- puts needed to treat a DRG classified patient

would be determined. For example, Illustra-

tion 1 below is a list of the inputs required

for by-pass surgery. Note that at this level of

analysis the inputs are primarily a listing of

departments involved in treatment.

• Step 3. Define departmental service units. After identifying the general inputs required for an

STP (as in Illustration 1) the type and stan-

dard quantity of departmental inputs required

for treatment are formulated. For example,

in Illustration 2 the dietary needs are six

meals. The output of a hospital department

is known as a service unit, e.g. the service

unit for dietary is a meal; for radiology,

x-rays; for nursing care, nursing hours, etc.

• Step 4. Develop a cost profile for departmental service units. The costs of each department’s

service units would include the costs of

materials, labor, and direct and indirect

departmental overhead. These would be cal-

culated as standard costs. An example of

ILLUSTRATION 2

Standard cost profile for patient meal-SU-202 (hypothetical ex.)

Variable units Fixed units Unit cost Variable cost Fixed cost Total cost

One regular patient meal – Service unit 202 (Assuming 2,000 patients a day, 365 days a year)

Direct cost

Direct materials 1.00 0.00 $1.10 $1.10 – $1.10

Direct labor

Manager 0.00 1.00 $0.02 – $0.02 $0.02

Chefs 0.05 of 1 hour 0.00 $12.00 $0.60 – $0.60

Servers 0.05 of 1 hour 0.00 $7.50 $0.38 – $0.38

Dishwashers 0.05 of 1 hour 0.00 $6.75 $0.34 – $0.34

Total direct labor $1.32 $0.02 $1.34

Total direct costs $2.42 $0.02 $2.44

Allocated cost

Housekeeping 0.00 0.10 $1.00 – $0.10 $0.10

Overhead 0.00 1.00 $0.15 – $0.15 $0.15

Total allocated costs $0.25 $0.25

Total cost $2.42 $0.27 $2.69

Calculations

Managers unit cost

Salary $45,000.00

Meals/year $2,190,000.00

Cost/meal $0.02

ILLUSTRATION 1

General inputs needed to treat DRG-cardiac

disease-by-pass surgery

Diagnostic tests

Education of available choices

Administrative receiving charges

Nurse ‘prep’ time before surgery

Surgery

Hours of nursing care/day

Dietary

Housekeeping

Linen services

Pharmacy

Preventative education

Administrative billing charges

140 Greg M. Thibadoux et al.

how to cost the dietary department service

unit, regular meal, is shown in Illustration 2.

• Step 5. Cost out the STP. A complete hypo- thetical standard cost report for the STP used

to treat DRG-cardiac disease-by-pass surgery

is shown in Illustration 3. Note that in the

cost report, the standard quantities of service

units needed (see Step 3) are multiplied by

the standard costs of service units (see Step

4) and all costs are summed.

Using standard costs in health care

Knowing the cost for treating a typical DRG clas-

sification could be very useful to hospital financial

planners for budget projects, for contract negotia-

tions, and for decisions such as hospital expansion,

addition of new services, and outsourcing. But such

information could also be used to monitor the

performance of the hospital departments as well as

physician behaviors in regard to test ordering, length

of hospital stay, and overall cost and quality

effectiveness. In essence, a STP incorporating stan-

dard quantities allowed and standard costs per input

could be used to calculate cost variances for each

DRG classified patient. An example of how this

could be done is shown in Illustration 4 for one of

the service units (nursing care) for the By-Pass

Surgery DRG.

In this case, the $1,350 unfavorable nursing care

price variance might be due to unanticipated wage

increases or may reflect the use of a more skilled and

expensive mix of nurses than was planned. The

favorable nursing care efficiency variance of $1,030

created when the nursing used fewer hours than was

originally budgeted could be the result of the

patients’ conditions, the efficacy of the surgeons,

improved technology and nursing care or even ran-

dom variation. In any case, significant variances only

direct managers’ attention to a situation. Determin-

ing the reasons for the variances will require further

investigation (note: both significant favorable and

unfavorable variances should be investigated).

Problems with standard costing in health care

Technically, Cleverley’s STP scheme is not theo-

retically or practically any more complex than the

standard cost reporting being currently done in

ILLUSTRATION 3

Standard treatment protocol cost report-cardiac disease-by-pass surgery (hypothetical example)

Service

unit

Service unit name Quantity Variable

cost per

unit

Fixed

cost per

unit

Total

cost per

unit

Total

var.

cost

Total

fixed

cost

Total

cost

Standard treatment protocol for by-pass surgery

92 Diagnostic tests 1 $200.00 $150.00 $350.00 $200.00 $150.00 $350.00

900 Education of available choices 1 $4.00 – $4.00 $4.00 – $4.00

500 Administrative receiving charges 1 $30.00 $15.00 $45.00 $30.00 $15.00 $45.00

211 Nurse ‘prep’ time before surgery 1 $2.50 $0.50 $3.00 $2.50 $0.50 $3.00

300 Surgery 1 $2,200.00 $1,000.00 $3,200.00 $2,200.00 $1,000.00 $3,200.00

201 Nursing care level 1 2.5 $18.00 $0.30 $18.30 $45.00 $0.75 $45.75

202 Nursing care Level 2 5 $10.00 $0.30 $10.30 $50.00 $1.50 $51.50

020 Meals 6 $2.41 $0.27 $2.68 $14.46 $1.62 $16.08

010 Housekeeping 2 $1.20 $0.40 $1.60 $2.40 $0.80 $3.20

015 Linen services 1 $1.20 – $1.20 $1.20 – $1.20

131 Pharmacy 2 $151.00 $1.24 $152.24 $302.00 $2.48 $304.48

124 Laboratory tests 1 $52.00 $48.00 $100.00 $52.00 $48.00 $100.00

901 Prevention education 1 $6.00 – $6.00 $6.00 – $6.00

502 Administrative billing charges 1 $40.00 $10.00 $50.00 $40.00 $10.00 $50.00

Total $2,949.56 $1,230.65 $4,180.21

Accounting and Medicine 141

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142 Greg M. Thibadoux et al.

manufacturing and service industries. In fact, costing

departmental hospital service units is a fairly routine

task. The problem comes in specifying the type and

quantities of inputs needed for treatment for a DRG

classified patient. The examples used by Cleverley and

those presented in this paper are not based on any

accepted normative treatment standards (they are

simply made up for demonstration purposes).

Without acceptable treatment guidelines, standard

cost reporting in medicine will remain only a the-

oretical possibility. But now as more physicians and

health care payers accept the validity and usefulness

of normative EBBP guidelines, it may be possible to

turn theory into practice.

EBBP are diagnostic and treatment clinical

guidelines that have been scientifically proven to

provide for the best medical outcomes (given the

current state of practice). These standards have been

evolving over the last 20 years in response to man-

aged care initiatives and to advances in the theory

and the science of measuring quality of care (Kinney,

2001, p. 324).

The efforts of the federal government (Medicare,

Veterans Administration and Center for Medicare and

Medicaid Services), managed care organizations such

as Kaiser Permanente, and medical specialty societies

(discussed below) have been particularly instrumental

in development of EBBP. A number of studies have

shown that EBBP can lower hospital costs, improve

medical outcomes and are generally acceptable to

practicing physicians; see Flores et al., 2002; Hitchens,

2002; Lain et al., 1998; Stewart et al., 1997.

When physicians practice with EBBP they

usually refer to a published checklist of guidelines

since full text versions of EBBP can exceed a

hundred pages (see http://www.guideline.gov/

summary/summary for available checklists.). It is

the development of such guidelines and checklists

that make it feasible to combine standard cost

profiles with DRG classifications, particularly for

more common conditions.

Given that cost-accounting techniques are

increasingly used in health care institutions, the

growing concern over variability in physician prac-

tices, alarm over rapidly rising health care costs, and

the acceptance of EBBP checklists by practicing

physicians, the authors contend that it is only a

matter of time before efforts are made to standardize

the costs of treatment for the more common medical

conditions. Obviously, any effort to tie the practice

of medicine to the cost of treatment can be expected

to be highly contentious to both health care pro-

viders and third party payers. The authors’ intent was

to determine physicians’ perceptions about the use of

standard costing in medicine and in particular their

ethical concerns about such efforts. The study fo-

cused on cost reporting in hospitals for two reasons;

first, because these institutions have well-defined

products (DRG classified patients), and secondly,

because they have a clear incentive to limit resource

usage.

Methodology

The authors used Grounded Theory methodology to

test physicians’ perceptions about the viability of using

standard cost EBBP guidelines in a hospital environ-

ment. This methodology is an accepted tool used in

the social sciences for qualitative analysis of interview

and other forms of narrative data (Willig, 2001). The

following is a brief discussion of this methodology and

the specific application by the authors.

Model formulation

A model is postulated in the form of a question or

statement. The model in this study is the viability of

using standard cost EBBP guidelines in a hospital

environment. The operational model was the

question, ‘‘As a physician working in a hospital

environment, what are your reactions to and con-

cerns with combining standard costing techniques

with EBBP?’’

Initial field data collection

Initially, in-depth free form interviews were con-

ducted with seven physicians currently practicing in

two southeastern states. 1

All physicians had extensive

front-line hospital experience and include both pri-

mary care providers and specialists. At the beginning

of the interviews, the physicians were given a gen-

eral explanation of cost accounting and standard

costing. Illustrations 1–4 were used as visual aids.

They were also questioned about their knowledge of

Accounting and Medicine 143

EBBP; all were very familiar with the concept. The

physicians were then encouraged to respond to the

research question and allowed to discuss any issues or

concerns they felt were relevant (there was no time

limit or pre-set agenda). Their responses were

transcribed.

Coding data

After data collection, the researcher analyzed and

coded the data into specific categories. These cate-

gories were then compared and analyzed to deter-

mine if there were common themes or relationships

between them. The coding of data was repeated

until the researchers were confident that all possible

relationships have been defined.

Themes (core categories)

An initial core category (occasionally more than one)

will emerge from the field data interviews. These

categories represent major themes from which will

emerge a number of related basic issues and specific

concerns. Ultimately, unless the specific concerns

are adequately addressed, the respondents will likely

reject the implications of the research question. At

issue in this study, unless basic issues and specific

concerns about the use of standard EPPB guidelines

in a hospital environment are resolved, physicians

can be expected to reject any such proposals. In this

study, two core categories or themes emerged from

the field data.

Refine model

After the initial hypotheses are constructed, the

model is further defined to include any missing but

relevant conditions not reflected in the original

research question or statement. In this study, the

research question was not modified.

Test for theoretical saturation

Additional data are collected to ensure that all

relevant issues have been defined. In this study,

two additional practicing physicians were inter-

viewed and no additional concerns or issues were

noted.

Develop basic issues (subcategories)

For each theme a number of basic issues are iden-

tified. Each issue or subcategory is in some way re-

lated to the overarching theme but in and of itself is

not definitive of that more general core category. In

this study, a number of basic issues were identified

for each theme.

Define specific concerns related to each basic issue

(operational measure)

To be useful in a real world situation, a theme must

be defined by a number of basic issues which in turn

can be further broken into a number of specific

concerns. Based on the interview data, a number of

physician concerns with standard cost reporting

were identified. The assumption is that unless these

specific concerns are resolved, physicians will not

support the use of standard cost reports in a hospital

environment.

Results

Physicians’ responses to the research question were

categorized into two themes or core categories; one

involving ethical issues and the second concerned

with the implementation and use of a standard cost-

reporting system. These two themes, related basic

issues, and specific physician concerns are discussed

below.

Ethics (theme)

Ethical issues were cited more often than any others

with eight of the nine physicians expressing concern

about ethical dilemmas that may arise from the use of

standard costing models in medicine. A graphical

depiction of the ethics theme, related basic issues and

specific physician concerns about potential ethical

problems related to implementing and using a stan-

dard cost system in medicine is shown in Figure 1.

144 Greg M. Thibadoux et al.

The following is a discussion of the basic issues and

specific concerns relating to the Ethics Theme.

Ethics and the use of variance analysis for performance

evaluation (basic issue)

Several of the respondents indicated that they felt

that standard cost reports could be a positive and

useful tool if used only for reporting and not for

performance evaluation. For example, one physician

stated that as long as costing methods were used

only to indicate possible problems and not used to

reprimand or control the physician there would be

no ethical concerns. One physician noted that

interpretation of variances may be problematic since

a positive cost variance may be a reflection of

inadequate treatment rather than compliance to

guidelines.

Another physician, a neonatal care doctor, stated

that it was possible to calculate the survival odds for a

premature baby based on their birth weight and

gestation time. She was concerned that physician

evaluations based on cost data would negatively af-

fect her clinical decisions for babies with low survival

odds. It would be crucial to know if cost consider-

ations might either directly or indirectly influence a

physician’s clinical behaviors.

Specific ethical concerns involving reporting

were:

• The use of variance analysis for reporting only.

• The use of variance analysis for monitoring and control.

Ethics and responsibility without authority (basic issue)

Physicians are concerned that they will be respon-

sible for costs for which they have no authority as in

the case of residents, interns, emergency room

Ethical Themes

Data Collect and Patient Confidentiality

Belief and Value Issues

Responsibility &Accountability

Treatment

Other Providers

Different Values

Ethnic Variation

Lifestyles

Medicine as Business

Variance Analysis

Monitoring

Evaluation

THEME BASIC ISSUES SPECIFIC CONCERNS

Figure 1. Ethics theme.

Accounting and Medicine 145

physicians, and hospitalists. For example, Dr. Jones

might be the admitting emergency room (ER)

physician when a patient enters the hospital. But,

every 12 hours the ER physicians (in this example)

rotate patients. A patient hospitalized for more than

one day may see several physicians. Dr. Jones does

not want to be responsible for the tests the other

doctors order, medications they prescribe, etc.

Additionally, physicians have little control over the

care given their patients by nurses and other hospital

personnel.

Specific ethical concerns related to responsibility

were:

• The degree of responsibility and authority the physician has over the patient once

admitted to the hospital.

• The degree of responsibility and authority the physician has over the hospital personnel

such as nurses.

Ethics and differing values (basic issue)

Physicians were worried that patients and doctors

may hold beliefs and values that conflict with EBBP

guidelines. For example, some patients may not

agree to blood transfusions, life-support or organ

transplantation because of religious beliefs for per-

sonal ethical reasons.

Patients may also make certain lifestyle choices

such as smoking that may negatively impact the

success of a treatment plan. In such a situation a

physician may be held responsible for the conse-

quences of the patient’s behavior even though

physicians may have little or no influence on lifestyle

choices. Some physicians feel that imposing EBBP

guidelines directly on every patient will not be an

effective means of measurement because not all pa-

tients hold the same health values or make the most

beneficial lifestyle choices.

A related and more basic concern is that most of

the EBBP guidelines are based on scientific studies

conducted predominantly on Caucasian males. Dif-

ferent ethnic groups may have different symptoms,

different drug reactions, or be more susceptible to

certain diseases than the study groups.

Specific ethical concerns about differing patient

values included

• Religious and ethical beliefs • Ethnic differences • Lifestyle choices

Ethics and data collecting (basic issue)

Information shared between a patient and the

physician is confidential. But, when data is collected

for the purpose of compiling the cost of an entire

episode of care, patient identifiers must be attached

to the data. This makes tracking repeat visits to the

patient’s original episode of care a potential viola-

tion of patient confidentially. For example, if a 73-

year-old woman has just been released from the

hospital for circulation problems related to diabetes

and then is re-admitted the following week because

of breathing problems, the two hospitalizations are

probably related. But, this relationship will not show

up in the cost data unless the patient is identified to

the non-medical personnel responsible for calculat-

ing and reporting on cost variances. Providing pos-

sibly sensitive medical information to accountants,

managers, insurance companies, etc. is problematic.

In this case, since there was only one issue, patient

confidentially, there was no need to further specify

physician concerns.

Ethics of medicine as a business (basic issue)

Finally, as would be expected many of the physicians

interviewed expressed concern and in some case

hostility towards the idea of tying business concepts

to their personal practice of medicine. Even physi-

cians who felt that health care was a business and that

cost control was a major issue were very worried that

their clinical decision-making could be compro-

mised by standard costing methods. One respondent

asked what right an ‘‘outsider’’ has to dictate how he

treats his patients. Another physician stated that cost

controls and providing quality care were two en-

tirely separate issues. It should be noted that several

of the physicians did state that the practice of med-

icine did involve business considerations, and one of

the physicians was currently working toward an

M.B.A. degree. These physicians’ main issue seemed

to be with treating clinical practice as a business

rather than the fact that health care in general is a

146 Greg M. Thibadoux et al.

major business. Again, since there was only this one

issue, treating medicine as a business, the authors did

not define any specific physician concerns.

Implementation and use of a standard cost-reporting system

(theme)

The second major theme could be characterized as a

general concern with how a standard costing system

would be implemented and actually used. A graph-

ical depiction of this theme, related basic issues, and

specific physician concerns about implementation

and use of standard costing in medicine is shown in

Figure 2. The following is a discussion of the basic

issues and specific concerns relating to the Imple-

mentation and Use Theme.

Data gathering issues (Basic issue)

Several physicians were very concerned about how

the data for cost reports and variance analysis would

be collected. In particular, they felt several condi-

tions must be met in regard to data collection for

them to support a standard cost-reporting system.

First, cost reports should not be for individual inputs

but for the entire episode of care including all of the

diagnostic lab work, nursing hours, surgery time and

costs, and recovery for surgery patients, etc. In some

cases, cost reports should include both inpatient and

outpatient costs.

Secondly, cost must contain all information that

could qualify the use of cost reports for comparison

purposes. For example, the report should include

data about patient demographics, any confounding

medical conditions (co-morbidity), and patient’s

prior history of treatment (or lack of medical care).

Specific concerns involving data gathering were:

• Completeness of report-episode of care • Completeness of report-patient data

Report usage (basic issue)

The second basic issue centered on how the report

was to be used.

Two physicians stressed the importance of patient

case-mix adjustments in reporting. For example, if

comparison guidelines are derived from a population

of white middle-class male patients and are used to

evaluate the costs and results of treatment for lower

income African-American female patients, signifi-

cant variances may be meaningless.

Second, adjustments must be made for differences

in types of institutions in which care is provided. For

example, it is unfair to make cost comparisons be-

tween health care delivered in primary rural hospitals

versus care provided in a state-of-the-art tertiary

level hospital. In some cases, the only type of

meaningful comparisons may be between physicians

practicing in the same institution.

Usage Themes

Maintenance Issues

Report Usage Issues

Data Gathering Issues Treatment Data

Patient Data

Case-Mix Issues

Cost Adjustments

Compliance

Updating EBBP

Disseminating Updates

THEME BASIC ISSUES SPECIFIC CONCERNS

Figure 2. Implementation and use themes.

Accounting and Medicine 147

Third, there is an inherent difference between

how physicians are compensated and how a hospital

is reimbursed. Generally, a physician is paid the same

amount regardless of whether they use an excessive

number of tests or procedures or how long the

patient is in the hospital. On the other hand, under

prospective payment the hospital’s margins are

related to the amount of resources consumed. At

present, there is little incentive for a physician to

practice cost control in a hospital and if pressured to

do so may choose to admit patients to other hospi-

tals. Unless the hospital instituting a standard cost-

reporting system can devise effective incentives for

physician compliance, the system will likely fail.

Specific concerns about report usage were:

• Case-mix adjustments for clinical guidelines and costs

• Institutional adjustments for costs • Compliance incentive program for physicians

Maintenance (basic issue)

The third basic issue involved EBBP maintenance

issues. Interviewees were concerned that EBBP

guidelines used by the hospital may not be updated

often enough to reflect current theory and practice.

They also felt that it would be difficult keeping

physicians informed about changes in guidelines.

Specific concerns related to maintenance were:

• Updating EBBP guidelines • Disseminating changes in guidelines

Conclusion

The cost of medical care is becoming an increas-

ingly important problem for aging post-industrial

societies. Such concern will continue to translate

into the development and use of better methods for

insuring the most effective and efficient allocation

of health care dollars. It is very probable that some

aspects of medical practice will become more

standardized as a result of various initiatives put

forth by governments, third party payers and

hospitals to control resource usage. Currently,

various parties including the governmental health

services in England, Germany, Australia, and

Canada are calling for the adoption of some aspects

of EBBP. In fact, many of the leading research

institutions concerned with evidence-based medi-

cine are located in Europe, Australia, and Canada.

These include the National Institute for Health

Care and Clinical Excellence (United Kingdom),

the Center for Evidence-Based Medicine (United

Kingdom), Center for Reviews and Dissemination

(United Kingdom), the Australian Centre for Evi-

dence Based Clinical Practice, Centres for Health

Evidence (Canada), the Gruppo Italiano per la

Medicina Basata sulle Evidenze (Italy) and the

Cochrane Collaboration (multinational).

This study examined physicians’ attitudes toward

combining standard costs with EBBP guidelines for

use in a hospital reporting system. All physicians

(including primary care and specialists) interviewed

for the study had extensive front-line experience in a

hospital environment. Physician attitudes about the

use of standard costing were broadly classified into

two core categories: one theme concentrated on

ethical issues and a second theme centered on the

implementation and the use of standard cost reports.

Each theme incorporated a number of basic issues

and specific physician concerns about standard cost

reporting. Ultimately, the acceptance and use of

such a system will depend on how effectively hos-

pital administrators and other management personnel

are able to address these basic issues and physician

concerns.

Although this study was exploratory in nature and

the results should not be considered as definitive or

indicative of all physicians’ perceptions, the authors

believe that the findings indicate that, in general,

physicians are interested in knowing the cost of the

treatment protocols they prescribe. Although phy-

sicians were concerned about the use of such

information as an evaluative tool, most stated that

they currently had very limited knowledge about the

costs of treatment protocols and would welcome

such information.

Ultimately, to control escalating medical costs

and to ensure the best available treatment, physi-

cians, insurance companies, governmental health

service units, and other healthcare payers and

providers must know the clinical efficacy of treat-

148 Greg M. Thibadoux et al.

ment protocols and the costs of those protocols.

While additional research is needed to determine if

there are any other relevant issues and to ensure

that the results are applicable to a greater range of

practicing physicians, the authors feel that this study

provides valuable information about physicians’

attitudes concerning standard costing and EBBP

guidelines.

Regardless of how healthcare is provided and

financed, whether through a decentralized frag-

mented system as in the United States or more

centralized governmental systems as in Europe,

there will always be an interface between the

management and clinical provision of healthcare.

Perhaps the information generated by applying

traditional standard cost-accounting techniques to

evidence-based medicine protocols will be relevant

to both health care providers and policy planners

who must make crucial decisions about how to

efficiently and effectively deliver health care to

their aging populations.

Note

1 To ensure against sampling bias, a range of physi-

cians were interviewed including family practice, inter-

nal medicine, neonatal, and surgical specialists who

practiced through private offices, hospitals, and medical

schools.

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Greg M. Thibadoux and Marsha Scheidt

Department of Accounting, College of

Business Administration

University of Tennessee at Chattanooga

615 McCallie Avenue

Chattanooga, TN 37403, U.S.A.

E-mail: [email protected]

Elizabeth Luckey

Ernst & Young

Nashville, TN

U.S.A.

Accounting and Medicine 149