“Performance-Focused Activity Based Costing (PFABC) is a third
iteration of ABC. PFABC is a hybrid ABC method that attempts to
overcome some of the weaknesses associated with TDABC and ABC”
(Carroll & Lord, 2016). PFABC’s filling the voids for both, while
keeping the beneficial elements, and have added value to the
managerial costs system by giving the ability to analyze a variety of
aspects at once, like the effectiveness and efficiency of the
organization’s performance, acting as an aid in planning and
budgeting, as well as, linking resource costs directly to each
important activity performed. Resources are vast with this method
and include actual utilization of time as basis, surveys, interviews,
actual materials and more. This allows for the cost driver to be time
or activity, creating even more versatility.
The traditional costing method “allocates organizational overhead to
a specific output based on a predetermined cost driver or by using a
pre-determined percentage rate” (Paulus, van Raak, & Keijzer, 2002).
While being easier to implement that the PFABC, requiring
managerial or financial investment, and being widely accepted, it
yields impractical and unreliable true cost results because it disallows
the ability to separate service and product lines.
b b The price for healthcare services rendered is set by the
healthcare provider. The number of services rendered dictates the
utilization rate. Revenue is then generated by the price and number
of services rendered, or their utilization. If the volume of services
raises, the revenue may go with it in theory, however, after analysis,
“hospitals may try to attract new surgical volume by offering
discounted rates. For hospitals with a relatively high operating room
utilization (e.g., 90%), computer simulations predict that increasing
patient volume by the amount expected to "fill" the operating room
can have the net effect of decreasing contribution margin (i.e.,
profitability)” (Dexter & Lubaersky, 2001).
Carroll, N., & Lord, J. C. (2016). The Growing Importance of Cost
Accounting for Hospitals. Journal of health care finance, 43(2), 172–
185.
Paulus A, Van Raak A, & Keijzer F (2002). Core articles: ABC: The
pathway to comparison of the costs of integrated care. Public Money
and Management, 22(3), 25–32.
Dexter, F., Macario, A., & Lubarsky, D. A. (2001). The impact on
revenue of increasing patient volume at surgical suites with relatively
high operating room utilization. Anesthesia and analgesia, 92(5),
1215–1221. https://doi.org/10.1097/00000539-200105000-00025
