- Activity Based Costing
- Activity Based Cost Accounting
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Every business in every industry is looking for ways in which they can improve their product or service while cutting the costs involved. Truly, there is no other industry out there working harder than those in healthcare, especially due to the fact that healthcare costs have continually been on the rise. As such, the decision makers in healthcare systems have been looking for understanding and technology that would help identify cost problems as well as improve the overall functions that happen while patient seek treatment. A tool that they stumbled upon was that of activity based cost accounting, or ABC accounting, which is used to reveal true costs associated with business.
"All medical practices should have a computerized billing system with practice analysis capabilities." ManagedCaredMag.com
ABC accounting is very effective and has been employed in manufacturing and other large industries as a way of better classifying the exact costs associated with a product and production line. By doing this, manufacturers could clearly identify manpower hours, supplies needed and all other costs involved to then recognize if waste was happening, where to allocate funds, how to price their products and how to plan for the future.
If you think about it, the healthcare industry is not too dissimilar from manufacturing. With different departments, a vast amount of supplies needed, lots of manpower necessary and a great number of other moving parts, healthcare is in need of anything that would help pin point waste, where to appropriate monies, where to appropriate monies and how best to plan for future growth and demands.
Costs related to care is an easy target to focus on. Due to the separation between departments, facilities and personnel, communication can be difficult as well as assessing the true costs involved in treating a single patient. This is extremely important because healthcare works mostly on a reimbursement bases, whether it billing the patient, requesting payments from an insurance company or sending out reimbursement requests from the government. More often than not, the charges associated with a patient are already written up and the billing department codes the procedure and a specific dollar amount is coupled to that code. But, does this method reflect the true expenditures for helping a patient?
As the industry is finding out, the answer is a resounding no. There is a lot that goes into running a business, no matter how big or small, and nothing is a simple as it sounds on paper. Yet, finding where time and efforts are ineffective is the new name of the game. ABC accounting does a number of things:
- It reveals cost reduction opportunities
- It indicates where supplies are being used
- It helps to make transparent any variates to specific procedures
- It helps to make more efficient patient data and information on how to best treat a patient
One of the results that has come from utilizing activity base cost accounting is that patient outcomes have improved. It is wonderful that costs are able to better be measured and dealt with, however, the improvement to patients in their treatment and recovery is worth so much more. This in turn has also led to better patient satisfaction levels, which also is a factor that healthcare organizations are watching.
With more open communication between departments and systems inside an organization, with a much clearer understanding of where money is being spent, with a more efficient working environment and with an improved path for treating patients, the healthcare industry has taken advantage of a tool that may not have been seen as something that would benefit it as a whole, and turned it into something as beneficial to it as had been seen in the manufacturing community. Activity based cost accounting has made a big splash in healthcare, and it probably has only scratched the surface of possibilities.