Title: USING ACTIVITY BASED COSTINGMANAGEMENT IN HEALTH CARE Case presentation for Dr Gemma Welsch ACC 555
1USING ACTIVITY BASED COSTING/MANAGEMENT IN
HEALTH CARECase presentation forDr Gemma
WelschACC 555May 2, 2001Gail Kaciuba, PhD,
MBA, CPA DePaul University
2BASIC HEALTH CARE ECONOMICSDECLINING
REIMBURSEMENTS
HCFA Reductions Insurance Company Reductions
3BASIC HEALTH CARE ECONOMICS LITTLE BARGAINING
POWER
- Few buyers many sellers.
- Sellers cannot organize.
- Contracts are capitated.
-
4BASIC HEALTH CARE ECONOMICSEXPENSES RISING
Medical Practices
5BASIC HEALTH CARE ECONOMICS LONG RUN SHORT
RUN SOLUTIONS
Long run Change the environment
Short run Control Costs
6Practice Expense Studies
Determine the cost of business processes
services delivered
- American Thoracic Society
- American Association of Neurological Surgeons
- American Academy of Orthopaedic Surgeons
- American Society of Plastic Reconstructive
Surgeons - American Society of Cataract Refractive
Surgeons - Society of Thoracic Surgeons
- American Gasterological Association
- American Society of Colon Rectal Surgeons
7ABC as a Cost Allocation Methodology
- based on actual costs
- provides better cost allocation estimates than
traditional methods - is widely used in all sectors of the economy
8THE SAD BUSINESS REALITY Most doctors dont
know their costs
Most doctors dont know their costs.
Youre wrong. No doctors know their costs.
9Why ABC in Healthcare?
- Doctors need it.
- Medicare reimbursements decreasing
- Stagnant revenue rising costs
- ABC/ABM Provides
- Greater accuracy
- Greater relevance
10Traditional Costing vs. ABC
Traditional costing systems
Activity-based costing systems
11Practice Expense Cost Model
Resources
Processes
Cost Objects
Expense items from income statement 500,000
Practice Business and Medical Processes 500,000
Office visits Procedures 500,000
12ABC Restates Expenses for Better Cost Management
Expenses Salaries 970,000 Rent
60,000 Utilities 50,000 Equip leases
22,000 Depreciation 125,000 Legal
40,000 Marketing 8,000 TOTAL
1,300,000
Processes Performed Service Patients
360,000 Insurance Auth 89,000 Medical Records
98,000 Schedule Surgery 44,000 Billing
105,000 Collect Payments
43,000 Resolve Disputes 78,000 Professional Ed
18,000 Practice Mgmt 237,000 Maintain
Facility 228,000 TOTAL 1,300,000
13ABC vs. ABM
- ABC Activity Based Costing
- an alternate methodology for practice expense
reimbursement
- ABM Activity Based Management
- use of ABC data in practice management for
improved profitability
14Defining Activities (Processes)
Processes are the major work activities performed
in the organization. Processes are what people
do. Must define processes correctly in order to
manage them.
15Processes Performed in Thoracic Surgery
16Cost ObjectsThoracic Surgery
- No-Charge Office Visits In Global Period
- Chargeable Office Visits
- Chargeable Hospital Visits
- Surgeries Performed in Hospitals
17Cost of Processes
18Cost of Processes Per Physician
19DETAILED COST OF THE BILLING PROCESS
20Cost of Office Visits