USING ACTIVITY BASED COSTINGMANAGEMENT IN HEALTH CARE Case presentation for Dr Gemma Welsch ACC 555 - PowerPoint PPT Presentation

Title: USING ACTIVITY BASED COSTINGMANAGEMENT IN HEALTH CARE Case presentation for Dr Gemma Welsch ACC 555


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USING ACTIVITY BASED COSTING/MANAGEMENT IN
HEALTH CARECase presentation forDr Gemma
WelschACC 555May 2, 2001Gail Kaciuba, PhD,
MBA, CPA DePaul University
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BASIC HEALTH CARE ECONOMICSDECLINING
REIMBURSEMENTS
HCFA Reductions Insurance Company Reductions
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BASIC HEALTH CARE ECONOMICS LITTLE BARGAINING
POWER

• Few buyers many sellers.
• Sellers cannot organize.
• Contracts are capitated.

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BASIC HEALTH CARE ECONOMICSEXPENSES RISING
Medical Practices
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BASIC HEALTH CARE ECONOMICS LONG RUN SHORT
RUN SOLUTIONS
Long run Change the environment
Short run Control Costs
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Practice 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

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ABC 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

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THE SAD BUSINESS REALITY Most doctors dont
know their costs
Most doctors dont know their costs.
Youre wrong. No doctors know their costs.
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Why ABC in Healthcare?

• Doctors need it.
• Medicare reimbursements decreasing
• Stagnant revenue rising costs

• ABC/ABM Provides
• Greater accuracy
• Greater relevance

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Traditional Costing vs. ABC
Traditional costing systems
Activity-based costing systems
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Practice 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
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ABC 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
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ABC 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

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Defining 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.
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Processes Performed in Thoracic Surgery
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Cost ObjectsThoracic Surgery

• No-Charge Office Visits In Global Period
• Chargeable Office Visits
• Chargeable Hospital Visits
• Surgeries Performed in Hospitals

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Cost of Processes
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Cost of Processes Per Physician
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DETAILED COST OF THE BILLING PROCESS
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Cost of Office Visits