The Yale Cost Model and cost centres: servant or master?

Area of Science:

• Health Services Management
• Accounting and Finance

Background:

• Cost accounting is crucial for managing service production costs and ensuring financial viability in healthcare.
• External comparisons of hospital costs, such as Diagnosis Related Group (DRG) costs, are common but assume accounting system uniformity.
• Significant variations exist in how hospitals structure their cost centers and allocate expenditures.

Purpose of the Study:

• To examine and compare the cost center structures and expenditure allocation methods across five major teaching hospitals in Sydney.
• To assess the impact of these variations on the comparability of hospital costs, particularly per DRG.

Main Methods:

• Comparative analysis of cost center structures at five Sydney teaching hospitals.
• Detailed examination of line items charged to each cost center.
• Inclusion of a comparative study of a medical specialty to evidence different costing methodologies.

Main Results:

• Hospitals configure cost centers primarily for internal management needs (e.g., ward, department, specialty costs).
• Variations in cost assignment procedures exist, raising questions about the material impact on DRG cost comparability.
• The study found significant differences in costing methodologies across hospitals.

Conclusions:

• Current hospital accounting information is best suited for internal management, not external cost comparison.
• Comparing hospital DRG costs to internal standards is more appropriate than inter-hospital comparisons due to structural differences.
• Standardizing cost center definitions may not meet internal management needs, and achieving uniformity in accounting systems is a long-term challenge.