Managing the stages of hospital cost accounting

Since the institution of diagnosis-related group-based reimbursement by the Medicare program and the rise of managed care, hospitals have had to examine the costs incurred by patients and patient groups, analyze the cost behavior of individual departments, and implement strategies to contain costs. Hospitals have been hampered in these efforts by inadequate cost-accounting systems. To meet the challenges of the 1990s, hospitals need to follow a four-stage approach to cost-accounting: Stage 1, improve overall cost-accounting systems; Stage 2, separate variable and fixed costs; Stage 3, identify factors that drive costs, the ways these factors can be controlled, and redefine departments as profit or cost responsibility centers; and Stage 4, reconfigure administrative systems that cut across traditional organizational lines.