Reconsidering the measurement of ancillary service performance

Prospective payment reimbursement systems have forced hospitals to review their costs more carefully. The result of the increased emphasis on costs is that many hospitals use costs, rather than margin, to judge the performance of ancillary services. However, arbitrary selection of performance measures for ancillary services can result in managerial decisions contrary to hospital objectives. Managerial accounting systems provide models which assist in the development of performance measures for ancillary services. Selection of appropriate performance measures provides managers with the incentive to pursue goals congruent with those of the hospital overall. This article reviews the design and implementation of managerial accounting systems, and considers the impact of prospective payment systems and proposed changes in capital reimbursement on this process.