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Using activity-based costing to track resource use in group practices
T L Zeller1, G Siegel, G Kaciuba
1School of Business Administration, Department of Accounting, Loyola University Chicago, Chicago, Illinois, USA.
Summary
Understanding resource consumption helps orthopedic practices control costs. An activity-based costing (ABC) system revealed how nonphysician staff time impacts expenses, enabling cost reduction and revenue optimization.
Area of Science:
- Healthcare Management
- Operations Research
- Medical Economics
Background:
- Effective resource management is crucial for financial sustainability in group medical practices.
- Traditional cost accounting methods may not accurately reflect resource utilization in healthcare settings.
Purpose of the Study:
- To apply an activity-based costing (ABC) system to measure resource consumption in orthopedic surgery practices.
- To identify key business processes contributing to resource use by nonphysician staff.
Main Methods:
- An American Academy of Orthopaedic Surgeons study involved observing 18 diverse orthopedic surgery practices.
- Researchers identified 17 distinct business processes performed by nonphysician office staff.
- Resource consumption was quantified by assigning costs based on time spent on specific work activities.
Main Results:
- The study successfully measured resource consumption across identified business processes.
- Activity-based costing provided insights into how nonphysician staff time translates to operational costs.
- Variations in resource consumption were observed across different practice types.
Conclusions:
- Understanding resource consumption through ABC enables group practices to identify cost-saving opportunities.
- Optimizing administrative and clinical staff workflows can lead to improved revenue and cost control.
- The ABC system offers a valuable tool for financial management in orthopedic practices.
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