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Related Experiment Videos

Improved cost allocation in case-mix accounting.

S V Williams, S A Finkler, C M Murphy

    Medical Care
    |May 1, 1982
    PubMed
    Summary
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    Accurate hospital cost accounting is crucial for effective management. This study reveals that traditional indirect cost allocation methods overstate patient costs, hindering the accuracy of case-mix accounting systems.

    Area of Science:

    • Health Services Research
    • Hospital Financial Management
    • Cost Accounting

    Background:

    • Traditional hospital cost allocation often uses indirect measures unrelated to actual resource consumption.
    • Existing methods, like cost-to-charge ratios, can misrepresent the true cost of patient care.
    • Accurate cost data is essential for newly developed case-mix accounting systems.

    Purpose of the Study:

    • To compare the impact of indirect versus direct cost allocation methods on patient costs within a case-mix accounting framework.
    • To evaluate the accuracy of traditional cost allocation in reflecting resource utilization for specific patient groups.

    Main Methods:

    • Operating room, radiology, and clinical laboratory costs were assigned to 106 inguinal hernia patients.
    • Two cost allocation methods were applied: the hospital's existing indirect method and a direct cost measurement method.

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  • Costs were analyzed for patients within two diagnosis-related groups (DRGs).

    • Main Results:

    • Direct cost allocation resulted in significantly lower total costs and departmental costs for both DRGs compared to the indirect method.
    • Patients in the studied DRGs were assigned costs exceeding their actual resource utilization under the existing indirect method.
    • The indirect method compromised the accuracy of management information provided by the case-mix accounting system.

    Conclusions:

    • Existing indirect cost allocation methods can lead to significant overestimations of patient costs.
    • Direct cost measurement provides more accurate data for case-mix accounting systems.
    • Implementing direct cost allocation is vital for reliable hospital management information and financial reporting.