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The containment of cost of health care
1Microbiology Laboratory, A.Z. Sint Jan, Brugge, Belgium.
Insights
Understanding healthcare costs is crucial. Activity-based costing (ABC) helps hospital departments, like microbiology labs, calculate expenses accurately. This enables better financial decisions and cost containment strategies.
Area of Science:
- Health economics
- Medical laboratory science
- Management accounting
Background:
- Rising healthcare service costs necessitate financial accountability in hospitals.
- Physicians traditionally lack involvement in cost calculation but face budget restrictions.
- Belgian clinical laboratories shifted to an envelope-based reimbursement system in 1987, increasing focus on cost reduction.
Purpose of the Study:
- To apply Activity-Based Costing (ABC) principles to a hospital microbiology laboratory.
- To determine the full cost and cost components for individual laboratory tests.
- To demonstrate the feasibility of cost calculation within a hospital department for informed decision-making.
Main Methods:
- Detailed cost analysis of a microbiology laboratory using Activity-Based Costing (ABC).
- Identification and allocation of costs (materials, labor, etc.) to specific laboratory tests.
- Calculation of the full cost per test and the proportion of each cost type.
Main Results:
- Activity-Based Costing (ABC) effectively calculates costs within a hospital department.
- The analysis provided a clear breakdown of costs associated with each laboratory test.
- Physicians can use this cost data to evaluate medical techniques, automation, and priorities.
Conclusions:
- Cost containment in hospital healthcare must originate from within medical departments.
- Physician involvement in budget allocation discussions is essential for effective cost management.
- ABC provides a framework for physicians to understand and manage departmental costs.
Abstract:
The cost of health care services has become increasingly important to society. Although hospital physicians are traditionally not involved in cost calculation and cost containment, they bear the consequences of budget restrictions. Since 1987, the reimbursement for clinical laboratories in Belgian hospitals has changed towards an envelope based system. Clinical biologists became aware that new resources can only be obtained mainly through cost reductions. But to contain cost, one must understand how it is generated. Activity based costing (ABC) is a new technique developed for strategic management in the industry. By analyzing the cost of all activities involved in the production process, this technique is very well suited to calculate cost in service organizations like medical departments. Using the principles of ABC, we performed a detailed analysis of the cost of a microbiology laboratory, determining the full cost as well as the proportion of each cost sorts (materials, labor, ...) for each laboratory test. This analysis illustrates that cost can effectively be calculated in a hospital department and guide doctors in the evaluation of alternative medical techniques, investments in automation, and the decision on medical priorities. In our opinion, cost containment of hospital care must start from within each medical department. Responsibility and participation of physicians in the discussion on budget allocation are essential in the process of cost containment of the hospital health care.