The True Cost-to-Serve in Nursing Homes: A Methodological Issue in Applying Activity-Based Costing
DOI:
https://doi.org/10.33423/jaf.v24i3.7142Keywords:
accounting, finance, activity-based costing, cost-to-serve, cost accounting system, cost centers, healthcare, nursing homeAbstract
The healthcare sector is marked by intense competition, escalating costs, service personalization, quality standards, financial constraints, and increased demand. Healthcare organizations must implement efficient cost management systems to navigate this intricate environment. The debate persists in the literature regarding the optimal cost accounting system for healthcare: traditional cost-center-based or activity-based costing (ABC). This article delves into the factors influencing the selection of a suitable cost accounting system, examining the implementation of ABC in an Italian nursing home. A methodological challenge emerged during the ABC implementation, relevant to all healthcare facilities serving diverse elderly populations. The article explores this issue, evaluates potential solutions and their impacts, and determines the approach enabling managers to accurately assess service costs and uphold service quality.
References
Aboagye, A.Q.Q., & Degboe, A.N.K. (2011). Cost analysis and efficiency of sub-district health facilities in two districts in Ghana. International Journal of Health Planning and Management, 26(2), 173–190. https://doi.org/10.1002/hpm.1047
Aldogan, M., Austill, D., & Kocakülâh, M.C. (2014). The excellence of activity-based costing in cost calculation: Case study of a private hospital in Turkey. Journal of Health Care Finance, 41(1), 1–27. Retrieved from http://healthfinancejournal.com/index.php/johcf/article/view/8
Alves, R.J.V., Beck da Silva Etges, A.P., Neto, G.B., & Polanczyk, C.A. (2018). Activity-based costing and time-driven activity-based costing for assessing the costs of cancer prevention, diagnosis, and treatment: A systematic review of the literature. Value in Health Regional Issue, 17(1), 142–147. https://doi.org/10.1016/j.vhri.2018.06.001
Antić, L., & Sekulić, V. (2016). Activity-based costing in health care organizations. Facta Universitatis Series Economics and Organization, 13(4), 351–364. https://doi.org/10.22190/FUEO1604351A
Arnaboldi, M., & Lapsley, I. (2005). Activity based costing in healthcare: A UK case study. Research in Healthcare Financial Management, 10(1), 61–75.
Aujirapongpan, S., Promma, W., Theinsathid, P., Deelers, S., & Meechai, S. (2020). The application of activity-based costing for public hospital sector sustainability. Journal of Southwest Jiaotong University, 55(5), 1–11. https://doi.org/10.35741/issn.0258-2724.55.5.32
Bahadori, M., Babashahy, S., Teymourzadeh, E., & Hakimzadeh, S.M. (2012). Activity based costing in health care center: A case study of Iran. African Journal of Business Management, 6(6), 2181–2186. Retrieved from https://academicjournals.org/journal/AJBM/article-abstract/9ADA53D24537
Barber, S.L., Lorenzoni, L., & Ong, P. (2020). Institutions for health care price setting and regulation: A comparative review of eight settings. International Journal of Health Planning and Management, 35(2), 639–648. https://doi.org/10.1002/hpm.2954
Brimson, J. (1998). Feature costing: Beyond ABC. Journal of Cost Management, 12(1), 6–12.
Carey, K., Zhao, S., Snow, A.L., & Hartmann, C.W. (2018). The relationship between nursing home quality and costs: Evidence from the VA. PLoS ONE, 13(9), 1–9. https://doi.org/10.1371/journal.pone.0203764
Carroll, N., & Lord, J.C. (2016). The growing importance of cost accounting for hospitals. Journal of Health Care Finance, 43(2), 172–185. Retrieved from https://www.healthfinancejournal.com/index.php/johcf/article/view/109
Carù, A., & Cugini, A. (1999). Profitability and customer satisfaction in services: An integrated perspective between marketing and cost management analysis. International Journal of Service Industry Management, 10(2), 132–157.
Carù, A., Cugini, A. & Zerbini, F. (2010, November). Assessing and managing the costs of satisfaction in B2B services. In Journal of Strategic Innovation and Sustainability (Vol. 6, Issue 4, November, pp. 50–79). ISSN: 1718-2077; DOI: 10.1080/09638180701507130
Chan, Y.C. (1993). Improving hospital cost accounting with activity-based costing. Health Care Management Review, 18(1), 71–77.
Cinquini, L., Miolo Vitali, P., Pitzalis, A., & Campanale, C. (2007). Cost measurement in laparoscopic surgery: Results from an activity-based costing application. 6th International Conference on the Management of Healthcare & Medical Technology HCTM-HOF-Scuola Superiore Sant’Anna Pisa, pp. 1–24.
Cooper, R. (1989). The rise of activity-based costing - part three: How many cost drivers do you need and how do you select them? Journal of Cost Management, 3, 34–45.
Correia, T., Carapinheiro, G., Carvalho, H., Silva, J.M., & Dussault, G. (2017). The effects of austerity measures on quality of healthcare services: A national survey of physicians in the public and private sectors in Portugal. Human Resources for Health, 15(1), 1–12. https://doi.org/10.1186/s12960-017-0256-6
Cugini, A., & Pilonato, S. (2013). The cost accounting system in B-to-B Service Companies: Cost centers or activity-based costing? GSTF Journal on Business Review (GBR), 2(4), 112–199. https://doi.org/10.5176/2010-4804_2.4.260
Cugini, A., & Pilonato, S. (2014). Costing and pricing in healthcare private firms. Journal of Modern Accounting and Auditing, 10(7), 764–776.
Cunnama, L., Sinanovic, E., Ramma, L., Foster, N., Berrie, L., Stevens, W., . . . Vassall, A. (2016). Using top-down and bottom-up costing approaches in LMICs: The case for using both to assess the incremental costs of new technologies at scale. Health Economies, 25(Suppl 1), 53–66. https://doi.org/10.1002/hec.3295
Cupertino de Barros, F., Pereira, F., Correia, T., & Ferrinho, P. (2022). Primary health care ‘From Alma-Ata to Astana’: Fostering the international debate through the experiences of Portuguese-speaking countries. International Journal of Health Planning and Management, 37(5), 2528–2533. https://doi.org/10.1002/hpm.3511
Da Silva Etges, A.P.B., Cruz, L.N., Schlatter, R., Neyeloff, J., Cardoso, R.B., Kopittke, L., . . . Polanczyk, C.A. (2022). Time-driven activity-based costing as a strategy to increase efficiency: An analyses of interventional coronary procedures. International Journal of Health Planning and Management, 37(1), 189– 201. https://doi.org/10.1002/hpm.3320
Fiedler, J.L., Mubanga, F., Siamusantu, W., Musonda, M., Kabwe, K.F., & Zulu, C. (2014). Child health week in Zambia: Costs, efficiency, coverage and a reassessment of need. Health Policy and Planning, 29(1), 12–29. https://doi.org/10.1093/heapol/czs129
Flessa, S., & Dung, N.T. (2004). Costing of services of Vietnamese hospitals: Identifying costs in one central, two provincial and two district hospitals using a standard methodology. International Journal of Health Planning and Management, 19(1), 63–77. https://doi.org/10.1002/hpm.747
Ghilan, K., Mehmood, A., Ahmed, Z., Nahari, A., Almalki, M.J., Jabour, A.M., & Khan, F. (2021). Development of unit cost for the health services offered at King FAHD Central hospital Jazan, Saudi Arabia. Saudi Journal of Biological Science, 28(1), 643–650. https://doi.org/10.1016/j.sjbs.2020.10.055
Goldberg, M.J., & Kosinski, L. (2011). Activity-based costing and management in a hospital-based GI unit. Clinical Gastroenterology and Hepatology, 9(11), 947–949. https://doi.org/10.1016/j.cgh.2011.08.010
Grabowski, D.C. (2022). Putting the nursing and home in nursing homes. Innovation in Aging, 6(4), 1–6. https://doi.org/10.1093/geroni/igac029 PMCID: PMC9196684.
Grant, C.M. (1999). Cervical screening interval: Costing the options in one health authority. Journal of Public Health Medicine, 21(2), 140–144. https://doi.org/10.1093/pubmed/21.2.140
Grima, S., Spiteri, J.V., Jakovljevic, M., Camilleri, C., & Buttigieg, S.C. (2018). High Out-of-Pocket Health Spending in Countries with a Mediterranean Connection. Front Public Health, 6, 1–11. https://doi.org/10.3389/fpubh.2018.00145
Hicks, L.L., Rantz, M.J., Petroski, G.F., & Mukamel, D.B. (2004). Nursing home costs and quality of care outcomes. Nursing Economics, 22(4), 178–175.
Hilsenrath, P., Eakin, C., & Fischer, K. (2015). Price-Transparency and Cost Accounting: Challenges for Health Care Organizations in the Consumer-Driven Era. Inquiry: A Journal of Medical Care Organization, Provision and Financing, 52, 1–5. https://doi.org/10.1177/0046958015574981
Homauni, A., Markazi-Moghaddam, N., Mosadeghkhah, A., Noori, M., Abbasiyan, K., & Jame, S.Z.B. (2023). Budgeting in Healthcare Systems and Organizations: A Systematic Review. Iranian Journal of Public Health, 52(9), 1889–1901. https://doi.org/10.18502/ijph.v52i9.13571.
Ivanková, V., Kotulič, R., Gonos, J., & Rigelský, M. (2019). Health Care Financing Systems and Their Effectiveness: An Empirical Study of OECD Countries. International Journal of Environmental Research and Public Health, 16(20), 1–22. https://doi.org/10.3390%2Fijerph16203839
Javid, M., Hadian, M., Ghaderi, H., Ghaffari, S., & Salehi, M. (2016). Application of the Activity-Based Costing Method for Unit-Cost Calculation in a Hospital. Global Journal of Health Science, 8(1), 165–172. https://doi.org/10.5539/gjhs.v8n1p165
Johnson, H.T., & Kaplan, R.S. (1987). Relevance Lost. The Rise and Fall of Management Accounting. Boston, MA: Harvard Business School Press.
Kaplan, R.S., & Cooper, R. (1998). Cost & Effect. Using Integrated Cost Systems to Drive Profitability and Performance. Boston, MA: Harvard Business School Press.
Kazemi, Z., & Zadeh, H.A. (2015). Activity based costing: A practical model for cost price calculation in hospitals. Indian Journal of Science and Technology, 8(27), 1–6. https://doi.org/10.17485/ijst/2015/v8i27/81871
Koolmees, D., Ramkumar, P.N., Hessburg, L., Guo, E., Bernstein, D.N., & Makhni, E.C. (2021). Time-Driven Activity-based Costing for Anterior Cruciate Ligament Reconstruction: A Comparison to Traditional Accounting Methods. Arthroscopy, Sports Medicine, and Rehabilitation, 3(1), e39–e45. https://doi.org/10.1016/j.asmr.2020.08.006
Kuhlmann, E., Burau, V., Correia, T., Lewandowski, R., Lionis, C., Noordegraaf, M., & Repullo, J. (2013). “A manager in the minds of doctors:” A comparison of new modes of control in European hospitals. BMC Health Services Research, 13, 1–11. https://doi.org/10.1186/1472-6963-13-246
Lau, C.K.M., Fung, K.W.T., & Pugalis, L. (2014). Is health care expenditure across Europe converging? Findings from the application of a nonlinear panel unit root test. Eurasian Business Review, 4(2), 137–156. https://doi.org/10.1007/s40821-014-0014-9
Lelkes, A.M.T. (2023). Modeling Duration-Based Costing in Activity-Based Costing Software. Journal of Accounting and Finance, 23(4), 181–193. https://doi.org/10.33423/jaf.v23i4.6454
Leusder, M., Porte, P., Ahaus, K., & van Elten, H. (2022). Cost measurement in value-based healthcare: A systematic review. BMJ Open, 12(12), 1–12. https://doi.org/10.1136/bmjopen-2022-066568
Lievens, Y., Van Den Bogaert, W., & Kesteloot, K. (2003). Activity-based costing: A practical model for cost calculation in radiotherapy. International Journal of Radiation Oncology*Biology* Physics, 57(2), 522–535. https://doi.org/10.1016/S0360-3016(03)00579-0
McClintock, T.R., Shah, M.A., Chang, S.L., & Haleblian, G.E. (2019). Time-driven activity-based costing in urologic surgery cycles of care. Value in Health, 22(7), 768–771. https://doi.org/10.1016/j.jval.2019.01.018
Moreno, K. (2007). Adaptation of activity-based-costing (ABC) to calculate unit costs in Mental Health Care in Spain. European Journal of Psychiatry, 21(2), 117–123. https://doi.org/10.4321/S0213-61632007000200003
Namazi, M. (2016). Time-driven activity-based costing: Theory, applications, and limitations. Iranian Journal of Management Studies, 9(3), 457–482. https://doi.org/10.22059/ijms.2016.57481
Niasti, F., Fazaeli, A.A., Hamidi, Y., & Viaynchi, A. (2019). Applying ABC system for calculating cost price of hospital services case study: Beheshti hospital of Hamadan. Clinical Epidemiology and Global Health, 7(3), 496–499. https://doi.org/10.1016/j.cegh.2019.06.001
Niῆerola, A., Hernández-Lara, A.B., & Sánchez-Rebull, M.V. (2021). Improving healthcare performance through activity-based costing and time-driven activity-based costing. International Journal of Health Planning and Management, 36(8), 1–15. https://doi.org/10.1002/hpm.3304
OECD, & European Union. (2022). Health at a Glance: Europe 2022: State of Health in the EU Cycle [E-reader Version]. https://doi.org/10.1787/788a13b4-en
OECD. (2020). Health expenditure and financing, 1970-2020. Retrieved from https://stats.oecd.org/Index.aspx?ThemeTreeId=9#
Özkaya, H. (2021). Sticky cost behavior: Evidence from small and medium sized enterprises in Turkey. Eurasian Business Review, 11(2), 349–369. https://doi.org/10.1007/s40821-020-00156-8
Papadaki, S., & Popesko, B. (2016). Cost analysis of selected patient categories within a dermatology department using an ABC approach. Global Journal of Health Science, 8(6), 234–249. https://doi.org/10.5539/gjhs.v8n6p234
Piscopo, J., Groot, W., & Pavlova, M. (2024). Determinants of public health expenditure in the EU. PLoS ONE, 19(3), 1–19. https://doi.org/10.1371/journal.pone.0299359
Popesko, B. (2013). Specifics of the activity-based costing applications in hospital management. International Journal of Collaborative Research on Internal Medicine & Public Health, 5(3), 179–186. Retrieved from https://www.iomcworld.org/archive/ijcrimph-volume-5-issue-3-year-2013.html
Popesko, B., Papadaki, S., & Novák, P. (2015). Cost and reimbursement analysis of selected hospital diagnoses via activity-based costing. E & M: Economics and Management, 18(3), 50–61. http://doi.org/10.15240/tul/001/2015-3-005
Raes, S., Vandepitte, S., De Smedt, D., Wynendaele, H., DeJonghe, Y., & Trybou, J. (2020). The relationship of nursing home price and quality of life. BMC Health Services Research, 20, 1–10. https://doi.org/10.1186/s12913-020-05833-y
Rajabi, A., & Dabiri, A. (2012). Applying Activity Based Costing (ABC) Method to calculate cost price in hospital and remedy services. Iranian Journal of Public Health, 41(4), 100–107. Retrieved from https://ijph.tums.ac.ir/index.php/ijph/article/view/2596/2576
Ranabhat, C.L., & Jakovljevic, M. (2023). Sustainable health care provision worldwide: Is there a necessary trade-off between cost and quality? Sustainability, 15(2), 1–11. https://doi.org/10.3390/su15021372
Schlenker, R.E., Shaughnessy, P.W., & Yslas, I. (1985). Estimating patient-level nursing home costs. Health Services Research, 20(1), 103–128.
Sheingold, B.H., & Hahn, J.A. (2014). The history of healthcare quality: The first 100 years 1860–1960. International Journal of Africa Nursing Sciences, 1(1), 18–22. https://doi.org/10.1016/j.ijans.2014.05.002
Shoemaker, N., & Kelly, M. (2019). Rodeo in the classroom: Activity Based Costing simulation. Journal of Accounting and Finance, 16(5), 32–38. Retrieved from https://articlegateway.com/index.php/JAF/article/view/1050
Smith, H.L., & Fottler, M.D. (1981). Costs and cost containment in nursing homes. Health Services Research, 16(1), 17–41.
Smith, M. (2005). Performance Measurement & Management. A Strategic Approach to Management Accounting. London, GB: SAGE Publications Inc.
Špacírová, Z., Epstein, D., García-Mochón, L., Rovira, J., Olry de Labry Lima, A., & Espín, J. (2020). A general framework for classifying costing methods for economic evaluation of health care. The European Journal of Health Economics, 21(4), 529–542. https://doi.org/10.1007/s10198-019-01157-9
United Nations - Department of Economic and Social Affairs. (2019). World Population Prospects 2019: Highlights. Retrieved form https://population.un.org/wpp/publications/files/wpp2019_highlights.pdf
Upda, S. (1996). Activity-based costing for hospitals. Health Care Management Review, 21(3), 83–96.
Waters, H., Abdallah, H., & Santillán, D. (2001). Application of activity-based costing (ABC) for a Peruvian NGO healthcare provider. International Journal of Health Planning and Management, 16(1), 3–18. https://doi.org/10.1002/hpm.606
Wnuk-Pel, T. (2010). Changes in company’s management accounting systems: Case study on activity-based costing implementation and operation in medium-sized production company. Eurasian Journal of Business and Economics (EJBE), 3(6), 85–111. Retrieved from https://www.ejbe.org/index.php/EJBE/article/view/42
Wodchis, W.P. (1998). Applying activity-based costing in long-term care. Healthcare Management Forum, 11(4), 25–32.
Yook, K., Yi, S., & Kim, I. (2019). A comparative study of traditional activity-based costing and time-driven activity-based costing at a university hospital in South Korea. Research Journal of Finance and Accounting, 10(10), 1–14. https://doi.org/10.7176/RJFA/10-10-01
