Hospital administration costs can be mercifully expensive costing $361 billion per year in the USA alone, three times what is spent on cancer. Therefore finding a costing system that gets the most efficient results from administration is crucial, so that more can be spent on hospital's core duties of providing health care. However despite the rather costliness it serves a central purpose of effectively overseeing the hospitals activities and making sure care quality and safety standards are kept intact. Going into further detail this may involve making sure national/state rules and procedures are adequately followed and managing financials of the hospital, be it setting budgets, providing extra funds to a department or cutting expenses.
In order to apply ABC to hospital administration we have to first split costs into cost pools, some of which are stated below:
Cost Pool Cost Driver
Staffing Number of employees
Registration Number of patients
Education and Training Number of new employees
Receptionist Hours worked
ABC costing in administration is usually applied in much the same way as in other hospital departments or even as in other industries, however as seen in its application at the “Shahid Faghihi” Hospital there can be two major variations when used to find costs of administrative activities.
The first of these is that the interpretation of the word “activity centres” is different in administration to other sectors. Unlike other departmental services, “administrative units” are not one that provide a patient with direct care therefore based on its given obligations each subsector can be portrayed as an activity centre. For example accounting administrative unit is not by itself an “activity centre” instead we have the activity centres “patient” and “salary” accounting. Therefore its expenses should not be allocated to these activity centres as for instance “patient accounting” only provides a benefit to discharged patients, thus expenses of this centre should be allotted only to released patients. What we can conclude from this is that, had the accounting department not been split to activity centres, cost assignment would not occur correctly due to the fact many activities occur in the accounting unit, with some not connected to the duties of other activity centres.
The second difference is that costs of administrative centers are apportioned to other activity centers depending on the services provided. For instance the expenses of the drugstore activity center is to be apportioned according to the “number of prescriptions”.
Another methodology that has been volunteered, especially by CIMA, in order to control costs in hospital administration more effectively has been target costing,...