“The introduction of cost accounting systems in the Greek National                              Health System”            ...
1. INTRODUCTION    Across the world many countries are implementing numerous market-based andbusiness-like reforms, broadl...
Greece: (1) the GNHS facilities (public hospitals, health centres, rural surgeries andemergency rooms per hospital care) a...
the central government. (Windels and Christianes, 2006; Greenwood and Hinings,1996; Oliver, 1991; Pfeffer, 1982).3.2 DETER...
management accounting innovation literature report that while technical factors areexpected to significantly influence the...
H7: The extent of cost accounting reform adoption is positively associated with theabsence of management-physician conflic...
Secondly, a series of semi-structured personal interviews was conducted with six(6) finance and accounting staff to discus...
professional support (denoted CONSUL), the level of existing information systemsquality (denoted ITQUAL), the level of the...
In general, these empirical results signal a low adoption level of hospitals with theprescribed cost accounting reform fiv...
earlier, except for the fact that organizational support is not significant anymore. Thisresult shows us that this specifi...
Moreover, the interviewees, even the adopters, pointed out that the main driver forchange was the legislative requirement ...
A further obstacle to successful implementation of the accounting reform was      the lack of an effective enforcement mec...
be accurately disclosed by the survey respondent. The basis for their opinions remainsunknown and may differ across respon...
REFERENCESAl-Omiri, M., and C. Drury (2007), “A survey of factors influencing the choice of     product costing systems in...
Dambrin, C., C. Lambert, and S. Sponem (2007), “Control and change—Analysing        the process of institutionalisation”, ...
Ingram, R.W. and Dejong D.V. (1987), ‘The Effect of Regulation on Local       Government Disclosure Practices’ Journal of ...
Nunnally, J., (1978). Psychometric Theory. McGraw-Hill, New York, (2nd ed.).Oliver, C. (1991), “Strategic response to inst...
Appendix A:                             Figure 1. Conceptual Framework of the study                                 Indepe...
Table 1. Classification of cost accrual accounting system (CAS) development stages identified by the surveyCategories of C...
Table 2. Independent Variables: Definition, Reliability and Validity Variable        Definition                           ...
Table 3. Spearman correlation matrix for the independent variablesVariables             1             2             3     ...
Table 4. Regression Results                         Ordered logistic regression                                           ...
Durbin Watson                  1.517     1.668                           2Cox and Snell pseudo R         0.622     0.560  ...
Appendix B: Description of the Cost System functionality prescribed in the P.D. 146(group 9 accounts)   The costing system...
The costing process approach of the reform is graphically presented below:                        General Ledger Accounts ...
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The introduction of cost accounting systems in the Greek National Health System


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In an attempt to promote efficiency and effectiveness in health service production, the Greek government introduced in 2003 business-like accounting systems that support accruals in all public hospitals of the National Health System (NHS). This study aims at examining the extent and some of the factors influencing the governmental cost accounting initiative development in the public health sector from an empirical point of view by drawing on the insights of the institutional isomorphism, as well as on the signaling theory.

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The introduction of cost accounting systems in the Greek National Health System

  1. 1. “The introduction of cost accounting systems in the Greek National Health System” Filippos Stamatiadis1* , and Nikolaos Eriotis2AbstractPurpose – In an attempt to promote efficiency and effectiveness in health serviceproduction, the Greek government introduced in 2003 business-like accountingsystems that support accruals in all public hospitals of the National Health System(NHS). This study aims at examining the extent and some of the factors influencingthe governmental cost accounting initiative development in the public health sectorfrom an empirical point of view by drawing on the insights of the institutionalisomorphism, as well as on the signaling theory.Design/methodology/approach – For the purposes of this study, mail surveyquestionnaires were distributed to 132 public hospitals that are part of the Greekpublic health sector. The questionnaires were directed to the Chief Financial Officer(CFOs) of public hospitals. An ordered and a binary logistic regression analysis wasused to examine the cross-sectional differences on a number of implementationfactors of the cost accounting system (CAS) adoption level. Moreover, a series ofinterviews were conducted to discuss the findings with six public hospital Financialand Accounting executives.Findings – The results indicate that the CAS adoption process in the Greek NationalHealth System (GNHS) is at an early stage, with a poor 24.4% adoption rate fiveyears after the reform’s official enactment. Overall, this study reveals the level of costaccounting system introduction and implementation is restricted by bothorganizational characteristics and wider institutional influences.Research limitations/implications – Although this study takes into consideration thework of previous researchers in the health care area, it acknowledges that empiricalresearch on the subject in the Greek environment is limited. Therefore this studyshould be viewed as an initial step to address this limitation and understandaccounting changes in public health sector and thus any generalizing of theconclusions beyond this context should be undertaken with care.Contribution: This study contributes to the international literature of New PublicManagement (NPM) initiatives by providing, to our knowledge, the first large scaleassessment of costing systems introduction in the public secondary and tertiary healthcare sector in Greece. The empirical evidence of this study can enhance academics,practitioners and policy-makers understanding of major implementation processes andchallenges and thus help them refine models of effective implementation process andimprove systems and processes on similar future projects.1 Research Associate, Faculty of Management and Economics, Technological Educational Institute ofAthens, 122 10 Athens, Greece.* Corresponding author. Tel : +30 9637035926; Fax : +302103368167. e-mail address :fstam23@gmail.com2 Associate Professor, Department of Business and Finance, National and Kapodistrian University ofAthens, 5 Stadiou St., 105 62 Athens, Greece. 1
  2. 2. 1. INTRODUCTION Across the world many countries are implementing numerous market-based andbusiness-like reforms, broadly known as the New Public Management (NPM), aimingat bringing the public sector in line with the private sector. Under the guise of NewPublic Management (NPM) accounting reforms have often been the first step ofreforming and modernizing governments. Among the most important change thataccounting reforms brought to public sector organizations was the transformation ofthe traditional budgetary cash accounting systems to more business-like accountingsystems that support accruals (Hood 1995). This change of public accounting systemstowards accruals accounting seems necessary given that the traditional budgetary cashaccounting system is now perceived as out-dated and no longer satisfactory, mainlydue to its inability to present an organisation’s “true” financial position as well as toprovide adequate, relevant and reliable managerial information for decision makers. In the Greek context one of the most important public sectors to be affected bythis NPM trend was the public health sector, which was beginning to experiencestrong pressures from customers, regulators, and resource providers to reduce costs,improve clinical quality and health management services. Part of the response to dealwith this pressure was the introduction by the Greek government in 2003 of abusiness-like cost accounting system based on accruals.According to Pollitt’s framework of convergence (2002, p.278) the adoption processof NPM practices and techniques, such as the cost accounting system in our case, canbe categorised at four distinct levels of organisational change: (1) disclosure, in thesense of a conceptual agenda for NPM policies and techniques (2) decision, to betaken by public sector entities regarding the adoption of technical NPM innovations(3) practices, the manner in which the NPM techniques are implemented and used bypublic sector entities, and (4) impacts of NPM techniques’ usage in publicadministration. Based on the second level of Pollitt’s framework, this paper aims to contribute tothe understanding of the relevant organisational change by obtaining an overall viewof the cost accounting reform adoption level in public hospitals and map possiblefactors of influence at a certain point in time and within a broad institutionalframework. In particular, it draws on the insights of the neo-institutional theory aswell as on signaling theory in order to assess the extent to which the cost accountingaspects of reform are introduced into hospitals, and also to explain the cross-sectionaldifferences on the level of compliance with the reform in a systematic way. The remainder of this paper is structured as follows. The next section presents ashort background of the Greek public hospitals’ accounting system. The third sectionprovides the conceptual framework for this study and specific influential factors ofhospitals compliance with the reform. The materials and methods used in the researchare presented in the fourth Section. Results of the empirical research are presented inthe fifth section and the final section draws some conclusions and discussesimplications for policy makers and researchers.2. FINANCIAL MANAGEMENT REFORM IN THE GREEK NATIONALHEALTH SYSTEM (GNHS)The Greek NHS can be characterised as a “dual-mixed” system, in which elementsfrom both the Bismarck (i.e. insurance-based) and the Beveridge (i.e. tax-based)model co-exist. The GNHS was founded in 1983 by the Greek Law 1397/83 whichdeclared that health is a “social good” and all citizens should have the right to highquality health care. There are three major categories of health care providers in 2
  3. 3. Greece: (1) the GNHS facilities (public hospitals, health centres, rural surgeries andemergency rooms per hospital care) administered by the MHSC; (2) public hospitalsadministered by other ministries (primarily military hospitals and those operated bysickness funds); and (3) the private sector (private hospitals, diagnostic centres,independent practices, surgeries and laboratories). Until recently the financial management of public hospitals was on a cash ratherthan accrual basis, making it difficult to assess the financial position of hospitals anddetermine the relationship between financial resources committed and how they areused. The initial efforts of improving the accounting systems of public hospitals inGreece started in 1997 under the Law 2519/97. This Law presented for the first timethe government’s intention to introduce a double-entry bookkeeping accountingsystem and cost management applications in public hospitals based on the accrualbasis. For this purpose, in 1998 the Ministry of Finance assigned the development andpreparation of an Official Health Sector Accounting Plan (HSAP) to the nationalCouncil of Accounting (ESYL) and to the Chamber of Finance (OEE). Thegovernmental efforts to reform the accounting system of the health sector escalated in2003, when a law, the Presidential Decree 146/03 (P.D. 146/03), was passed. The P.D. 146/03 enforced the adoption of the new accounting system, based onaccrual accounting, on all public hospitals that are part of the Greek NHS andestablished the necessary guidelines and accounting principles for financial and costreporting. However, the previous traditional budgetary cash accounting system wasnot totally abandoned but instead, the public hospitals just added the accrualaccounting system separately and most of the budgetary accounting principles weremaintained (Christiaens, 2001). In particular, the new accounting framework of theP.D. 146/03 defined three accounting systems that should work simultaneously underthree independent accounting cycles; the financial accounting cycle3 (group 1-8accounts), the budgeting cycle (group 10 accounts) and the cost accounting cycle(group 9 accounts), within the same general ledger and while each one would stillretain its autonomy. The financial accounting system aims at reporting the financialposition and the yearly profit and loss of hospitals, the budgeting system aims atauthorizing and controlling the public spending and the cost accounting system aimsat calculating the health services’ full cost (i.e. Functions, services) by using theaccounting data of the financial accounting cycle (accrual accounting) and processingthem within a rather complicated framework of double entry journal entries followingexactly the same chart of accounts, procedures and principles used in the privatesector. (Venieris et al., 2003).However, under this legislative framework, there is no reference to the DiagnosisRelated Groups (DRGs), which is a commonly used diagnostic codification and costassessment system for grouping costs and reimbursing hospitals on the basis of thecorresponding standard prices as well as no intention of connecting the cost of outputswith the reimbursement received by the hospital for the services offered to patients. Itseems that the hospital cost accounting system has been designed mainly for externalfinancial reporting and inventory valuation purposes and not for decision-makingpurposes (a description of hospital cost accounting system is provided in theAppendix B) Despite these shortcomings the deadline for the implementation of the costaccounting system by public hospitals was the 1st of January 2005.3 See Stamatiadis (2009) for an extensive presentation regarding the adoption of the accrual-basisfinancial accounting system in the Greek public hospitals. 3
  4. 4. 3. EVALUATION OF NPM REFORMS3.1 INSTITUTIONAL SOCIOLOGY FOR NPM REFORMS ADOPTION NPM literature typically suggests that functional or rational reasons (i.e. improveefficiency and effectiveness) are the primary motivations for change. However andbecause the initiative of the accounting change in public hospitals has originated fromoutside the health sector (i.e. instigated from the state), where hospitals have toimplement the new management accounting practices mainly in order to satisfylegislative requirements, the use of institutional theory seems to be a useful theoreticalbase when assessing organisational change, stressing that other factors related to bothinternal and external organisational expectations and values can play also animportant part in the change process (Meyer and Rowan, 1977). Institutional research has typically explored the extent to which wider institutionalcontexts have influenced the adoption and development of new management andaccounting practices into public sector entities. In most cases its adoption anddevelopment is considered to be a legitimating exercise to external constituents thatincreases the chances of organizational survival through the process of isomorphism(see for e.g., Lapsley and Pallot 2000; Järvinen, 2006; Windels and Christiaens, 2006;Carruthers, 1995; Arnaboldi and Lapsely, 2003; Modell, 2002; Eriksen and Urrutia,2005; Geiger and Ittner, 1996; Hassan, 2005; Dambrin, Lambert, and Sponem, 2007).Institutional isomorphism is based on the idea that environments are collective andinterconnected, and that, in order to survive, organisations must be responsive toexternal institutional pressures and expectations striving for similarity (see e.g.DiMaggio and Powell, 1983; and Oliver, 1991). This is particularly true for the publicsector where the looser corporate ideology of public sector entities’, due to their socialrole, and their dependence on financial resources allocated by central governmentmakes these entities, such as public sector hospitals, particularly susceptible to a needfor legitimacy in relation to their external controlling environment (Meyer and Scott1992). Powell and DiMaggio’s model of isomorphism (1991) identifies three differentmechanisms of institutional pressures that are used to facilitate institutional change:coercive isomorphism (response to external pressure); mimetic isomorphism(organisations modelling themselves on other organisations); and normativeisomorphism (professionals operating in organisations are subject to pressures toconform to a set of norms and rules developed by professional groups). Theconsequence of these institutional pressures is the creation of institutional rules thatorganisations attempt to adopt in order to obtain social legitimacy and secure theirsurvival. However, in their focus on isomorphism, institutional-centred frameworks havebeen criticized for their lack of attention to the role of organizational self-interests,and particularly regarding the issue of resistance to change. Likewise, institutionaltheory emphasizes the survival value of conformity and compliance and fails toconsider the advantages of defying external pressures and the ability of organizationto maintain autonomy over decision making. (Modell, 2002; Greenwood and Hinings,1996; Oliver, 1991; Pfeffer, 1982; Hyvönen et al., 2009). This paper departs from this deterministic claim to be found in early institutionaltheory, suggesting great homogeneity and adaptation in organisational action inresponse to external legitimacy and conformity pressures, and argues thatunderstanding organisational change and responses to a reform which is regulatoryprescribed and subsequently imposed in a top-down fashion, is about understandingpublic hospital variations in response to the same coercive institutional pressure from 4
  5. 5. the central government. (Windels and Christianes, 2006; Greenwood and Hinings,1996; Oliver, 1991; Pfeffer, 1982).3.2 DETERMINANTS OF NPM REFORM IMPLEMENTATION ANDSUCCESSRegarding the influential role of several external and internal organisationalcharacteristics upon the adoption and implementation progress of the accountingreform programs in public sector entities, previous studies on information systemchange, management accounting innovation, and public sector reform have identifieda number of factors that are expected to influence the implementation and success ofnew accounting practices and techniques in the organizations (i.e. the cost accountinginitiative in NHS hospitals in our case). These factors include human, organisational,technical issues, and situational factors. More specifically, previous research has provided empirical evidence that humanand technical resources of an organization, (such as: the level of the staff’s education,staff and executive professionalism, training, skills, project leadership, IT capability,etc) have a positive effect on the adoption and success of new accounting systems,and are considered as necessary internal dynamics for putting in place the changeprogram at public and private sector entities and managing the shift. Moreover,According to Ballas and Tsoukas (2004), one of the reasons why not enough attentionis paid to developing robust management tools is a lack of professionalism in theadministration of the GNHS hospital entities. Hospital CEOs are appointed on thebasis of political affiliation, and only a minority of these have the necessarymanagerial skills. Thus CEOs with an administrative/business educational backgroundis considered to be a proxy of the necessary managerial skills a CEO must have inorder to mobilize the necessary resources to implement and adopt managementaccounting practices and techniques and take advantage of the more accurate, reliableand relevant information they provide. Based on the signaling theory and related studies it is hypothesized that publichospitals having a sufficient technical and operational capacity will show a highertendency to introduce and support the new accounting techniques prescribed in thereform (see, for example, Christiaens, 1999; Cavalluzzo and Ittner, 2004; Kwon andZmud, 1987; McGowan and Klammer, 1997; Venieris et al., 2003; Ouda, 2008;Kimberly and Evanisko, 1981; Arnaboldi and Lapsley 2003; Naranjo-Gil, Hartmann,2007). These issues lead to the formulation of the first set of hypotheses: H1: The extent of cost accounting reform adoption is positively associated witheducation level of accounting department staff H2: The extent of cost accounting reform adoption is positively associated with ahigher level of reform-related training of the accounting staff H3: The extent of cost accounting reform adoption is positively associated with ahigher level of existing information technology quality. H4: The extent of cost accounting reform adoption is positively associated withCEOs business-oriented educational background H5: The extent of cost accounting reform adoption is positively associated withprevious financial and cost accounting knowledge and expertise of the accountingstaff A second set of propositions relates to the effect of intra-organizational factors onresponsiveness of public hospitals to the mandated cost accounting system (i.e.organizational support, conflict of interest between physicians and management,satisfaction with the previous accounting system, and size). Previous studies in 5
  6. 6. management accounting innovation literature report that while technical factors areexpected to significantly influence the implementation of accounting systems theirimpact may be secondary to that of organisational factors. Shields (1995), forexample, reports that top management and organizational support is crucial to the newaccounting system implementation success because these managers can focus onresources goals, strategies and initiatives they deem worthwhile, deny resources toinitiatives they do not support, and provide the help needed to motivate or push asideindividuals or coalitions who resist the innovation. Also, the need for strong topmanagement support to accounting systems is recognized in the public sector reformliterature. Doyle et al. (2004), Ouda (2008), and Cavalluzo and Ittner, (2004) highlightthe role of top management support in creating a suitable environment for change andincreasing the appreciation on behalf of employees of the potential contribution of thesystem to meeting organisational objectives. Moreover, Arnaboldi and Lapsley (2003)report that besides issues of resource availability, management accounting techniques(i.e. ABC) have not been implemented by the Scottish local authorities because ofinadequate commitment from senior management. However, hospital settings are considered to have some unique features that aretypically not observed in other industries in a sense that administrators have to workwith different organisational actors, like health care professionals (physicians andnurses). These organisational actors are “responsible” for the largest part of hospitaloverhead and resources consumption but possess low commitment to managerialvalues (Comerford and Abernethy, 1999; Kurunmaki et al., 2003; Pettersen, 2001;Coombs, 1987). In such multi-service organisational environments, besides the topmanagement support found in previous studies, the support also from medical partiesshould be considered an important factor that may influence organizational change inhospitals. Cardinaels et al. (2004) in their survey about the cost system developmentin Flemish hospitals found that hospital specific factors, such as organizationalsupport including the medical parties, and the management-physician conflictinglogics, have a statistically significant influence on management accounting changeprocess. Similar conclusions were reported in Lehtonen’s study (2007), which alsoimplies that successful implementation of new accounting and control systems in theFinnish health care sector are strongly dependent on the involvement and support ofclinicians in this process. Lastly, the size-effect variable of the organisations inquestion has also been incorporated in other previous studies on managementaccounting innovation and public sector reform as an important factor influencing thelevel of business-like management and accounting instruments adoption. However,the relevant literature remains inconclusive as to the effect of an organisation’s size oncompliance with accounting standards. More specifically, the empirical evidence inthe studies of Christiaens, (1999), Cardinaels et al. (2004), Krumwiede, (1998), Innesand Mitchell, (1990), and Bjornenak, (1997) supports the positive effect of anorganisation’s size on the level of business-like instruments adoption and compliancewith accounting standards. On the contrary, the studies of Evans and Patton, (1983),Ingram and DeJong (1987), and Cohen et al., (2007), did not support such arelationship. Our study takes the position that larger organisations, in terms of bedcapacity, have relatively greater access to resources and thus it is easier for them tointroduce and implement management systems and techniques. These issues lead tothe formulation of the second set of hypotheses: H6: The extent of cost accounting reform adoption is positively associated with ahigher level of organisational support. 6
  7. 7. H7: The extent of cost accounting reform adoption is positively associated with theabsence of management-physician conflict. H8: The extent of cost accounting reform adoption is positively associated with alower-level of satisfaction with the previous accounting system. H9: The extent of cost accounting reform adoption is positively associated withhospital size. A third set of hypotheses attempts to shed some light on inter-organisationalinfluences that might affect the responsiveness of the public hospitals to theintroduction of the cost accounting system of the reform (i.e. professional consultants’support and political support). Christianes (1999) claimed that the assistance ofprofessional consultants and political support were found to be important positiveexplanatory factors for the Flemish municipalities’ compliance level with theaccounting reform agenda by connecting them with their wider institutionalsurroundings in processes of renewal. Moreover, according to Lapsley, (1988; 2004)and Venieris et al., (2003) the lack of guidance from the relevant authorities andpolitical parties is a crucial factor that cannot be ignored in relation to the level of thesuccessful adoption and implementation of management accounting techniques inpublic sector. Based on the above arguments the following set of hypotheses isformulated: H10: The extent of cost accounting reform adoption is positively associated withProfessional support of management consultants’ use. H11: The extent of cost accounting reform adoption is positively associated with ahigher-level of support by central government and regional authorities. The expected relationship between the various factors described above and theextent to which the cost accounting system is introduced and implemented in practiceby public hospitals is presented in the conceptual framework in Figure 1. ------------------------------------------------------------ INSERT FIGURE 1 ABOUT HERE ------------------------------------------------------------ Based on the above arguments, this paper intends not to investigate thoroughly thereform implementation process in particular organisations looking at specificprocesses, but to obtain an overall view of the reform adoption in public hospitals at acertain point in time by conducting a large-scale survey of public hospitals anddrawing on the insights of institutional theory, as well as on signaling theory. Theassumption is made that both wider institutional forces as well as variousorganisational features have a role to play in the implementation success of newaccounting techniques among Greek public hospitals.4. RESEARCH METHOD4.1 Research sampleIn order to collect the necessary data and assess the change process of the accountingreform in GNHS three major kinds of data are used. First, a survey usingquestionnaires was conducted during 2009 in all Greek public hospitals of theNational Health System (ESY). The questionnaire was sent by electronic mail (e-mail) and facsimile (fax) to 132 Chief Financial Officers (CFOs) of public hospitals.The main criterion for the selection of CFOs as key informants in this study was theirexpected knowledge about the adoption and implementation of the new accrualaccounting system within their organisations. Eventually, out of 132 distributedquestionnaires, 94 usable questionnaires were returned, yielding a total response rateof 71.21%. 7
  8. 8. Secondly, a series of semi-structured personal interviews was conducted with six(6) finance and accounting staff to discuss and fine-tune the stated findings and theproposed conclusions of this research. The six participants are officials holding seniorpositions in finance and accounting departments from six different public hospitalsrandomly selected, with an average of 19.4 years of experience in health industry andwith an average tenure of 5.6 years in the current high-level position. Lastly, in terms of size the sample counted 41.4% small facilities with less then200 beds, 32.9% medium-sized hospitals with 200–499 beds and 25.5% largehospitals with over 500 beds.4.2 Measurement of the variablesDependent variableThe primary dependent variable is the development stages of accrual-based costingsystem as a proxy of the level or reform adoption compliance. This variable ismeasured by one question, which builds upon previous work by Krumwiede, (1998),Al-Omiri and Drury, (2007) and Cardinaels et al., 2004. Respondents were asked toclassify their level of reform compliance behaviour in one of the five categories ofdecisions presented in the table 1. ------------------------------------------------------------ INSERT TABLE 1 ABOUT HERE ------------------------------------------------------------ Additionally, and for the purposes of the ordinal regression analysis in this study,respondents were re-classified in the following three stages of cost systemdevelopment: The first group of hospitals does not face the prospect of the adoption of the costaccounting system even as a future prospect (stage 1: minimumdevelopment/compliance). The second group (stage 2: Intermediatedevelopment/compliance) of hospitals is currently in the process of developing theCAS or has included its development in their future plans. The last group (stage 3:advanced development/compliance) of hospitals has implemented and now it is in theprocess of using the CAS. Lastly, one should further note that hospitals in stage 1 are somehow distinct fromthe other two groups. Unlike hospitals in stages 2 and 3, these hospitals do nothing interms of cost system introduction and adoption; it’s seems like they defy the CASadoption. In the fifth Section, an additional model based on this dichotomy (binaryvariable) is reported.Independent variable measurementPrevious accounting expertise (denoted ACCEXP) is measured using the percentageshare of accounting department staff having some previous accrual accounting experienceto total number of accounting dept staff. The CEO educational background (denotedCEOEDUC) is measured using the years of business-oriented education to the totalnumber of education years. The size variable (denoted BEDSIZE) was measured usingthe natural logarithm number of beds. Regarding the general level of accounting staffeducation (denoted DEPTEDUC), Chief Financial Officers were asked to indicate thepercentage share of accounting staff’s finished studies (master, bachelor andsecondary level). Then a finished study category to the total percentage of accountingdept. finished studies. The other seven independent variables: the level of the management-physiciansrelationship (denoted CONFLICTF), the level of management consultants 8
  9. 9. professional support (denoted CONSUL), the level of existing information systemsquality (denoted ITQUAL), the level of the reform-related training (denoted TRAIN),the level of the organisational support (denoted ORGSUP), the level of the politicalsupport (POLSUP), and the level of satisfaction with the previous accounting system(SATCASH) required the use of perceptive measures and thus multi-question Likert-type five point scales (where 1 = to no extent and 5 = to a very great extent) were usedto derive composite scores for each factor. All of the measures are based onpreviously validated instruments of previous studies. Multi-items variables werepreferred because they capture more of a construct’s multi-dimensionality than singleitems (Cardinaels et al., 2004; Al-Omiri and Drury, 2007; Krumwiede, 1998). The resulting composite factor scores are computed using mean standardizedresponses, having a mean of zero and a standard deviation of one, to the surveyquestions loading greater than 0.404 on the respective factors with eigenvalues inexcess of one. The construct validity and reliability for the multi-item variables wereassessed by using a principal component analysis and Cronbach coefficient alphas5respectively. Based on this analysis, the factors appear to be reliable and reasonablyvalid. The descriptive statistics of the independent variables in the study as well asthe results of these factor analyses are displayed in Table 2. ------------------------------------------------------------ INSERT TABLE 2 ABOUT HERE ------------------------------------------------------------ Finally, Table 3 also presents a Spearman Correlation matrix for the independentvariables. None of the Spearman Rank correlation coefficients are high thussuggesting that multi-collinearity is not an issue. Lewis-Beck (1990) reported thatintercorrelations need to be 0.8 or above before they are of any concern. ------------------------------------------------------------ INSERT TABLE 3 ABOUT HERE ------------------------------------------------------------5. Data Analysis5.1 Main Results of the CAS AdoptionThis section of the study empirically attempts to define the extent to which themanagement accounting reform has taken place and, secondly, to shed some light ontechnical, organizational and environmental aspects that might affect theresponsiveness of the public hospitals to the reform. The survey revealed that the introduction of cost accrual accounting has not yetseriously progressed, as only 23 out of 94 (24.4%) hospitals have an operating costaccounting system based on accruals. Another 31.9% is in the process of developingan accrual basis cost accounting system or have included its development in their nearfuture plans. Although the deadline imposed by the Presidential Decree 146/03concerning cost accounting system (CAS) implementation in the public health sectorwas the 1st January, 2005, the remaining 41 hospitals (43.7%) answered that thedevelopment of such an accounting system is not an option for them even in the futuredue to resources constraints. These results does not support the contention thatisomorphism is a strong influence within public hospitals at least for these hospitalentities.4 This is in line with Hair et al. (1998) who considered items that display factor loadings of .40 andabove as important.5 All factors have coefficient alphas above the minimum level of 0.5 suggested by Nunnally (1978)Indicating that are all reliable and reasonably valid. 9
  10. 10. In general, these empirical results signal a low adoption level of hospitals with theprescribed cost accounting reform five (5) years after its official enactment. However,this situation does not consist of a phenomenon unique in the Greek context only, as itis also consistent with the results of previous studies conducted in Europe and the US,which also exhibit low adoption levels of cost accounting systems in hospitalorganizations (Comerford and Abernethy, 1999; Hill 2000; and Arnaboldi andLapsley, 2005). In particular, these studies reported that hospitals traditionally hadlittle incentive or demand for cost accounting systems to be used as a managementcontrol and decision tool. Hospitals primarily reported to external funding authorities,such as the government, and therefore only served as external reporting factors byfocusing on financial accounting aspect. Finally, according to Arnaboldi and Lapsley,(2005, p. 67) the situation of low cost accounting systems adoption level appears to betypical in public sector organisations in which cost issues have been neglected for twomain reasons: “the need to provide products and services to citizens, withoutconsideration of financial matters such as cost recovery and second reliance ongovernment funding”.5.2 Factors affecting the CAS AdoptionIn order to test the hypotheses specified in Section 1, two logit analyses wereperformed. First, ordered logit analysis is used by taking into account the three levelsof Table 1 as the dependent variable, to derive the factors that significantly changebetween the different stages of CAS development (model 1). Next, binary logitanalysis is used to compare two important groups, those hospitals that show only aminimum level of CAS progress versus all others, in order to single out the firstinitiators (factors) of change (model 2).Model 1 (ordered logistic ) : Ln(Yj=1,2) = αj=1,2 - β1 (ACCEXP) - β2 (DEPTEDUC) -β3 (TRAIN) - β4 (ITQUAL) - β5 (ORGSUP) - β6 (CEOEDUC) - β7 (CONFLICTF) -β8 (SATCASH) - β9 (BEDSIZE) - β10 (CONSSUP) - β11 (POLSUP) + eModel 2 (binary logistic): Ln [Prob(Y=1)/1 – Prob(Y=1)] = a - β1 (ACCEXP) - β2(DEPTEDUC) - β3 (TRAIN) - β4 (ITQUAL) - β5 (ORGSUP) - β6 (CEOEDUC) - β7(CONFLICTF) - β8 (SATCASH) - β9 (BEDSIZE) - β10 (CONSSUP) - β11 (POLSUP) + e ------------------------------------------------------------ INSERT TABLE 4 ABOUT HERE ------------------------------------------------------------ The results of the ordinal regression analysis indicate that four out of the elevenvariables the effect of which upon hospitals’ different development stages of CASwas tested in this study, the level of previous financial and cost accrual accountingexperience of the hospital’s finance and accounting Department (p<0.05), the level ofthe existing information technology quality (p<0.1), the level of managementconsultants professional support (p<0.05) and the level of organizational supporttowards accrual basis cost accounting reform (p<0.1) were the most significant instatistical terms. However, the other seven variables do not seem to play an importantenabling or negating role in the implementation and adoption process of the costaccounting system as they do not seem to differentiate significantly among thedifferent implementation stages in both logit models examined. Additionally, resultsof the binary logistic regression are similar to the ordered logistic regression reported 10
  11. 11. earlier, except for the fact that organizational support is not significant anymore. Thisresult shows us that this specific organizational factor, ORGSUP, becomes a dominantand significant variable on a more advanced development stage as the costing systemis implemented. Furthermore, the variables concerning the accounting department’s generaleducation level, the level of CEO administrative/business educational background,and hospital size, are found to be not in the direction predicted in the hypotheses ofthis study. Regarding the insignificance of general education level, this could beattributed to the fact that in Greek reality hospitals’ financial and accountingdepartments can be often recruited with employees having an important level offinished studies (master, bachelor etc) but not in the field of accrual accounting oraccounting in general, as knowledge of accounting is not a prerequisite for staffworking in accounting departments of public sector entities in Greece (Venieris andCohen, 2004).6. Discussion and conclusions6.1 Research FindingsSince controlling operational costs was one of the main issues which initiated theaccounting reform, establishing an accurate and updated costing system based on anaccrual basis could not be but a precondition for the reform. However, 5 years after itsinitial conception, it has not yet seriously progressed as only a minority of publichospitals has complied with the respective regulatory requirements of the costaccounting adoption. In particular, the empirical research findings indicate that only23 out of 94 (2 4.4%) hospitals have implemented an operating cost accountingsystem. The vast majority of hospitals have neither introduced nor developed any kindof cost accounting applications, resulting into the absence of any cost-relatedinformation with regards to their provided services. The cross-sectional differences among hospitals in terms of adoption reveal thatthere are certainly some significant constraints (or enablers) in the process oforganizational change. The Accounting Department personnel’s lack of sufficientaccounting experience or professional qualifications to initiate, support andunderstand the merits of the reform, the inefficiency of existing information systemsto provide timely, reliable, and valid data in an accessible format, the lack of supportfrom the relevant organizations’ key actors, and the lack of professional support fromconsultants, all do significantly hinder the cost accounting adoption process. On theother hand, the hospital size, the level of the accounting department’s staff education,the business/administrative educational background of hospital CEOs, the politicalsupport, the training programs, the conflict between management-physicians, and thesatisfaction with the previous accounting system do not seem to exhibit a significantinfluence on the level of reform adoption . In order to discuss and improve the validity of the findings and conclusions of thisresearch, additional interviews were conducted with six (6) Financial and Accountingexecutives of the examined public hospitals randomly selected. All of the interviewees responded that the implementation of the cost accountingsystem was considered to be quite a difficult and time consuming task, and that theydid not have the necessary organisational resources (human, technical and financialresources) in managing the shift. This runs counter to institutional theorists thinkingthat organizations are willing to incur substantial costs in the achievement oflegitimation (Meyer and Rowan 1977). 11
  12. 12. Moreover, the interviewees, even the adopters, pointed out that the main driver forchange was the legislative requirement (coercive pressure) and not economicincentives for more efficient and effective organizational results. From an institutionalpoint of view this finding supports the view previously mentioned by Covaleski andMichelman (1993), and Meyer and Rowan, (1977) that organizations adoptmanagerial practises on a ceremonial basis and in search for social legitimacy in orderto appear well managed in their organizational field rather than for the rationalpurpose of improving efficiency. However, the high percentage of hospitals (44%) not implementing the mandatoryCAS does not support the assertion that coercive isomorphism regarding thismanagerial system, constitutes a strong external influence and pressure within GNHShospitals. This finding indicates that in general public hospitals are not trying enoughto respond to governmental accounting demands either in search for improving theirdecision-making, and control mechanisms or for reasons of legitimacy and financialsecurity. Institutional theory posits that an organisation’s survival requires it toconform to institutional pressures (Covaleski and Dirsnith, 1988). However, if a non-compliance with legislative requirements does not deliver the organisation alegitimacy or survival problem, institutional inertia or limited isomorphism is thenlikely to prevail (Windels and Christiaens, 2006). Based on the conducted interviews with the CFOs, we present the followingexplanatory factors regarding the slow moving implementation progress of the costaccounting component of the reform in the GNHS: First, public hospitals rely on a governmental funding mechanism, which continues to be appropriated on a cash basis. Within the new accounting legislation there is no reference of connecting the hospitals’ accruals and cost of outputs with the reimbursement received for the services offered to patients. Thus, no real economic incentive or gain is given to hospitals to control their costs as they will continue to be eligible for funding and receive their subsidies irrespectively of their cost efficiency results. The following comments from one pubic hospital CFO demonstrate the importance of this: “at the present we are reimbursed ex post at a per-diem basis without any link to performance criteria. In order a hospital’s managers to be considered successful he has to increase the production volume of the hospital in order to allow additional revenues to be generated, irrespectively of cost-efficiency issues” and concludes “it seems that this payment system “punishes” the more cost-efficient hospitals” As a result, most interviewees pointed out that their hospital management team focuses on regularity and legality of the cash operations and thus the hospitals’ accountants and managers pay more attention to the budget and the budget execution reporting, to the detriment of accruals and cost accounting systems. Moreover, as also stated in the interviews carried out, another obstacle to successful implementation of accrual accounting in public hospitals was the lack of political support and engagement at the level of central government. In particular, since the government accounting reform elaboration and until today, i.e. 2003 to 2009, not much political debate has taken place and no serious political interests were manifested in the sense of modernising public management accounting systems and especially costing systems. All the interviewees indicated that political will is a critical factor for the successful implementation of the accrual and cost accounting reform and of NPM ideas generally. 12
  13. 13. A further obstacle to successful implementation of the accounting reform was the lack of an effective enforcement mechanism to actually mobilise and accelerate the implementation process with budgetary cutbacks or explicit financial restrictions and penalties in case of no compliance. Hence, although fines and penalties have been established by the legislator in the P.D. 146/03 in case of non-compliance with the reform adoption timetables, the interviewees pointed out that no such action has been taken yet. Finally, another factor that the interviews pointed out regarding the slow moving adoption progress of the costing system was the departmental full costing character of the reform. More specifically, this costing approach is considered by the interviews to be not a useful tool for an effective and efficient management of hospital internal operations. Rather it was being seeing as a good external control mechanism serving the interests of the regulatory bodies (i.e. the ministry of health in this case) and not the hospital decision makers, and thus being inconsistent with hospitals organizational objectives. The following comments from one CFOs illustrate this position: “the departmental design approach to costing as introduced in the legislation yields too little information on what is happening with respect to each of our hospital product lines (i.e. hospitalization, emergencies, Outpatient consultations) and specific customers (i.e. patients)… with its focus on generate information for external financial statements and inventory valuation and not for making key management decisions” According to Oliver (1991), organizations are more likely to comply with aconstituent’s requirements and demands when such pressure would enhance anorganization’s social legitimacy and economic gain, and is consistent with their owngoals, otherwise an institutional inertia may be prevailed towards adoption ofregulatory or legislative reforms. In the current case and based on the empirical evidence provided by or research,none of these institutional criteria seem to be fulfilled. These findings might providean acceptable explanation for the generally restricted level of cost accountingadoption and are analogous with earlier studies conducted by Ballas and Tsoukas,2004; Economou and Giorno, 2009; Mossialos et al, 2005, to investigate the role ofaccounting in the GNHS. More specifically, they portrayed the Greek NHS context asa high politicized socio-economic system and a highly institutionalized context inwhich organizational legitimacy is not enhanced by making use of discourse ofrational calculation (such as accounting), but by reproducing the broaderinstitutionalized populist beliefs. In this context, where the use of political criteria ofevaluation is dominant, the role of accounting into the GNHS, has a low symbolicsignificance, does not reflect socio-political expectations and its usage does notcontribute to organizational legitimacy enhancement; therefore it plays a ratherminimal role. As a result, a deviation from the legal demands and requirementsregarding the accounting reforms does not deliver the organization a legitimacyproblem.6.2 Limitations and suggestions for future researchThe study findings are subject to a number of limitations. First, in order to obtain aquantified dependent variable we rely not on objective measures but on participantopinions of cost accounting adoption level. This approach limitation lies in itsdependence on subjective and “hidden” personal judgements, which may or may not 13
  14. 14. be accurately disclosed by the survey respondent. The basis for their opinions remainsunknown and may differ across respondents and over time. However, the participationof CFOs in our survey consist a knowledgeable source with first-hand experience ofaccrual accounting reform adoption. Secondly, another important limitation of this research is the fact that the adoptionof the accounting reform has only been examined from the sole perspective ofaccounting function and financial staff, and may thus exhibit a bias, as it may offervalid but only partial interpretations of events and situations. It does not attempt tosurvey the views and opinions of other interest parties and stakeholders inside thehospitals’ organisational environment, such as the hospital’s clinical managers,physicians and nurses. Thirdly, the data were collected solely from public hospitals inGreece, thus, caution is needed in generalizing the results to other countries. Fourthly,interviews’ data were collected from individuals (i.e. six CFOs) that chose themselvesto participate in the study, resulting in a possible self-selection and reply bias. Finally, on 2010 the Greek government due to a huge budget deficit requested theactivation of a European Union/International Monetary Fund financial aid package tohelp pull the country out of debt crisis. According to Luder’s model (1992) thefinancial crisis serves as a precondition for the decision to innovate and as a stimulipushing for reforms. Thus, future research should also take into account Greece’ssevere financial crisis’ impact on the accounting reform adoption decision andassimilation process in public hospitals.6.3 summary and implicationsDespite these limitations, This study contributes to the international literature of NewPublic Management (NPM) initiatives by providing, to our knowledge, the first largescale assessment of management accounting practices introduction in the publicsecondary and tertiary health care sector in Greece. Another important contribution ofour study is that it is one of the few to discuss the link of the hospitals’ uniquefeatures that are typically not observed in other industries with the level of adoption ofcosting systems in hospital settings. The findings of this research seemingly support the view that –five years after thereform’s official enactment- the level of cost accounting system introduction andimplementation is restricted by both organizational characteristics and widerinstitutional influences. Admittedly, Greek public hospitals cannot be considered as best practice in theintroduction of accruals accounting. However, the results and their implications canbe useful in better understanding the potential shortcomings of a managementaccounting reform adoption process in a context where the use of political criteria ofevaluation is dominant,. Enhanced understanding can help academics, practitionersand policy-makers to build and refine models of effective implementation processeson similar future projects of other reforms, as they can learn from the experiences ofothers. 14
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  19. 19. Appendix A: Figure 1. Conceptual Framework of the study Independent Variables (IV) Human and Technical factors General level of education (EDUC) Accounting staff experience (ACCEXP) Level of training provided (TRAIN) Level ofLegislative mandates Information Technology quality (ITQUAL) Cost accounting Cost accounting CEO educational background (CEOEDUC) reform adoption Reform - Development stages (DV) - (P.D. 146/2003) Intra-organizational Influences Organizational support (ORGSUP) Conflict-free interactions (CONFLICTF) Satisfaction with cash accounting (SATCASH) Size (SIZE) Inter-organizational Influences Political support (POLSUP) Professional Support from consultants (CONSUP) Source: adapted from Windels and Christiaens (2006) 19
  20. 20. Table 1. Classification of cost accrual accounting system (CAS) development stages identified by the surveyCategories of CAS compliance level Number Level of CAS development stages Number Percentage of of (%) hospitals hospitalsa. The cost accounting system (CAS) referred to P.D. 146/03 41 1. Minimum stage: Those that are neither using nor 41 (43.6) has not been adopted and its implementation is not possible consider the prospect of the development of an accrual to happen in the next two to three years. basis CAS in the near futureb. The cost accounting system (CAS) referred to P.D. 146/03 8 2. Intermediate or moderate stage: Those that are 30 (32) has not been adopted but its implementation is possible to either in the process of developing an accrual basis CAS happen in the next one to two years in our hospital or have included its development in the near future (nextc. The Cost accounting system (CAS) referred to P.D. 146/03 one to two years) 2 has not been adopted but its implementation has been approved in our hospitald. The cost accounting system (CAS) implementation project 20 team is currently in the process of determining project scope, collecting data, analysing activities, cost drivers and customizing the necessary software to support ite. The cost accounting system (CAS) referred to P.D. 146/03 23 3. Advanced stage: Those that have implemented an 23 (24.4) has been adopted in our hospital accrual basis CAS Total 94 94 (100) 20
  21. 21. Table 2. Independent Variables: Definition, Reliability and Validity Variable Definition Actual Mean Std. Number Range Value Deviation of scale items Panel A : Independent variables based on a single question ACCEXP The level of Accounting Dept. staff previous cost accounting experience 0.00 – 1.00 0.30 0.214 1 DEPTEDUC The level of education of Accounting department staff 0.08 – 0.48 0.25 0.117 1 CEOEDUC The level of the CEO’s educational background (business orientation) 0.00 – 1.00 0.66 0.390 1 BEDSIZE The hospital’s size (no. of beds) 40 – 1200 368.39 302.96 1 Actual Coefficient Percent of Number Range alfa Variance of scale explained (%) items Panel B : Independent variables as a result of a factor analysis6 ORGSUP The level of organizational support -2.35 ; 2.20 0.740 59.54 4 POLSUP The level of political support -2.04 ; 3.48 0.603 55.77 3 CONFLICTF The level of the management-physicians relationship -3.12 ; 2.45 0.521 73.80 2 TRAIN The level of the reform-related training -1.64 ; 2.74 0.682 72.41 3 ITQUAL The level of existing information systems quality -1.82 ; 2.43 0.801 62.72 4 CONSSUP The level of management consultants professional support -1.02 ; 2.08 0.731 80.59 3 SATCASH The level of satisfaction with the cash-based accounting system -1.29 ; 2.82 0.825 75.73 36 Factors extracted using the principle component analysis (with an eigenvalue >1) 21
  22. 22. Table 3. Spearman correlation matrix for the independent variablesVariables 1 2 3 4 5 6 7 8 9 10 11(N = 94)DEPTEDUC 1.000CEOEDUC -0.026 1.000 **ACCEXP 0.384 0.191 1.000TRAIN 0.351** 0.132 0.442** 1.000 ** **ITQUAL 0.245 0.200 0.487 0.482** 1.000CONFLICTF 0.043 0.022 0.076 -0.157 -0.012 1.000SATCASH -0.292** -0.351** -0.472** -0.371** -0.390** 0.147 1.000 * ** ** ** *ORGSUP 0.244 0.051 0.427 0.519 0.494 0.232 -0.218* 1.000 ** ** ** **POLSUP 0.112 0.051 0.428 0.572 0.471 0.126 -0.287 0.479** 1.000CONSSUP 0.295** 0.071 0.362** 0.650** 0.518** 0.141 -0.344** 0.550** 0.613** 1.000 * * * **BEDSIZE 0.128 0.185 0.263 0.233 0.213 0.126 -0.184 0.196 0.284 0.266** 1.000Note: *, **, correlation is significant at respectively 5, 1% levels (2-tailed). 22
  23. 23. Table 4. Regression Results Ordered logistic regression Binary logistic regression Model 1a Model 2b (three development/compliance stages) (minimum level of development/compliance vs. all others ) Regression Collinearity Standard Collinearity Expected Regression Standard Variables coefficient p-Value p-Value Exp. B statistics error statistics sign coefficient error estimate Tolerance VIF Tolerance VIF Coeff_1 -0.698 0.386 0.071* 0.796 0.426 0.061* Coeff_2 2.775 0.545 0.000*** DEPTEDUC -0.330 0.304 0.276 0.663 1.509 + -0.085 0.469 0.856 0.919 0.730 1.370 CEOEDUC -0.057 0.293 0.846 0.917 1.090 + -0.470 0.442 0.287 0.625 0.778 1.287 ACCEXP 0.855 0.342 0.013** 0.514 1.946 + 0.841 0.474 0.076* 2.318 0.562 1.779 TRAIN 0.494 0.420 0.240 0.429 2.329 + 0.165 0.670 0.805 1.180 0.433 2.311 ITQUAL 0.626 0.342 0.067 * 0.560 1.787 + 1.569 0.759 0.039 ** 4.800 0.553 1.808 CONFLICTF 0.155 0.316 0.624 0.748 1.337 + 0.172 0.502 0.732 1.187 0.725 1.380 ORGSUP 0.665 0.343 0.053 * 0.530 1.885 + 0.320 0.641 0.617 1.377 0.526 1.900 SATCASH -0.357 0.330 0.280 0.608 1.645 - -0.569 0.480 0.236 0.566 0.606 1.650 POLSUP 0.167 0.381 0.661 0.501 1.994 + 0.338 0.626 0.590 1.402 0.471 2.125 CONSSUP 0.891 0.383 0.020** 0.425 2.351 + 1.244 0.623 0.046** 3.470 0.418 2.395 BEDSIZE -0.098 0.259 0.704 0.909 1.100 + -0.253 0.415 0.543 0.777 0.842 1.187 Chi-square model 91.394 77.157 (0.000) *** (0.000) *** Hosmer–Lemeshow goodness of fit 0.611*,**,***, significant at respectively 10, 5, 1% levels.a Dependent: Y = 1 (minimum stage = hospitals that do not consider adopting CAS even as a future prospect); Y = 2 (Intermediate stage = hospitals that are currently in the processof implementing or intending to implement CAS in the next two years); Y = 3 (advanced stage= hospitals that have adopted CAS)b Dependent: Y = 0 (minimum stage); Y = 1 (intermediate and advanced stage). 23
  24. 24. Durbin Watson 1.517 1.668 2Cox and Snell pseudo R 0.622 0.560 2Nagelkerke pseudo R 0.705 0.751Percent correctly classified 89,4%Test of parallel lines : 9.731Chi-square (0.555) 24
  25. 25. Appendix B: Description of the Cost System functionality prescribed in the P.D. 146(group 9 accounts) The costing system prescribed in the reform works in the following manner. 1. Cost classification (90 & 94 GL accounts): costs are classified by economic categories (e.g. salaries, supplies, rents, energy, travel allowances, taxes and insurance costs, maintenance, pharmaceuticals, amortization, etc). 2. Cost accumulation (91 & 92 GL accounts): Costs are accumulated and assigned in departments in a direct or indirect way. Direct department is considered to be revenue producing (e.g., cardiology, rehabilitation, emergencies, Intensive Care Units (ICUs), etc), which creates services traceable to a specific patient. Indirect departments are non-revenue producing (e.g., laundry, cleaning, housekeeping, administration, admission, etc) 3. Cost allocation (or secondary cost allocation, 92 & 93 GL accounts): All indirect department costs are allocated to the direct departments using the step-down method. More specifically, the step-down cost allocation procedure described by the P.D. 146/03 works as follows. First, cost centres that provide support to the whole organization (e.g. laundry, administration, housekeeping, maintenance, etc) and yielding overhead costs are allocated to both to intermediate and final cost centers. Second, costs from intermediate cost centres (e.g. radio diagnostic, laboratory tests, etc) are allocated to final cost or revenue centres (e.g. care units such as: acute care, surgery, emergencies, intensive care, etc) based on a ratio-of-costs-to-charges (RCC) approach, in such a way that the summation of costs attributed to final cost centres represents the whole cost of hospital. Finally, the actual unit cost of the final product is determined by dividing the total cost of the final product by the actual volume of the final product (i.e. functions, services) in terms of days of hospitalization.The aim of the legislator was to arrive at the full cost per service; cost per function -cost centre; cost per intermediate product; and cost per final product mainly forexternal financial reporting and inventory valuation purposes. 25
  26. 26. The costing process approach of the reform is graphically presented below: General Ledger Accounts (90 & 91 & 94 GL accounts)Direct Departments Indirect Departments (92 GL accounts) (92 GL accounts) Intermediate Products (functions, services) (92 GL accounts) End product (patient) (93 GL accounts) Financial reporting (Gross economic result, net result- 96 & 98 GL accounts) 26