Running head: ACTIVITY BASED ACCOUNTING 1
ACTIVITY BASED ACCOUNTING 7
ABSTRACT
Health has become very expensive in the United States. A very big percentage of people are finding it hard to fund their medical expenses. To deal with this problem, the reduction of healthcare costs and the increase in performance management are two major components that are required. The management and accounting practices of the health industry have been highly affected by the need to reduce the costs and improve the performance of the sector. Activity based accounting, which is often borrowed from the private sector, is one of the main strategies that most institutions in the health industry are trying to apply to improve the performance of the sector. This research paper intends to analyze the case of the health industry and how it has applied activity based accounting. The research will also analyze the process of implementation of activity based accounting in the industry and the benefits that it has had in the areas within which it has been implemented.
INTRODUCTION
Healthcare systems in almost all countries face the pressure of delivery effective but cost-efficient care in the face of increasing demands. Healthcare has faced a great challenge of providing affordable healthcare services. These pressures have led to the development of various initiatives and strategies to improve the quality of healthcare delivery in the country. Activity based accounting is one strategy that has been applied by various US healthcare organizations to improve the efficiency of the care they provide. This strategy assigns costs according to the activities performed; making it easier to track the consumption by each. The purpose of this research paper is to help explain how activity based costing works, its strengths, limitations, successes, and downfalls in the healthcare industry.
CHALLENGES IN HEALTHCARE COSTING
1. Tholemeier, R. (2016). Making Healthcare Affordable: Implementing True Continuous Costing. PR Newswire.
The article indicates that the actual costs of offering healthcare remain hidden regardless of the way we pay for care. People pay for health care in one way or another. For example, pay for health care in the form of reduced global competitiveness, increased debt, reduced net wages, reduced jobs, and high taxes. This is something that individuals do not realize such as the business of offering healthcare. The article offers the programs and strategies that reduce volume for delivery of healthcare services to decrease the aggregate of the healthcare bill.
2. McBain, R. K., Jerome, G., Warsh, J., Browning, M., Mistry, B., Faure, P. I., & ... Kaplan, R. (2016). Rethinking the cost of healthcare in low-resource settings: the value of time-driven activity-based costing. BMJ Global Health, 1(3), e000134. doi:10.1136/bmjgh-2016-000134
The article reveals that both the low and middle-income accounts for more than 80% of the infectious diseases in the world. Besi ...
Running head ACTIVITY BASED ACCOUNTING1ACTIVITY BASED ACCOUNT.docx
1. Running head: ACTIVITY BASED ACCOUNTING 1
ACTIVITY BASED ACCOUNTING 7
ABSTRACT
Health has become very expensive in the United States. A very
big percentage of people are finding it hard to fund their
medical expenses. To deal with this problem, the reduction of
healthcare costs and the increase in performance management
are two major components that are required. The management
and accounting practices of the health industry have been highly
affected by the need to reduce the costs and improve the
performance of the sector. Activity based accounting, which is
often borrowed from the private sector, is one of the main
strategies that most institutions in the health industry are trying
to apply to improve the performance of the sector. This research
paper intends to analyze the case of the health industry and how
it has applied activity based accounting. The research will also
analyze the process of implementation of activity based
accounting in the industry and the benefits that it has had in the
areas within which it has been implemented.
INTRODUCTION
Healthcare systems in almost all countries face the pressure of
delivery effective but cost-efficient care in the face of
increasing demands. Healthcare has faced a great challenge of
providing affordable healthcare services. These pressures have
led to the development of various initiatives and strategies to
improve the quality of healthcare delivery in the country.
Activity based accounting is one strategy that has been applied
by various US healthcare organizations to improve the
efficiency of the care they provide. This strategy assigns costs
according to the activities performed; making it easier to track
the consumption by each. The purpose of this research paper is
to help explain how activity based costing works, its strengths,
2. limitations, successes, and downfalls in the healthcare industry.
CHALLENGES IN HEALTHCARE COSTING
1. Tholemeier, R. (2016). Making Healthcare Affordable:
Implementing True Continuous Costing. PR Newswire.
The article indicates that the actual costs of offering healthcare
remain hidden regardless of the way we pay for care. People pay
for health care in one way or another. For example, pay for
health care in the form of reduced global competitiveness,
increased debt, reduced net wages, reduced jobs, and high taxes.
This is something that individuals do not realize such as the
business of offering healthcare. The article offers the programs
and strategies that reduce volume for delivery of healthcare
services to decrease the aggregate of the healthcare bill.
2. McBain, R. K., Jerome, G., Warsh, J., Browning, M., Mistry,
B., Faure, P. I., & ... Kaplan, R. (2016). Rethinking the cost of
healthcare in low-resource settings: the value of time-driven
activity-based costing. BMJ Global Health, 1(3), e000134.
doi:10.1136/bmjgh-2016-000134
The article reveals that both the low and middle-income
accounts for more than 80% of the infectious diseases in the
world. Besides, the allocation of the judicious resources means
a great difference between the entire patient population and
individual patients. The understanding of the cost of healthcare
is fundamental in the allocation of the healthcare resources.
Some of the allocated resources include medicine and staff in
ways that are fair, just, efficient, and effective. The article
indicates the health costs that are not understood and instead
undermines the efficiency and effectiveness of service delivery.
3. Arredondo, R. (2014). Why revisit your cost-accounting
strategy. Healthcare Financial Management, (7). 68.
This article helps to demonstrate the importance of developing
new cost-accounting strategies by explaining the challenges that
are currently being faced in the United States healthcare
industry. The author believes that there is a high level of
resources and ineffective allocation of resources that is causing
3. the cost of healthcare to be higher than it is supposed to be.
Activity based cost accounting has been suggested as one of the
techniques that the organizations in the healthcare industry can
reduce the costs of operation.
ABOUT ACTIVITY BASED ACCOUNTING
4. Spence, J., &Seargeant, D. (2015). Implementing a
trustworthy cost-accounting model. Healthcare Financial
Management, (3). 84.
This article gives a comprehensive analysis of the activity based
cost accounting model and its benefits in managing the costs of
the health industry. The article explains that the cost
management should be done on the activity level in order to
understand the true costs of healthcare service delivery. The
challenge with many healthcare organizations is that they have
outdated cost management models that are preventing them from
tracking the true costs of each of the activities performed in the
system. This system assigns costs to each activity individually
therefore the tracking of costs can be easier for involved
organizations. In summary, through this article, one can develop
an idea of how the activity based accounting model works and
what makes it different from the conventional accounting
models.
APPLICATION IN HEALTHCARE
5. Chapman, C., Kern, A., &Laguecir, A. (2014). Costing
Practices in Healthcare. Accounting Horizons, 28(2), 353-364.
doi:10.2308/acch-50713
This article provides a detailed analysis of how activity based
costing can be applied in the healthcare industry within the
rising costs of healthcare service. It gives a detailed attention
into how the costing is done within the healthcare industry. The
article makes a consideration of the interdependencies between
the major elements of the healthcare industry that make it
different from other industries. For instance, the relationship
between the diagnosis related group systems and costing
activities has been explained. In particular, the diagnosis related
4. group systems require a more detailed costing model for them to
be effective. These and other factors contribute to the
disintegration of the jurisdiction of cost management.
6. Giuseppe Grossi and Assoc. Prof. Ileana Steccolini, P.,
&Campanale, C. (2014). Time-driven activity-based costing to
improve transparency and decision making in healthcare : A
case study. Qualitative Research In Accounting & Management,
(2), 165. doi:10.1108/QRAM-04-2014-0036
This article discusses the potentialities of the application of
activity based costing in the improvement of cost management
within healthcare organizations. In addition, this article
analyses how this costing system can help to improve
transparency within the health industry. The study found that
the activity based costing system helps to develop a higher
consistency between the healthcare service activities and the
resource allocation. This system was found to increase the
chances of better resource allocation and minimized resource
wastage on activities that were not very important. The level of
transparency during the use of this system was also found to be
better.
7. Cannavacciuolo, L., Illario, M., Ippolito, A., &Ponsiglione,
C. (2015). An activity-based costing approach for detecting
inefficiencies of healthcare processes. Business Process
Management Journal, 21(1), 55-79. doi:10.1108/BPMJ-11-2013-
0144
This article was developed to create methodological framework
to determine how the implementation of an activity based
costing system integration with the existing healthcare system
cost management models can help to benefit the organization.
The article identifies some inefficiency in the integration of the
activity based accounting and the existing accounting models
and how they affect service delivery. The study findings pointed
out that the effectiveness of the Business Process Management
methodology in producing significant information about the
resource consumption and the costs of the activities is important
in the integration process. This is important in highlighting the
5. opportunities and barriers that exist in the existing accounting
system that would enhance or hinder the integration process.
BENEFITS OF ACTIVITY BASED ACCOUNTING
8. Kaplan, R. S., Witkowski, M., Abbott, M., Guzman, A. B.,
Higgins, L. D., Meara, J. G., & ... Feeley, T. W. (2014). Using
time-driven activity-based costing to identify value
improvement opportunities in healthcare. Journal of Healthcare
Management, (6). 399.
This article analyses the early stage implementation of the
activity based costing system in various healthcare
organizations. The article specifically analyses the impact of the
implementation of this costing system in the improvement of
value for patients. The article found that this system helps to
improve the quality of service delivery. Most importantly, this
costing method was found to have a positive impact on the
reduction of healthcare costs. The organizations that have
implemented this system were found to have lower costs of
service provision. The study that this system be implemented in
more organizations to help deal with the issue of the rising
healthcare costs.
9. Cokins, G., & Scanlon, C. (2017). Measuring and managing
patient profitability: activity-based costing is an imperative for
health systems seeking to ensure the profitability of their
enterprises under value-focused health care. Healthcare
Financial Management, (4). 34.
This article explains how the health industry can deal with
increasing pressure from the public and the government to
deliver value at a minimized cost. The article suggests that this
problem can be managed by creating innovative methods of cost
management. Activity based accounting is the major technique
that has been suggested as a method of reducing the costs of the
healthcare system. The article provides some benefits of using
this system. The activity based costing model helps the
healthcare organizations to track the resource allocation to
various activities more effectively hence increasing the chances
6. of reducing costs and increasing the transparency of the
healthcare system.
10. Kaplan, R. S. (2014). Improving value with
TDABC. Healthcare Financial Management, 68(6), 76-84.
This article explains more about time-driven activity based
accounting. This system traces the activities that the patient
goes through throughout the variety of care for any specific
medical conditions. It identifies the real cost of each resource
that has been used, like the personnel, ward, consumables, and
all equipment, in both outpatient and in-patient settings. The
system also documents the amount of time that has been spent
on each of the resources. Lastly, it supports the ability to
combine all the cost information in the various organizations
that deliver healthcare to a single patient through the course of
the care.
Paper Outline- Read entirely
Topic- Activity-based Accounting in the health Industry
(Outline and sources attached only used sources listed)
1. Closely read and ensure that you understand the following
requirements for a successful research paper..
2. The paper must be at least 8 full pages in length and contain
citations to 10 different sources (SOURCES ATTACHED
ONLY USE THESE) used in the paper.
3. Prepare the paper utilizing APA guidelines. The Purdue Owl
contains a great overview of research, writing, and APA style
guidelines.
4. A departure from APA guidelines is that I require page
numbers be included in paraphrases as well as quote citations.
The page numbers are used to find the source of the paraphrase
so that the paraphrase can be checked for accuracy.
5. Failure to include specific page numbers in all citations
7. whether direct quotations or paraphrases will result in a 40
point deduction and the paper being returned to you for
correction and resubmission.
6. Place the Abstract on a separate page which does not count in
paper length.
7. The Running Head must be within the one inch top margin.
8. Use a one paragraph Introduction and Conclusion in your
paper. The Introduction and Conclusion are each limited to 10
lines.
9. The paper must be long enough to thoroughly cover the paper
topic.
10. Refer to the Purdue Owl for all requirements of a research
paper. The Purdue Owl covers the process from the initial
research step to the writing of the paper .If you do not
understand a requirement or suggestion please contact me or go
to the Writing Center for assistance or refer to online sources.
11. Place lengthy quotes over 5 lines, pictures, illustrations,
and tables in the appendix and reference them in your paper.
12. Every paragraph, except a one paragraph, 10 line maximum,
Introduction, and Conclusion, or 1 line introduction in a
paragraph to identify the subject of the paragraph must be
identified by citations to the source from which you obtained
the information conveyed in your writing. Each paragraph will
contain multiple citations.
13. 3 government publications( U.S., State, or Local)
14. Do not use bullet points in writing the paper.
15. Do not use “I”, “we”, “you”, “they”, or other personal
pronouns.
16. Do not use “Common Knowledge”. This is a research paper
and not an essay. Every paraphrase must contain a citation.
You obtained all of your knowledge from some source and are
required to cite each source.
Personal knowledge or “common knowledge” is not acceptable
in research for this course and will be treated as sources not
cited for the determination of plagiarism.
8. If you do not cite an article do not use it in your references.
Ensure that you do not confuse financial accounting with
managerial accounting.
Conduct your research and writing in accordance with a good
research and writing text such as Keys for Writers by Raimes.
Failure to include specific page numbers in all citations whether
direct quotations or paraphrases will result in a 25 per cent
deduction and the paper being returned to you for correction
and resubmission. If the source does not have page numbers you
must supply the page numbers for citations.
If you do not cite an article do not use it in your references.