ABSTRACT * ACTIVITY-BASED COSTING...

ABSTRACT

* ACTIVITY-BASED COSTING is an accounting technique that allows organizations to determine actual expenses associated with their services based in succession the resources they consume.

* THIS TECHNIQUE can be used in a variety of ways, including targeting high-cost activities, forecasting financial baselines, and supporting resource allocation.

* FOUR stairs should be followed when applying activity-based costing to surgical procedures

* THIS ARTICLE explores by what means Froedtert Memorial Lutheran Hospital, Milwaukee, used activity-based costing. AORNJ 79 (January 2004) 189-192

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In today's competitive marketplace and with aye increasing budget cuts, health care organizations are struggling to measure and manage their preciousnesss Facilities need to have hardy financial information to make critical decisions and maximize profitability. Activity-based costing (ABC) is an accounting technique that allows organizations to determine the actual preciousnesss associated with their services based in succession the resources they consume. It can be used to capture the now passing cost of performing specific activities, help target high-cost activities, forecast financial baselines, determine cost-based package operation pricing, identify opportunities for preciousness savings, and support resource allocation, among other things. (1)

USING ACTIVITY-BASED COSTING

When using ABC to determine the price of surgical measures several questions need to be asked. What areas of care are going to be included? What activities are involved? to what extent much personnel time is allocated to each activity? What other resources are consum (eg supplies, equipment, instruments)? What are the expenses of these resources? Four degrees should be followed when applying ABC to surgical processs (2)

1. Identify time areas of care to be included in the costing shoot forward Determine whether to include the entire surgical experience (ie, preadmission testing, preoperative care, anesthesia, surgery postoperative care, materials processing) or just common portion of care.

2 Determine what resources will be included (eg personnel supplies, implants, equipment, instruments, laboratory work, pharmacy). These are preciousness drivers.

3. Identify specific items used or activities performed for each of these resources. For surgical processs use preference lists to identify all the supplies, implants, instruments, and equipment used. Determine tasks performed through personnel for each resource, and determine the time requireed to complete each task.

4 Assign expenses to each resource. For supplies, implants, and medications, use the direct require to be paid [i]or[/i] undergone of purchasing the items and the charges associated with any related pliable goods. For equipment and instruments, calculate the splendor per use based on the purchase price, estimated life, maintenance sumptuousnesss and number of uses. For personnel calculate the couple direct and indirect labor take away froms including benefits.

in what manner ONE HOSPITAL USED ACTIVITY-BASED COSTING

Activity-based costing can be used in many ways. Froedtert Memorial Lutheran Hospital, Milwaukee, used ABC to identify costlinesss and charges for anesthesia care, electroconvulsive therapy, and several surgical acts including total knee replacements and transplantations.

ANESTHESIA CARE. With the implementation of ambulatory payment classifications (APCs), the Center for Medicare and Medicaid Services design to package any usual and customary take away froms incurred to furnish a practice or service into the APC payment rate for that course or service. Consultants recommend that the actual richness for all supplies, equipment, and personnel be identified and turned into a packaged price.

To evolve this type of pricing, it was critical that all practices at Froedtert be classified into on a levels based on resource utilization. It was decided to perform the operations indicated in levels based on the American Society of Anesthesiologists' physical status classifications. (3) flush zero indicates local procedures, and of the same height S indicates regional and spinal manner of proceedings Patient records were reviewed retrospectively. A committee consisting of the OR director, business coordinator, inventory specialist, and service coordinators bring outed profiles of typical resources used for patients in each classification, and ABC was used to determine expenses for each activity within each of the same height (Figure 1). Charges then were establish by the finance department. These charges now are based onward cost and can be rationalized more easily to a reviewing agency.

[FIGURE 1 OMITTED]

ELECTROCONVULSIVE THERAPY. When developing procedure-based charges, ABC can be to a high degree useful. At Froedtert, electroconvulsive therapy was being performed in the postanesthesia care unit with the involvement of the anesthesia department. charges for both services' activities were distressed to determine an appropriate price to cast reproach the cost of this deed (Figure 2). Resources used for each area had to be determined. Anesthesia used supplies, personnel and medication. The postanesthesia care unit used supplies, equipment, and personnel When splendors for all the resources consum in the two areas were determined, a patient charge was created.