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Activity Based Costing in Healthcare: A UK Case Study

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Accounting and Organizational Management Health Services Management and Policy Accounting Theory and Financial Reporting

Abstract

he reduction of public funding and the emphasis on performance measurement in public services have influenced the management and accounting practices of many healthcare systems. The pressures have led many managers to search for management tools, often derived from the private sector, in the attempt to rationalize their use of resources. Activity Based Costing (ABC) is one of these techniques which has gained considerable attention both from practitioners and researchers. This paper examines the case of a UK healthcare organization which implemented ABC to provide sharper cost information for control and decision making. The paper is a longitudinal study of an accounting application which provides insights into the process of adoption and enactment of costing innovation in healthcare. ealthcare systems, internationally, face pressures to deliver cost efficient care in the face of escalating demands. These pressures have led to many initiatives to improve the management and efficiency of healthcare delivery. This paper examines the trajectory—from initial idea to implementation—of the adoption of activity based costing (ABC) to improve efficiency by one healthcare organization. The healthcare organization which is discussed in this paper is a blood transfusion service, part of the UKs National Health Service. This study reveals the challenges, the pitfalls and the problems of adopting a costing technology which is radically different from previous practices in a healthcare setting. RESEARCH CONTEXT The UK’s blood transfusion service is currently organized into four regional centers for the collection and distribution of blood (Varney & Guest, 2003). The role of these centers in the healthcare system is crucial and their management is complex from the ‘raw material’ procurement phase through to final use. The UK’s transfusion services rely on voluntary donors, who donate their blood up to three times a year. Though this

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References

1984Case Study Research: Design and Methods 2004Case Study Research 1987Relevance Lost: The Rise and Fall of Management Accounting 1990Information Technology Implementation Research: A Technological Diffusion Approach 1997The effect of strategy and organizational structure on the adoption and implementation of activity-based costing 1999The impact of contextual and process factors on the evaluation of activity-based costing systems 1995A Framework for Assessing Cost Management System Changes: The Case of Activity Based Costing Implementation at General Motors, 1986-1993.1993Improving hospital cost accounting with activity-based costing

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2008Implementation of activity based costing in Malaysia 2015An activity-based costing approach for detecting inefficiencies of healthcare processes 2009Process view and cost management of a new surgery technique in hospital 2021From centralized DRG costing to decentralized TDABC-assessing the feasibility of hospital cost accounting for decision-making in Denmark 2016Time-driven activity-based costing for health care provider supply chains

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