Cost Driver Analysis in Hospitals: A Simultaneous Equations Approach.

John B. MacArthur · Harriet A. Stranahan

22 citations0/0 files storedJournal of Management Accounting Research

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Accounting and Organizational Management Health Services Management and Policy Healthcare Policy and Management

Abstract

Abstract Abstract: This paper extends recent cost driver research to the health care sector. In various case studies it has been suggested that overhead costs are driven by volume and complexity variables. This paper investigates the significance of these variables in determining hospital overhead costs, how they are structurally related and how the cost impacts of these variables can be estimated in practice. A unique feature of the research is the treatment of complexity as an endogenous variable. It is hypothesized that the level of hospital complexity, in terms of the number of services provided (i.e., "breadth" complexity) and the intensity of individual services (i.e., "depth" complexity), is simultaneously determined with the level of general services (overhead) costs needed to support the complexity. Two-stage least squares regression is used to estimate the model. The volume and complexity variables were all statistically significant drivers of hospital overhead costs.

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