Applying activity-based costing in provider organizations
With healthcare reform and the expansion of the individual insurance market, providers will have fewer opportunities to shift cost to manage profitability. To maintain profitability in a proactive manner, providers must adopt new techniques such as activity-based costing (ABC), says a principal consultant at Infosys Public Services. This approach will help them develop a better understanding of the true costs of services being provided. Applying this technique carries particular significance, especially before signing new or amended payer contracts.
Initiatives such as the transition to ICD-10 and the programs administered by the Centers for Medicare & Medicaid Services (CMS) – to encourage meaningful use of electronic health records and promote the formation of accountable care organizations (ACOs) – will demand investments and changes in the payment model, which will, in turn, bring more operational and financial strain on both hospitals and physician practices. ABC is an accounting technique designed to keep an organization safe from potentially serious financial problems that arise when the organization’s accounting costs deviate significantly from its actual costs.
Published with permission of Healthcare Financial Management Association. Copyright 2012 by Healthcare Financial Management Association.