Cost accounting is the process of estimating and classifying costs of healthcare incurred by governments or other organizations.
The costs are categorized under various heads e.g. salaries, material costs, radiology costs, canteen, allied services for visitors, burden costs (rent, water, electricity etc.).
Once the costs are calculated under each head, the organisation can determine which costs have potential for reduction. E.g. a costly service may be widely used but has only traditional value like free medical care for all employees, when their insurance can pay. Similarly, some screening procedure may not be needed for the whole population. The money spent in providing RTA treatment may be drastically reduced if redirected to building safer roads and law implementation.
At a private hospital level also, the management can optimize the margins by identifying the source of largest costs. E.g. data revealed that a hospital was losing money on some reimbursement contracts. The paying organizations knew about this but had continued to reimburse the hospital on these low rates. So, the contracts were cancelled and then were reinstated with higher reimbursement rates, based on the cost accounting data.
Uses of cost accounting in healthcare:
1. Cost control
2. Planning and allocation of resources
3. Calculating the price of reimbursement
References:
MSMW, 1972. Editorial: Cost Accounting Health CareCALIFORNIA MEDICINE; FEBRUARY 1972, (116).1-2
Nathan Carroll, Justin C. Lord, 2016. The Growing Importance of Cost Accounting for Hospitals Journal of Health Care Finance; Fall 2016
Park’s Textbook of Preventive and Community Medicine. 24th ed, 2017, Bhanot Publishers, Jabalpur
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Cost Benefit Analysis (CBA): http://www.ihatepsm.com/blog/cost-benefit-analysis-cba
Cost Effective Analysis (CEA): http://www.ihatepsm.com/blog/cost-effective-analysis-cea
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Cost accounting in Healthcare: http://www.ihatepsm.com/blog/cost-accounting-healthcare