Operating Room Management Accounting and Cost Calculation Model for Operating Rooms
Matteo Buccioli (Morgagni-Pierantoni Hospital, Italy), Peter Perger (University of Bologna, Italy), Vanni Agnoletti (Morgagni-Pierantoni Hospital, Italy), Rebecca Levy Orelli (University of Bologna, Italy), Emanuele Padovani (University of Bologna, Italy) and Giorgio Gambale (Morgagni-Pierantoni Hospital, Italy)
Copyright: © 2015
A decrease in the availability of resources in the healthcare sector can be attributed primarily to negative effects of the economic and financial crisis (De Belvis et al., 2012). There has also been an increase in demand for healthcare services due to demographic ageing and a rise in public expectations (demand side changes) (McKee et al., 2012; Rachel et al., 2009; Young, 2008).
But how can we foster efficiency if we don’t know the processes that absorb resources in detail? How can we aspire to this widely spread management formula: ‘if you can measure it, you can understand it. If you can understand it, you can control it, you can improve it’ (Harrington, 1987).
Hospital managers are faced with the challenge of providing adequate healthcare services with limited resources through striving for improvements in quality. Coalescing negative impacts on the availability of healthcare resources are heightened by a widespread ignorance of management accounting matters. But little knowledge about costs is a strong source of cost augmentation (Young, 2013).
Healthcare costs are already poorly understood because there is a widely spread ‘myth’ that many healthcare costs are too complex to be measured accurately. This belief coupled with a general unwillingness to take the time to break down the costs of every patient’s treatment is detrimental since there is clear evidence that “[p]oor costing systems have disastrous consequences” (Kaplan & Porter, 2011)
Key Terms in this Chapter
Cost Object: Product/Activity for which the cost is calculated.
Direct Costs: Direct costs are costs directly attributable to the cost object (for example material). In contrast, overhead costs, as administration costs ect. are not directly attributable to the cost object.
DRG (Diagnosis-Related Group): Is a system to classify healthcare cases. In many Healthcare systems worldwide such schemes are in use for Hospitals reimbursement for performed healthcare services to patients. Whole procedures can consists of many DRG`s, depending normally on the complexity of the case. If applied as reimbursement system basis the relationship between the product’s price and cost is essential for understanding the financial impact different types of patients on the health care organization.
Cost Allocation: Cost allocation is a process to assign a certain amount of cost(block) to the cost object (in respect of his effective resource consumption). It refers to taking costs form one area or cost objective an allocating them to others. Many allocated costs are referred to as overhead. Overhead refers to costs that are generally indirect and cannot be easily associated with individual patients. The great goal of cost allocation is to associate costs as closely as possible with the patients who cause them.
Activity Mapping: Graphical representation of performed activities of the “production” process, in this case of the surgical path.
Cost Calculation/Cost Accounting/Cost Determination: Within cost accounting cost calculation/determination of a product is often the first step when implementing an overall management accounting system. Cost calculation is the answer to the question: How many does a unit of the produced product cost? Cost accounting includes all of managerial accounting, but it also focuses on certain elements of financial accounting that are closely related to cost measurement and cost reporting.
Surgical Path: Patients movements especially within the ORB, but including also the transport from the ward to the ORB and from the ORB back to other Hospital departments. Patient’s movements mean indirectly that actions are performed concerning him/her, deducting from the places/movements which actions are performed during the surgical process.
Cost Driver: Allocation bases used for applying costs to services are called cost drivers. An activity may have multiple cost drivers associated with it.
Operating Room/Operating Room Block/Surgical Block/Surgical Theater: Operating Rooms are typically organized as separate departments within Hospitals. Operating room blocks (ORB´s) or surgical theatres are agglomerations of operating rooms.