Revenue Allocation

Revenue Allocation

DOI: 10.4018/978-1-5225-5082-2.ch002
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Until now, the revenue allocation of a hospital service has not received sufficient attention. Previous research done on this subject overlooked the details of revenue streams in the activity-based funding environment and has not introduced any technical dimension faced by new clinical costers. On the other hand, clinical costers (who manage clinical costing database) have a strong aversion to talking about revenue, because of the exclusion of revenue data collection and submission for most funding authorities. Clinical costing also tries to prevent revenue information from influencing on cost allocation methods. That makes research on this subject extremely difficult. However, the chapter uses a language called “revenue is an integral part of clinical costing” as an alternative way to explore this subject, including fine technical details. The benefits of investing in the revenue allocation process seem to exceed its cost, since the cost, revenue, and clinical outcomes could be analyzed in toto for delivering information on safety and quality of care.
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Revenue allocation in clinical costing is the distribution of total income down to the patient level based on appropriate allocation rules in a health service operating under activity-based funding.

In Victoria, it involves a complex process of patient qualifiers (who should get the revenue) and how (allocation statistics or rules) to allocate revenue from the Department of Health Victoria and other funding agencies. The purpose is to maintain the operating structure of the health service. It also requires health services to follow accrual accounting principles that record the cost and revenue of resources when they are consumed in the health service delivery irrespective of the time of the payment (The Independent Hospital Pricing Authority, 2014, p. 32).


The revenue allocation in Victorian public hospitals seems to be in its early stages. Uncertainties come from the choice of the allocation methodology, method and software. Revenue standards are not available from any funding and pricing authority. The main purpose of revenue allocation in public hospitals seems to be an internal reporting to investigate profitability and contribution margin linked to patient outcomes. The secondary purpose could be a comparison analysis of own cost and revenue in a timely manner instead of relying on benchmarking organisations.


Main Focus Of The Chapter

Getting the Data Source

There are two financial data sources for revenue allocations: general ledger (GL) and cash flow (CF). Both sources holds cost or revenue centre/account/amount combinations. Revenue accounts have descriptions on the funded service. For example, cost centre Axxxx/account 5xxxx/amount of 1.5 million for liver transplant. The only difference between these two sources is that CF has detailed information on the separate revenue centre/account/amount combinations rather than an aggregated amount. If the GL is used as the main data source then ‘reclassing’ or splitting of the aggregated revenue amount would be necessary from the GL revenue centre to the corresponding cost centre to align with costs. Finance Department usually has GL-reconciled cash flow statement for revenue allocations.

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