An yet it moves. The implementation of Activity Based Costing in care and nursing homes

An evergreen: cost accounting in healthcareCost accounting has been a recurrent component within the managerial reforms of the healthcare sector in many countries (Lega, 2008). However, while the debate on the use of cost... [ view full abstract ]

An evergreen: cost accounting in healthcare

Cost accounting has been a recurrent component within the managerial reforms of the healthcare sector in many countries (Lega, 2008). However, while the debate on the use of cost information in healthcare has a long history, (Herzlinger, 1978; Smith et al., 1981; Llewellyn, 1993; Garattini et al., 1999; Arai, 2006; Scarparo, 2006; Devine et al., 2008; Chandra et al., 2011; Stock et al., 2011), some facets are still partly controversial (Cardinale, et al. 2004). 

One of them is the use of Activity Based Costing. In fact, despite many studies on ABC, the evidence is still inconclusive. Some studies support the idea that ABC can perform better than traditional cost techniques (Chan, 1993; Greene et al., 2001; Ross, 2004; Negrini et al., 2004; Lin et al., 2007; Waters et al., 2011), while other contributions found the potential of ABC to be barely exploited in practice (King et al., 1994; Garattini, 1999; Lawson, 2005).

An under-analyzed facet: ABC in care and nursing homes

The debate on ABC in the healthcare sector has noticeably overlooked nursing homes providing residential services. This is a relevant gap since they are complex organizations struggling to customize services while trying to contain costs; therefore cost information both in terms of drivers and effects is essential to decision-making. In order to address this gap, this paper tries to answer a first research question RQ: what factors do affect the implementation of Activity Based Costing methodologies in care and nursing home? Furthermore, the financing of these type of organization is often entrenched with intergovernmental dynamics, since, beside charges, it includes reimbursements and transfers by different tiers of government. Therefore, the paper addresses a second RQ: how does the adoption and implementation of ABC affect the relations and negotiations with different tiers of governments? The paper adds to current knowledge in two ways. First of all, deepen the knowledge on ABC, focusing on the actual implementation rather than on its potential benefits. Moreover, it refers to a typology of health care organizations often neglected by mainstream debates.

Field research

The research is based on a single embedded case study  in the Italian health care sector, where a system based on cost centers was replaced by an ABC methodology. Data have been collected through documental analysis, direct observation and semistructured interviews.

Results

The analysis shows, comparing the two models in use, how the introduction of the ABC methodology allowed to understand pricing errors occurred under the previous system and helped assessing the profitability of each segments of patients (i), beside to better understanding and comparing the costs of the different type of services (ii). Furthermore, the case study allows to describe how the change in data configuration triggered changes in the relations with a number of governmental players involved in the governance of care and nursing homes.