Activity-Based Costing and Activity-Based Management for Health Care - Brief Article

Healthcare Financial Management, June, 2000 by Scott A. Streibich, Judith J. Baker

Aspen Publishers, Inc., Gaithersburg, Maryland, 1998 385 pages, $75

Activity-based costing (ABC) and activity-based management (ABM) are important tools that healthcare providers can use to enhance their financial and operational decision-making processes and improve patient service delivery. Activity-Based Costing and Activity-Based Management for Health Care can help healthcare financial professionals understand and implement these two cost-accounting tools.

In the book's first two chapters, Judith Baker introduces the principles of ABC and ABM and quickly brings the reader up to speed on the essential elements of each approach. In chapter 3, Baker compares ABC with traditional healthcare cost-allocation techniques, showing how ABC enhances managerial decision making by improving reporting accuracy.

The next four chapters describe the analytical methods that should be used to gather the information required for accurate ABC measurements. In chapter 6, Baker and coauthors Patricia Chiverton and Victoria G. Hines explain how to conduct time studies for ABC. The authors show how such studies can be used to link staff resources allocated to specific activities with their associated costs.

Chapters 8 through 12 explore more-detailed techniques for application of ABC and ABM. In chapter 11, Baker underscores the strength of ABC by demonstrating how financial planners can use an ABC variance analysis to enhance the quality of the information used in the budgeting process. Chapter 12, cowritten by Baker and Clark B. Bitzer, deals with standards development, benchmarking, and the use of Pareto analysis as an ABM tool. The authors show how Pareto analysis can be applied to billing department data to identify opportunities to improve operations.

While the first 12 chapters provide useful background, it is chapters 13 through 24 that distinguish Activity-Based Costing from more general texts on ABC and ABM. These chapters contain a rich selection of healthcare-specific case examples from physician group practices, hospitals, home health agencies, skilled nursing facilities, and a school-based outpatient primary and mental health clinic. These case examples provide excellent practical guidance on developing ABC and ABM materials for healthcare applications.

In chapter 22, Baker discusses key issues involved in upgrading information systems to accommodate ABC. This discussion is supplemented in chapter 23 with a helpful case study.

Activity-Based Costing is a well-organized reference for healthcare leaders.

Reviewed by Scott A. Streibich, FHFMA, MBA, MHA, CMPE, CFO of the Center for Clinical Trials Research, University of Florida College of Medicine, Gainesville, Florida, and a member of HFMA's Florida Chapter.