Hospital Cost Accounting and Cost Management: The Expense Absorption Method of Cost Accounting. - book reviews

Healthcare Financial Management, Nov, 1996 by LaMont D. Freeze

In the acknowledgment to Hospital Cost Accounting and Cost Management: The Expense absorption Method of Cost Accounting, the author says he attempted to write a popular monograph rather than a technical monograph on expense absorption accounting.

According to the author, expense absorption is the only method that can easily be used to correctly control costs in a hospital. The existing systems of cost accounting, including standard costs, relative value units, "micro costing," and ratio of cost to charges are all failures, in the author's opinion, but he does not explain why. He thus misses a good opportunity to compare and contrast the method he supports so strongly with the other approaches to cost accounting used in hospitals.

Discussion of the underlying theory and applications of the expense absorption cost accounting method comprises the two main sections of the text. The first section covers the theoretical aspects of using expense absorption, service costing fundamentals, and cost determination steps. The installation process, product costing, profit and loss analysis, effective cost management, and marginal costing are covered in the second section.

Hospital Cost Accounting and Cost Management is systematic in its approach and is written in a conversational style. Unfortunately, these strengths lack substantive examples to help the reader assimilate the material presented. As a result, the reader must constantly try to visualize what the author is presenting.

Another problem with the text is that the critical ingredient of the absorption method, the "worktask," is not sufficiently defined by the author. Since the worktask is the basis of the system, the reader would benefit from a more detailed discussion.

Although the author is enthusiastic about this new approach to hospital cost accounting, the book does not support his viewpoint very well. This is unfortunate. In an industry where change and the ability to identify potential cost reductions are accelerating, he missed an opportunity to present a new and possibly exciting alternative approach to cost accounting in its best light.

Reviewed by LaMont D. Freeze, FHFMA, CMPA, CPA, director, internal audit, Memorial Health System, South Bend, Indiana, and a member of HFMA's Indiana Pressler Memorial Chapter.