The products offered by health companies have some peculiarities: they are intangible, they cannot be manufactured in series, they are generally not homogeneous, etc. These characteristics undoubtedly make it difficult to calculate costs.
On the other hand, it must be recognized that in our environment for years the institutions that provide health services have not given too much importance to the calculation of the costs of their services.
Once the crisis hit them mercilessly, they were forced to review all their procedures, both technical and administrative, to try to become sustainable or at least begin to move towards it. After verifying that the Income variable was not the easiest to handle, they focused their attention on costs and perceived that there was not much information, but that it was very general and not very precise.
But the issue is that both the information system and accounting are not elements that can be modified overnight to obtain what is necessary in order to manage a company, so the situation began to be analyzed.
Thus, in previous works we have highlighted the following in terms of the current situation regarding cost systems, information systems and decision making in health companies, namely:
- Cost systems used:
- Costs are calculated using the process cost system or cascade cost distribution.
- It is applied off the books since the chart of accounts developed by the MSP is not adapted for cost accounting.
- Among the different companies, the cost centers are not exactly the same, some have more detailed information and others more general (for example, some have the hospitalization service and others have three hospitalizations, ward, CTI, ICU)
- Information system and its reliability
- The computer systems were not designed with the objective of obtaining costs but general information on expenses. Each management system should give information on spending by cost center, instead it is given in another format. For example, salary systems report spending by staff member and item (base salary, seniority, overtime, etc.) and not spending by each cost center.
- Lack of information, for example to adopt criteria for the distribution of indirect costs.
- The information is not previously controlled.
- And, perhaps something very important, there is no culture of costs among the officials who are the ones who often generate or collect cost data. If people don't know what the company wants, it is difficult for them to put in any effort.
- Decision making
In the aforementioned works we expressed verbatim:
“… When making decisions, the information that arises from the cost systems is taken into account in a generic way and not as a basis, due to all the shortcomings mentioned above.
Most institutions, when they need to know the cost of a department or activity for a certain reason, carry out a specific cost study without taking into account, many times, the information provided by the cost systems… "
Terrible diagnosis, at least for accountants, who are used to reading a lot about cost systems, costing methods, cost classifications, etc.
Before continuing, it is necessary to briefly review the process for the production of the products / services of health companies.
Health as a process of healthcare production
Its concept:
Lately, the concept of referring to entities that provide health services as “producer” entities of health services has been imposed, that is, health provision is understood as a care process in which said entities produce services that are provided to their patients.
Every process has an objective, a goal: to produce something, be it material or intangible. In this sense we can say that these companies produce a health service, which can be basically classified into two types:
a) Services linked to benefits that require hospitalization of patients: these types of services include all those that are provided in the sanatorial area, such as hospitalization, either in common or specialized rooms, and surgical interventions of greater or lesser size.
b) Services that are provided without requiring hospitalization : among these services we have outpatient care, consultations in polyclines and care at emergency doors, among others.
Graphically:
Graph 1: Ppal Products / Services. In health companies
In this way, we can visualize an institution that provides health services as an entity that produces services, which we call "final" or "main", such as those described above.
Now, does said production require prior services? Is there really a process of care production? The answer in our vision is affirmative, that is, in order to produce an internment service, for example, several preliminary processes of "intermediate production" services are required that generate inputs for the final process. This is, by way of example, to be able to provide the hospitalization of a patient in the ward, a bed must be made, with a ration of food, with laboratory tests, etc.
Each of these services necessary for patient care are "produced" by sectors of "intermediate production", which are themselves production units. Perhaps the easiest case to visualize is the kitchen sector, in which the combination of raw materials in a natural state, human resources, technology, electricity, etc., transform all these elements into ready-to-serve rations, a similar situation occurs in laundry, an area in which dirty clothes are entered and washed clothes are produced through an industrial process.
In this way we have sectors of the company that support the production of final services, and we divide them according to:
a) Medical support. They are those sectors of the institution that, without being a main service, support their production. Clear examples are laboratory analysis, imaging, etc., without which the doctor could not diagnose correctly and therefore provide a final service with adequate effectiveness and efficiency. These sectors also have production, and are generally referred to as Intermediate Activity sectors.
b) Non-medical support. They are the sectors that, as their name indicates, and like the previous ones, provide support to healthcare activity. They are usually referred to simply as Support Activity sectors; and we have for example laundry, kitchen, maintenance, accounting, personnel, computations, etc.
Graphically:
Graph 2: Final, intermediate and support production services in health companies
As is evident to pay for a product and manage a company of this type, in addition to the expenses incurred, it is necessary to know the production:
Production measurement:
Based on the previously defined concepts of healthcare production, each service must be able to quantify its production, and that is why various measures of the production of said products / services have been established habitually, namely:
| H.H. Production - Final Products | Area | Production unit |
| Conventional Room | Bed Days Occupied (1) | |
| Special cares | Bed Days Occupied (1) | |
| Block | Intervention number. (two) | |
| Emergency | Number of Queries | |
| Polyclinics / Consultations | Number of Queries | |
| H.H. Production Interm - Ap. Non-medical | Area | Production unit |
| Laboratory | UVL amount * | |
| Imaging - RX | UVR amount ** | |
| Imaging - Others | Number of Studies | |
| Hemotherapy | Blood Volumes | |
| H.H. production Support - Ap. Non-medical | Area | Production unit |
| Laundry | Kgs. Of washed clothes | |
| Kitchen | Amount of servings |
(1) _ In medical jargon the fixed cost of the hospitalization is called the Pension Value
(2) _ "" "" "" "" "Surgical intervention is called Table Law
* _ Laboratory
Value Unit ** _ Radiology Value Unit
Once the care process has been mentioned, let's see which is the most appropriate cost system for this type of entity:
The most suitable cost system
Once the problems mentioned at the beginning of this work have been detected and knowing the operational functioning of these companies, we have to see what the company's management wants to opt "theoretically" for the most convenient cost system.
At work A cost proposal for collective health care institutions we reached the conclusion that, based on the specifics of the environment of a company that works in Health and the particularities of the “manufactured” products, the the most appropriate cost was the one provided by Costs for Patients and Pathology.
Cost per Patient, because given the heterogeneity of the products, obtaining a general average cost would distort decision-making a lot, therefore the cost should be referred to each patient in particular, by Pathology, because the patient's expense depends on the treatment of their disease. It will be a way not only to make the right decisions, but also to be able to more easily control the medical activity that generates expenses.
Expanding on the previous concept, the control of medical management act by act, is a titanic task of complex accomplishment that would lead to a case-by-case control of each history, however if various pathologies are studied, a treatment cost is assigned to them, the comparison of this standard cost vs the real cost of the patient allows to evaluate the clinical management related to the patient.
The cost system that we proposed to collect the above was a mixture of the process cost system and the production order system, using the ABC (Activity Based Cost) method for the distribution of indirect costs. For this we have to divide the costs according to the criterion of variability referring to all cost concepts and “… variability is understood as the behavior of a cost concept in relation to changes in the level of activity…” in: Costs fixed and variable costs.
Variable costs, which in these institutions are basically made up of drugs, medical supplies, studies, professional fees, etc., would be charged directly to the patient, as they are clearly identifiable and do not present difficulty when assigning them. For this reason we say figuratively that the patient is the "production order" since each person demands a different consumption according to the treatment of their disease, that is, their pathology. We call these PATIENT ASSIGNABLE COSTS.
On the other hand, we have fixed costs, or as we call it “structural costs” or “costs for the use of services”, since they are costs that do not vary with production but rather each time the patient consumes a product. We call these Structural Costs.
Graphically, the following table1 is clarifying:
The accounting of health entities:
As previously stated, a system for measuring the production of the different services has traditionally been established and costs have been associated with said production in addition to accounting.
Now, the accounting of these entities, is it prepared to work under this perspective?
The traditional model:
Most of the health institutions, handle an accounting system that is basically oriented to produce the traditional accounting reports, that is, State of Asset Situation, State of Origin and Application of Funds and State of Income, the latter with the traditional ordering by item accounting, graphically:
The previous model implies that any calculation of costs or measurement of the production of each service must be carried out in a non-accounting way, since the model does not foresee an allocation of items that allows the direct reading of the information.
The proposed model: cost accounting
Conceptual scheme:
The model that is proposed to be used is the traditional one of process cost accounting, recording the expenses and inputs of each intermediate production process, determining a transfer cost and taking it to the different final production processes, that is:
Basically, the chart of accounts should allow you to record the items in the different accounts linked to the production areas, as an example:
Human Resources Kitchen
Human Resources Laundry
Human Resources Laboratory
Electric Power Laundry
Laundry supplies. etc.
Once the cost of the different intermediate areas has been determined, the accounting process would take them to the costs of the definitive areas, which would be formed from these transfer costs, plus the inputs of each area, namely:
At the end of the accounting process, a table of costs per intermediate production area and per final production area could be extracted from it, this would allow adding to the traditional view of the Income Statement by Item, the analysis of the weight of each item by area, and by simply reading it, adding the units produced allows the rapid calculation of the unit cost of production.
Graphically:
The accounting registration:
The accounting process is similar to that of a cost accounting scheme, using a cost transfer account between production areas, as an example we will make the registration of the intermediate kitchen sector and its transfer to the final production care areas, the same would be the following:
--------– I -------–
Human Resources Kitchen
Electric Power Kitchen
Vegetables, Meat, etc.
Miscellaneous Expenses
to
Suppliers or Bank
For the purchase of inputs and payment of wages
----------- ----------
----------- II ----------
Kitchen production cost
to
Kitchen Cost Transfer Account
By determining the cost of production
----------- ----------
The previous entry is equivalent to the sum of the items included in entry I, subsequently
----------- III ----------
Cost of Specialized Care
Conventional Room Cost
Maternity Cost
Personal Food
to
Kitchen Production Cost
----------- ----------
The registration process is defined in such a way that the items that make up the cost of each area remain open throughout the year and are offset by the “cost transfer” account, which operates as an internal billing account for each production unit. intermediate.
Finally, when defining the concept of healthcare production, and associated accounting processes, the concept of production in process should not be omitted, in this sense we understand that all hospitalized and not discharged patients have incurred expenses, but that the service of care production has not concluded until their definitive discharge, therefore the expenses generated by these patients should be charged to the following year, even more so if they have insurance coverage whose admission will occur after the definitive discharge.
Conclusions:
We believe that the application of the cost accounting model to health care institutions presents a series of following advantages over the traditional accounting model:
- It allows to clearly visualize the costs of the different processes and the investment in each one of them: this is essential when evaluating investment decisions and the different costs to make comparisons with other institutions or evaluate whether it is convenient to produce in the kitchen or hire this service, or wash in the institution itself or hire an external laundry by way of example. It allows to quickly extract accounting data for the calculation of unit costs: from the simple reading of the operating account by area dividing by its production, the unit cost of each process is determined. Allows you to compare the allocation of resources in each area and compare them with other entities with similar characteristics:It is usual for health companies to handle information on the percentage of, for example, human resources in total expenses, with cost accounting this analysis can be done without the greatest effort by area of healthcare production. Allows closing costs vs. Accounting: this is a point of radical importance, since through the traditional system the data for costs are calculated in an extra-accounting way and its verification with the accounting is extremely complex, in the proposed system the data results from the own and therefore is not necessary the summation of several off-the-books charges to verify its closure against the item that gave rise to it.
Quotes
A cost proposal for IAMC: costs per patient and pathology - 2003 - Cres. E. Montico, M. Velarde.
Cost systems and their relationship with decision-making in the IAMC - Universidad de la República 2001 - Cres. Velarde, Testa, Antúnez.
Costs & Management - Increasing profit Continuous improvement. Carlos M. Giménez and collaborators. Chapter 3: Factors and Components of Cost. Page 73
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