7. A Management Accounting Perspective on Healthcare Economics

Question 1

management accounting

Answer 1

the practice of identifying, measuring, analyzing, interpreting and communicating (non)financial information to managers for the pursuit of an organization’s goals

Question 2

evidence-based approach

Answer 2

focusing on research published on the use of management accounting practices in healthcare.

Question 3

organizational architecture

Answer 3

all systems and processes to mitigate / lessen agency problems

Question 4

three pillars of organizational structure

Answer 4

partition decision rights

reward performance

measure performance

all 3 pillars require a balance and coordination

Question 5

external parties in healthcare

Answer 5

patient groups, governments and insurers

Question 6

decision - making in healthcare ( vs. )

Answer 6

physician vs. management

medical vs. financial background of management

Question 7

physicians versus management in decision-making in healthcare: planning of resources

Answer 7

management –> plan resources in a cost-efficient way

physicians –> want to have freedom to allocate resources to the specific care of patients

Question 8

medical vs. financial background of management

Answer 8

CEO’s with medical background –> stronger emphasis on the use of nonfinancial measures

CEO’s with financial background –> focus more on financial measures

Question 9

Insurers reimburse healthcare organizations for services based on:

Answer 9

cost-based reimbursement

fixed-price regulation

performance-based reimbursement (more recent)

Question 10

unintended consequences of shift from cost-based to fixed-price reimbursement

Answer 10

decreased quality

decreased treatment

manipulating budgeting methods

use of debt

Question 11

why decreased treatment with a shift from cost-based to fixed-price reimbursement?

Answer 11

referring severely ill patients with more costs to larger hospitals

Question 12

why manipulating budgeting methods with the shift from cost-based to fixed-price reimbursement

Answer 12

hospitals were more likely to underestimate volumes that were used to determine the prospective fixed fee after the change of methods

Question 13

risk averse physician

Answer 13

has private information about the patient’s severity of illness and the type of care needed. He/she prefers to provide more services to reduce risk.

Question 14

agent-principal methods from the agency perspective

Answer 14

agent = risk-averse physician

principal = insurer

Question 15

two types of contract to reward performance physicians

Answer 15

fee-for-service = paid for every service performed

capitation = physician receives monthly fee

Question 16

rewarding hospital management in for-profit hospitals

Answer 16

higher importance of profits in their objective function and more likely to use bonus contracts.

Question 17

differences for-profit and non-profit hospitals and rewarding pations

Answer 17

outputs / goals are more difficult to measure for non-profits than for for-profits

for-profits pay higher bonuses and higher total managerial compensation, non-profits have a higher base pay

Question 18

rewarding hospital management in non-profit hospitals

Answer 18

rewards positively associated with CEO compensation, so also in these hospitals some kind of reward and incentive for financial performance

Question 19

measuring performance in healthcare organization

Answer 19

performance in healthcare is difficult to define or specify. No clear consensus on what quality means

non-profit firms focus on additional objectives: quality, quantity and charity care

Question 20

Focus nowadays shifting towards quality, why?

Answer 20

dominance fixed-price reimbursement leads focus to be on efficiency (coast containment, increased output)

patient empowerment / malpractice ligitation leads to hospitals having to balance efficiency with quality of care

Question 21

Best practices to incorporate quality

Answer 21

having active boards

using advanced performance measurement tools

tie executive compensation to quality indicators

Question 22

two potential problems related to measuring performance

Answer 22

measurement error

measurement management

Question 23

measurement error

Answer 23

the performance measure is an imperfect measure for the underlying performance area it is intended to capture

Question 24

measure management

Answer 24

situation in which an agents manipulates the performance measurement system to pursue its own goals instead of the principal

Question 25

distortion

Answer 25

making decisions that increase reported performance more than true performance

reported > true performance

Question 26

surrogation

Answer 26

agents forget that the measures only imperfectly capture performance and instead act as though the measures are the constructs of interest.

forget that they are imperfect

Question 27

subcategories measure management consequence

Answer 27

distortion

surrogation

Question 28

Campbell’s Law

Answer 28

reporting systems that measure and incentivize performance typically also encourage agents to distort performance.

Question 29

Two strategies to increase revenues

Answer 29

admission errors

reporting errors

Question 30

admission errors

Answer 30

change admission policies and admit patients who could be treated on an outpatient basis

Question 31

reporting errors

Answer 31

report that patients are more severely ill than the actual principal diagnosis

Question 32

Activity-Based-Costing

Answer 32

allocating overhead-costs to departments and / or products based on activity based cost drivers

This assumes that in the short term, overhead costs are proportional to overhead costs. Thus, the marginal cost = the average cost

Question 33

Non-traditional cost drivers

Answer 33

Adding a measure of complexity of care to volume improves explanatory power of the model explaining cost behaviour

may include the breadth of services and the depth / intensity of services

Question 34

when is cost shifting attractive?

Answer 34

limited control over prices in one stream = market highly competitive

more control over prices in another stream = market very concentrated

Question 35

goal value-based care

Answer 35

improving healthcare outcomes while lowering costs by focusing on the value obtained for patients.

Question 36

advantages value-based care

Answer 36

encourages culture of accurate management

shifts from volume of services towards a result-oriented mindset

drives efficiency and effectiveness.

Question 37

four dimensions quality

Answer 37

clinical quality and safety

appropriateness of care

patient-reported outcomes

patient expertise

Question 38

limitations on value-based care

Answer 38

agressive bed day management

focuses on generalist primary care physicians

contracts based more on cost than on quality

supplementing the work of physicians