7. A Management Accounting Perspective on Healthcare Economics Flashcards
management accounting
the practice of identifying, measuring, analyzing, interpreting and communicating (non)financial information to managers for the pursuit of an organization’s goals
evidence-based approach
focusing on research published on the use of management accounting practices in healthcare.
organizational architecture
all systems and processes to mitigate / lessen agency problems
three pillars of organizational structure
partition decision rights
reward performance
measure performance
all 3 pillars require a balance and coordination
external parties in healthcare
patient groups, governments and insurers
decision - making in healthcare ( vs. )
physician vs. management
medical vs. financial background of management
physicians versus management in decision-making in healthcare: planning of resources
management –> plan resources in a cost-efficient way
physicians –> want to have freedom to allocate resources to the specific care of patients
medical vs. financial background of management
CEO’s with medical background –> stronger emphasis on the use of nonfinancial measures
CEO’s with financial background –> focus more on financial measures
Insurers reimburse healthcare organizations for services based on:
cost-based reimbursement
fixed-price regulation
performance-based reimbursement (more recent)
unintended consequences of shift from cost-based to fixed-price reimbursement
decreased quality
decreased treatment
manipulating budgeting methods
use of debt
why decreased treatment with a shift from cost-based to fixed-price reimbursement?
referring severely ill patients with more costs to larger hospitals
why manipulating budgeting methods with the shift from cost-based to fixed-price reimbursement
hospitals were more likely to underestimate volumes that were used to determine the prospective fixed fee after the change of methods
risk averse physician
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.
agent-principal methods from the agency perspective
agent = risk-averse physician
principal = insurer
two types of contract to reward performance physicians
fee-for-service = paid for every service performed
capitation = physician receives monthly fee
rewarding hospital management in for-profit hospitals
higher importance of profits in their objective function and more likely to use bonus contracts.
differences for-profit and non-profit hospitals and rewarding pations
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
rewarding hospital management in non-profit hospitals
rewards positively associated with CEO compensation, so also in these hospitals some kind of reward and incentive for financial performance
measuring performance in healthcare organization
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
Focus nowadays shifting towards quality, why?
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
Best practices to incorporate quality
having active boards
using advanced performance measurement tools
tie executive compensation to quality indicators
two potential problems related to measuring performance
measurement error
measurement management
measurement error
the performance measure is an imperfect measure for the underlying performance area it is intended to capture
measure management
situation in which an agents manipulates the performance measurement system to pursue its own goals instead of the principal
distortion
making decisions that increase reported performance more than true performance
reported > true performance
surrogation
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
subcategories measure management consequence
distortion
surrogation
Campbell’s Law
reporting systems that measure and incentivize performance typically also encourage agents to distort performance.
Two strategies to increase revenues
admission errors
reporting errors
admission errors
change admission policies and admit patients who could be treated on an outpatient basis
reporting errors
report that patients are more severely ill than the actual principal diagnosis
Activity-Based-Costing
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
Non-traditional cost drivers
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
when is cost shifting attractive?
limited control over prices in one stream = market highly competitive
more control over prices in another stream = market very concentrated
goal value-based care
improving healthcare outcomes while lowering costs by focusing on the value obtained for patients.
advantages value-based care
encourages culture of accurate management
shifts from volume of services towards a result-oriented mindset
drives efficiency and effectiveness.
four dimensions quality
clinical quality and safety
appropriateness of care
patient-reported outcomes
patient expertise
limitations on value-based care
agressive bed day management
focuses on generalist primary care physicians
contracts based more on cost than on quality
supplementing the work of physicians
