Activity-based funding (ABF) is widely used in the manufacturing industry and is becoming a common costing method in health care. Hospitals in Europe, Canada, Victoria and Western Australia are currently being financed by activity based funding and more are making the switch. This essay will examine the practice of Activity based funding and determine if value is being added with regards to costing within hospitals and to what extent.
The reasons why ABF would be considered by the government in Australia’s public hospitals are; cost reduction and efficiency increases. According to the Australian Institute of Health and Welfare (2014), in Australia, $140.2 billion was spent on health care in 2011-12 with 69.7% of the funding derived from the federal government and 27.3% from state and territory governments. Since the global economic crisis in 2007/2008, government health funding has increased and tax revenue has declined; where previously the figures were growing at an adjacent and stable rate.
Elective surgery average waiting times increased from 2011-12 to 2012-13, from 33 days to 36 days respectively. In 2012-13, wait times ranged from an average of 27 Days in Queensland hospitals and 51 days in hospitals located in the ACT (Australian Institute of Health and Welfare, 2013, p. 13-15). With the looming pressure of decreasing tax revenue and heavy reliance on government funding; implementation of activity based funding may result in cost savings for the government, however hospitals will be short-changed if costs cannot be accurately analysed.
ABF is explained by the UBC Center for Health Services and Policy Research (2014, p. 1) as the process of receiving funding from the government based on the type and volume of procedure...
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...e required. Such requirements in a system proves to have costly and time consuming set-up processes and unless the set-up is administered with the correct research and cost drivers, the system will become inadequate and inefficient. If the system can be implemented, the outcomes will be accurate cost allocation, the ability to analyse financial and non-financial data. Availability of this data is imperative to effective decision making and the ability of management to see shortfalls and recover costs and efficiencies.
So it seems that any value that may be added if ABF is implemented, however this value is fixated towards the government and not the hospital. Not only will hospitals bear the grunt of any variances between funding and actual costs, they will also have to pay for innovations, or not offer improved health benefits and cost saving techniques to patients.
The purpose of financial measurement in healthcare is to provide the community with the services it needs, at a clinically acceptable level of quality, at a publicly responsive level of amenity, at the least possible cost. This is done by providing healthcare finance managers with accounting and finance information to help accomplish the purpose of the organization (Nowicki, 2015). When making accounting decisions about budgeting and inventory control, an understanding of economics, statistics, and operations research is needed. Major Financial Measures
The Australian Health Care System is regarded world class for its effectiveness and efficiency. It consists of the mix system of health providers in both the private and public sector. The funding mechanism is highly advantageous to its entire citizen, which consists of the 30% Rebate, Pharmaceutical Benefit and Medicare. In particular, Medicare has been ensuring all Australian nationals with access to free and low cost medical, optometric, hospital care with special option to private health services in special circumstances.
Maynard, A. (2005). Has the Government gone bonkers?. British Journal of Healthcare Management, 11(1), 30-30.
As of April 1, 2010, many changes in the health care structure is changing. Many of these changes are reorganizing the responsibilities of who makes the decisions on how services are commissioned, the way money is spent and issuing more involvement from local authorities and opening up comp...
The current health care reimbursement system in the United State is not cost effective, and politicians, along with insurance companies, are searching for a new reimbursement model. A new health care arrangement, value based health care, seems to be gaining momentum with help from the biggest piece of health care legislation within the last decade; the Affordable Care Act is pushing the health care system to adopt this arrangement. However, the community of health care providers is attempting to slow the momentum of the value based health care, because they wish to maintain their autonomy under the current fee-for-service reimbursement system (FFS).
Llewellyn, S. (1993) Linking costs with quality in health and social care: new challenge for management accounting, Financial Accountability and Management, Vol 9 No 3, Aug 1993
Healthcare facilities need to be less income oriented. This will ensure that the objective of all doctors and nurses is to restore patient health and not to make money for the institution. This would not actually mean that hospitals would lose money. On the contrary, patients will be more comfortable in an environment where the doctor has the well-being as their primary objective. This will attract more patients.
...staff would not be required to put in the overtime to compensate for the lack of workers. Patients would no longer have to suffer the neglect of the staff because he or she was too busy. Making sure the patient gets the best quality care reduces the time spent for recovery. Reducing the time spent for recovery increases the organization’s finances. Providing a safe facility also reduces the expenses on the private hospital’s budget. Ensuring a patient is safe can reduce potential use of ongoing treatment and services. Hiring the appropriate nursing staff needed can save the organization money. Instead of cutting back on staff, more staff needs to be hired to fulfil the needs of the patient. In the economy today, private hospitals need to focus on the overall long term effects of each action opposed to quick reactions resulting in financial strain for the facility.
“Sweden invests about 10 percent of its GDP in health and medical services” (Export.gov, 2015). Each organization allots a certain amount of money according to the budget that the county or municipality sets and they have to buy their equipment that fits their budget. Financing the medical technology in Sweden can be very expensive, especially if keeping up with the latest and greatest. In order for medical equipment purchases to occur in Sweden, the equipment has to stay within the budgets outlined at that facility and county. “It is up to each county to make sure health and medical services work for a good standard; they also decide on the allocation of the resources to the health services and are responsible for the overall planning of the services offered” (Export.gov, 2015).
Gordon, M., Mintz, J., & Chen, D. (1998). Funding Canada’s health care system: A tax based alternative to privatization. Canadian Medical Association, 159 (5), 493-496.
National health systems are assessed by the extent to which expenditure and actions in public health and medical care contributes to the crucial social goals of improving health, increasing access to quality healthcare, reducing health disparities, protecting citizens from penury due to medical e...
In order to provide affordable health care, government should have huge amount of money to be invested in the hospitals, for arranging doctors and for financing.
Activity-Based Costing ( ABC ) Summary The business environment in the 1990s is markedly different from that of the past when conventional cost accounting procedures were established. Activity-based costing (ABC), pioneered in the late 1980s, offered a new costing approach consistent with the changed environment. However, ABC did not diffuse rapidly into the business community.
... work the banks and other financial institutions would also be required to have a system of reporting. If these reports consist of all the necessary information to predict a future crisis or imprudent behaviour in the banks then procedure can be put in place to guide the banks into the appropriate approach.
Today, there is a range of computerised systems in the market that business can use to keep track of their finances; few of the most recognised for their performance are Sage, Microsoft Dynamics, Oracle, QuickBooks, SA...