Activity Based Funding ( Abf )

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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.

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