1. Using the School Library, locate a journal article about job-costing systems or how managerial accounting helps businesses make decisions. In the subject line of your post, include the name of the article that you read. Post a link to that article with your initial post, and provide a summary and a reaction to the article. The summary should be approximately 250 words, and the reaction should be approximately 150 words. The summary should describe the major points of the article, and the reaction should demonstrate your interpretation of the article and how you can apply that knowledge. Do not choose an article that one of your classmates has already posted. To participate in follow-up discussion, choose one of the articles that a classmate has posted and provide your own reaction to it. Note: It may be challenging to find a relevant article if you do not use the library. Please include proper citations in your discussion post. Points will be deducted if proper citations are not used. 2. What are the major differences between job-order costing and process costing systems? Give an example of a well-known company that might use job-order costing and an example of a well-known company that might use process costing. Explain why you have chosen the companies that you did, specifically why job order costing or process costing are used. Do not choose companies that your classmates have already commented upon. Participate in follow-up discussion by critiquing your classmates’ choices of companies. Please include proper citations in your discussion post. Points will be deducted if proper citations are not used. 3. Using the School Library (article attached), locate a journal article about activity-based costing systems. In the subject line of your post, include the name of the article that you read. Post a link to that article with your initial post, and provide a summary and a reaction to the article. The summary should be approximately 250 words, and the reaction should be approximately 150 words. The summary should describe the major points of the article, and the reaction should demonstrate your interpretation of the article and how you can apply that knowledge. Do not choose an article that one of your classmates has already posted. To participate in follow-up discussion, choose one of the articles that a classmate has posted and provide your own reaction to it. Note: It may be challenging to find a relevant article if you do not use the library. Please include proper citations in your discussion post. Points will be deducted if proper citations are not used. 4. How can CVP Analysis be used to predict future costs and profitability? Describe how CVP analysis is used, or could be used, at your current place of employment. If you have not worked for a company that might use CVP Analysis, you may choose a well-known company and describe how you envision that company using CVP Analysis. Try to discuss a concept associated with CVP not already addressed by your classmates. Consider using an article to summarize or apply the CVP concepts. To participate in follow-up discussion, choose one of the topics/concepts that a classmate has posted and provide your own reaction to it, add to what they posted or provide a professional disagreement to their posting. Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.
using_time_driven_activity_based_costing_to_establish_a_tariff_system_for_home_health_care_services.pdf
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Using Time-Driven Activity-Based
Costing to Establish a Tariff System
for Hom e Health Care Services
Adelaide Ippolito, PhD, consultant, Formez PA, Rome, Italy; Silvia Boni, Dr., head,
Health Organization and Social Policy Unit, Formez PA, Rome; Ettore Cinque, professor
o f accounting, Second University of Naples, Italy, and former acting subcommissioner
for health services, Campania Region, Italy; Annarita Greco, D r, public servant, Health
and Social Interventions Unit, Campania Region, Naples; and Salima Salis, Dr.,
coordinator, Campania Region Activities, Formez PA, Cagliari, Italy
E X E C U T I V E
S U M M A R Y
The most important societal challenge is aging, often associated with chronic disease
and increased multimorbidity; nevertheless, the costs of an aging society will not be
sustainable in terms of healthcare and social services. In late 2011, the regional
government of Campania, Italy, launched a study with the aim of implementing a
tariff system for the provision of home and palliative care services.
To create the tariff system, the regional government set up two working groups:
one to identify home and palliative care profiles and the other to propose a tariff
system for home and palliative care based on the profiles identified. The second
group analyzed the average resources absorbed by each of the care profiles identified
using a time-driven activity-based costing (TDABC) system. This study has two
distinguishing features: (1) its use to establish a system of tariffs related to services
provided over a particular time frame in an individualized care plan, and (2) the
method of calculating the daily cost of care (i.e., the cost of a standard day, including
access to all healthcare professionals required to care for the patient at home). The
authors identified a prospective tariff system based on the average amount of total
resources absorbed according to the different levels of care complexity rather than on
historical costs. Although the study pertains to an Italian region, it highlights a
methodology that can be applied in other countries.
For more information about the concepts in this article, please contact Dr.
Ippolito at adeippol@unina.it.
436
T ime- D riven A ctivity-B ased C osting
INTRODUCTION
In Italy, as in other major industrialized
countries, the recent economic crisis and
the current epidemiological trends have
highlighted the inadequacy of health
systems to respond to the evolution of
population requirements. In this regard,
the most important societal challenge is
aging, often associated with chronic
disease and increased multimorbidity;
nevertheless, the prospective cost of an
aging society will not be sustainable in
terms of healthcare and social services
(Grabowski & Gruber, 2007; Kuhn &
Nuscheler, 2011; Rechel, Doyle, Grundy,
& McKee, 2009). The Italian regional
administration does not often adopt
health service delivery policies that
address the challenge presented by the
aging of the population. Few policies are
aimed at increasing the delivery of local
services for the elderly, and even fewer
are able to provide for both health and
social needs (Network Non Autosufficienza, 2013). This is particularly true
for the Campania region, which, over
the past several years, has experienced a
steady increase in the number of elderly
patients (and others) receiving home
care; this increase has been accompa
nied by a growing commitment from
the regional government to adopt
strategies to promote an integrated
home care assistance program that will
be effective and economically
sustainable.
At the end of 2011, the Campania
regional government launched a study
aimed at implementing a tariff system
for the provision of home and palliative
care services. The study was carried out
with the support of FormezPA (i.e.,
center services, assistance, studies, and
training for the modernization of public
administration; the organization acts for
the Department of Public Administra
tion of the Presidency of the Council of
Ministers) as part of the POAT Health
Project (i.e., the Operative Project for
Technical Assistance of the Italian
Ministry of Health), with the aim of
improving administrative and gover
nance skills in regions identified by the
European Union as having high levels of
debt. To determine the tariff system, the
regional government set up two working
groups: one to identify profiles of home
care and palliative care activities (i.e., a
system for the classification of patient
care complexity), and the second to
propose a tariff system for home care
and palliative care based on the profiles
identified. The latter group used a
time-driven activity-based costing
(TDABC) system to analyze the average
resources absorbed by each care profile
identified.
The local health authority managers
for home care and palliative care services
formed the working groups. This study
has two distinguishing features: (1) it
established a system of tariffs for services
provided during a time frame defined by
an individualized care plan (i.e., the care
plan defined for each patient), and (2)
the method of calculating the daily cost
of care (i.e., the cost of a standard day,
including access by all healthcare
professionals needed to care for the
patient at home). The daily rate of care
forms the basis for calculating the
average daily tariff, the monthly tariff,
and the tariff for the entire patient cycle.
The aim of this study is to use
TDABC to analyze the experience of the
Campania regional government in
437
J ournal of H ealthcare M anagement 61:6 N ovember / D ecember 2016
establishing a tariff system for home
health care services delivered.
BACKGROUND
Obtaining accurate cost information for
decision making on strategy, reimburse
ment tariffs, and management is a
fundamental challenge for policymak
ers, healthcare administrators, and
researchers in healthcare accounting
(Cardinaels, Roodhooft, & Van Herck,
2004; Cardinaels & Soderstrom, 2013;
Eldenburg & Kallapur, 2000; Gil &
Hartmann, 2007; Hovenga, 1996; Hsu &
Qu, 2012; Pettersen, 2001). The cost
accounting system plays a critical role,
but it is difficult to design an effective
system because healthcare organizations
have different information needs;
indeed, any effective cost accounting
system is based on an understanding of
the information that is needed and what
it allows us to do (Cannavacciuolo,
Illario, Ippolito, & Ponsiglione, 2015).
The effectiveness of a cost accounting
system is, therefore, subjective rather
than objective in nature because it
depends on the system’s ability to meet
the information needs of the organiza
tion. However, this subjectivity does not
mean that information requirements
cannot be defined. Unfortunately,
cost-accounting systems in healthcare
organizations focus on the wrong
information, reflecting a distorted view
of modem health systems. As Porter
(2009) pointed out, healthcare systems
focus on reducing the costs of services
provided, whereas they should focus on
creating value for the patient through the
adoption of an outcome measurement
system that takes into consideration the
services delivered, not merely measuring
438
the volume of services delivered (Porter,
2010). Measuring the value created for
the patient is, however, difficult because
value is linked to the outcome obtained.
In addition, value is directly linked to
the complexity of patients’ conditions
and circumstances (Porter, 2010). For
example, measuring outcomes for
chronically ill patients is challenging
because their healthcare needs involve
both medical and social factors.
If healthcare organizations need
effective cost-accounting systems that
provide information about the value
created for the patient, traditional
cost-accounting systems based on cost
centers (i.e., providing cost information
for each cost center) are not adequate.
The information generated by these
cost-accounting systems enables manag
ers to calculate the costs arising in
organizational units, but they do not
allow measurement of the value created
for patients through an assessment of
outcomes.
A c tiv ity -B a s e d C osting
The inadequacy of cost-accounting
systems based on cost centers has led to
the adoption of sophisticated cost
accounting systems, (Jacobs, Marcon, &
Witt, 2004). One such system is activitybased costing (ABC), which is a tool for
measuring costs and improvements in
activities (e.g., surgery) (Arnaboldi &
Lapsley, 2005; Canby, 1995; Cappetini,
Chow, & McNamee, 1998; Chan, 1993;
Ramsey, 1994; Ross, 2004).
Adoption of ABC has often been
limited to small companies (Bjornenak
& Mitchell, 2002); its widespread
adoption has often led to failure
because of difficulties related to
T ime- D riven A ctivity-B ased C osting
implementation of this type of cost
accounting system. In fact, as some
investigators have pointed out (Kaplan
& Anderson, 2004; Kaplan & Anderson,
2009; Kaplan & Porter, 2011; Tse &
Gong, 2007), the ABC-based cost
accounting system, although effective, is
difficult and expensive to adopt, both in
the implementation phase and during
the period in which the system is
updated. Moreover, as Soderstrom and
Noreen (1997) stated, costing systems
can overstate overhead costs for the
purposes of decision making and
performance evaluation.
T im e – D r iv e n A c t iv it y – B a s e d C o s tin g
These limitations have led to the design
and implementation ofTDABC, which
is more effective than the traditional
ABC approach, and appears to be
simpler and less expensive (Kaplan &
Anderson, 2003; Kaplan & Anderson,
2004; Kaplan & Anderson, 2007; Kaplan
& Anderson, 2013; Kaplan & Porter,
2011). TDABC also is able to take into
account an organization’s complexity
(Demeere, Stouthuysen, & Roodhooff,
2009; Yun et al„ 2015) and serve as a
useful tool for defining innovative
payment reimbursement systems
(Kaplan et al., 2014). Although devel
oped relatively recently, TDABC already
has been used in healthcare to generate
cost information about different aspects
of treatment (Balakrishnan, Goico, &
Arjmand, 2015; Grant, 2015; Kaplan et
al., 2015; Lievens, Obyn, Mertens, Van
Halewyck, & Hulstaert, 2015; Mandigo
et al., 2015; Misono, Oklu, & Prabhakar,
2015; Thaker, Frank, & Feeley, 2015) and
to improve performance (Donovan,
Hopkins, Kimmel, Koberna, & Montie,
2014; Erhun et al., 2015; McLaughlin et
al., 2014; McLaughlin, Upadhyaya,
Buxey, & Martin, 2014).
TDABC assigns costs directly to the
object of costing in two phases; in the
first phase, TDABC identifies the total
cost of resources (e.g., personnel, equip
ment, technology) assigned to a specific
process, and in the second phase, the
resource costs are assigned to the cost
object (e.g., a product) on the basis of
the activities required and their duration.
Adoption ofTDABC does not
preclude the use of a cost accounting
system based on cost centers. In fact,
the two costing systems can coexist
because they have different goals.
TDABC focuses on the cost of
resources absorbed during the perfor
mance of a service, whereas a cost
center system establishes the cost of
resources absorbed by a responsibility
center. Of course, the effectiveness of
the two cost systems depends on the
ability of the information system to
correctly assign the data to the differ
ent information flows, as well as the
ability to generate the information
necessary for rapid reorganization of
healthcare services.
U s in g T D A B C to E s t a b lis h a T a r if f
S y s te m fo r H o m e a n d P a l l ia t i v e C a re
In late 2011, the Campania region set up
two working groups to establish a tariff
system for home care. Operating sepa
rately, one group profiled home care
and the other group produced a pro
posal for a home care tariff plan related
to the profiles identified. When the
specific methodology for establishing
the tariffs was chosen, the two working
groups began operating jointly.
439
J ournal of H ealthcare M anagement 61:6 N ovember/ D ecember 2016
W o r k in g G ro u p f o r C a r e P r o f ile s
The working group for the care profiles
drew up a grid to assess the complexity
of integrated home care services (i.e.,
health and social care) needed for the
various profiles. When drawing up the
grid, the working group—composed of
home care managers of the regional
health authorities and executives of the
Campania region health government—
took into account the three levels of
integrated home care (level I [low
complexity], level II [moderate complex
ity], level III [high complexity]) and the
complexity of palliative care for termi
nally ill patients identified in accordance
with regional laws. The working group
tested the grid’s validity on a sample of
patients enrolled for integrated home
care by two local health authorities in
the region.
The final grid shows nine profiles for
integrated home care and three profiles
for palliative care, with three for each
level of integrated home care and three
for each level of palliative care. The grid
enables working group members to
examine the elements that determine a
specific level of complexity and the
characteristics of a welfare profile (i.e.,
low, medium, or high complexity). The
levels are assigned a score of 1, 2, or 3.
Complexity is determined by a combina
tion of factors (i.e., the illness itself,
activities of daily living, care require
ments, and social conditions). Each level
of complexity translates into a mini
mum and maximum number of visits to
the patient’s home by healthcare work
ers, in accordance with regional laws.
The analysis described earlier was
done in preparation for the study
leading to establishment of the tariffs. In
440
fact, integrated home care encompasses
illnesses with different levels of com
plexity that takes into account the
patient’s clinical condition and social
circumstances. Therefore, decisions
regarding appropriate care profiles
involve the careful assessment of the
resources absorbed, depending on the
level of integrated home/palliative care
and specific complexity, referring to the
welfare requirements relating to the
various aspects of care identified.
W o r k in g G ro u p o n T a r if f s
The working group on tariffs focused on
the resources absorbed by the care
profiles identified earlier. The ad hoc
study used TDABC to assess absorption
of resources by each care profile TDABC.
TDABC made it possible to establish
the average costs attributable to the
activities included in the care profiles;
these activities were categorized into
in-house management (i.e., government
agencies) and outsourcing (i.e., private
providers). For outsourcing activities in
particular, the group considered three
types of personnel expenses related to
the most common private provider
contracts used in the Campania region.
The working group examined four types
of costs (i.e., one for in-house manage
ment and three for outsourcing activi
ties), to establish the daily cost of home
care assistance (according to the level of
complexity); this cost, in turn, was used
to determine the monthly cost, the total
cost of a patient’s treatment, and the
average daily tariff.
The actual care day (ACD) is a
hypothetical day consisting of access to
the patient’s home by all professional
caregivers. Specifically, the ACD forms
T ime-D riven A ctivity-B ased C osting
the tool for allocating the time for each
resource to be dedicated to the integrated
home care estimated for the patient.
In our analysis of the resources used
by each profile, we did not include the
general practitioner (GP). GPs work
under an agreement with the regional
health system. Prescription and overthe-counter medications from the local
health service pharmacy and any reha
bilitation support were also excluded
from consideration, because these costs
would have resulted in excessive vari
ability in the costing model. The physi
cian considered for the various care
profiles is a specialist or resuscitator,
neither of whom has been taken into
consideration for the purpose of calcu
lating the tariffs. This process was
necessary for us to standardize the
different modes of home care delivery.
In the Campania region, specialists and
resuscitators are never outsourced; they
work for a local health authority to
which the patient is assigned.
We present examples to illustrate the
criteria used to calculate the home care
rate for patients at level III (low profile),
with outsourcing from the Italian
Private Hospital Association. Table 1
presents the criteria used to calculate the
ACD. The left-hand column indicates
the minimum and maximum number of
visits by professional caregivers, as
projected by the working group. The
middle column shows the average time
per visit, as established under regional
law. The right-hand column shows the
criteria established for the ACD. Specifi
cally, it identifies the caregiver (exclud
ing physicians) with the greatest average
number of required visits. The average
number of visits per week by this
caregiver is associated with the individ
ual care plan’s duration (in this exam
ple, 3 months); the result is the average
number of visits for the period of care,
referred to as actual days of assistance. We
compared the actual days of assistance
by the caregiver who is present most
commonly with the total number of
days in the care plan to obtain the care
intensity coefficient. We then compared
the time and number of visits estimated
for other caregivers with the average
number of visits per week by the care
giver most commonly present to obtain
the standard engagement for the actual
day of assistance.
The average access time for each
caregiver estimated to establish the ACD
was calculated in terms of cost per
minute (as stated in their contracts),
thus establishing the daily human
resources cost per ACD (Table 2).
In addition to the personnel cost per
ACD, we needed to include the direct
costs of the nursing kit (e.g., disposable
gloves, masks, syringes, totaling € 2.21)
and the overhead cost based on the time
allocated per patient (Table 3).
The total cost (€ 81.52) is the value
of the ACD, which, when multiplied by
the care intensity coefficient (0.501) and
by 30 (i.e., days in the month), results in
the cost per month (Table 4) for that
complexity profile.
Multiplying the value of the ACD by
the average number of ACDs estimated
for that complexity profile results in the
patient’s care cycle cost. Dividing this
care cycle cost by the number of days of
care estimated for the individual care
plan (180 days for levels I and II, 90
days for level III, and 60 days for pallia
tive care for terminally ill patients)
441
J ournal
of
TABLE
1
H ealthcare M anagement 61:6 N ovember/ D ecember 2016
C r ite r ia C o n s id e r e d in C a lc u la t in g A c tu a l C a re D a y (A C D ) fo r L e v e l I I I , L o w P r o file
D u r a tio n o f V is it , a s
N o . o f V is it s fo r R e q u ir e d
C a r e p e r C a r e g iv e r
Pediatrician (Freely
Chosen): 2-4 Visits per
Month (Excluded From
Assessment)
Specialists: 2-4 Visits per
Month (Excluded From
Assessment)
Nurses: 1-6 Visits per
Week
E s ta b lis h e d b y R e g io n a l
R e s o lu t io n , m in u te s
C r ite r ia U s e d to C a lc u la t e A C D
60
—
60
—
60
Rehabilitation Personnel:
1-4 Visits per Week
60
Health and Social Worker:
1-6 Visits per Week
60-90
Nurses: average, 3.5 visits per week,
60 minutes each (total, 210 minutes):
ACD = 60 minutes
Rehabilitation personnel: average, 2.5
visits per week, 60 minutes each
(total, 150 minutes): ACD = 43.25
minutes
Health and social worker: average,
3.5 visits per week, 75 minutes each
(total, 262 minutes): ACD/90 0.501
(i.e., care intensity coefficient)
Dietitian: average, 1 visit per month,
60 minutes: ACD ~ 3.99 minutes
Psychologist: 2.5 visits per month, 60
minutes each (total, 150 minutes):
ACD = 9.97 minutes
~
Dietitian: 1 Visit per Month
60
Psychologist: 1-4 Visits
per M …
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