Hospital & Health Care cost accounting

Cost accounting is a critical part in hospitals and in health care management. The cost and benefit of the cost accounting information has been challenged due to the uniqueness of the hospital operation and the perceived inability of managers to demonstrate how the costs of implementing and maintaining cost accounting systems are offset by new revenues or cost reductions. 

Cost accounting is an essential element of financial management that generates information about the costs of the organization. Cost accounting is the process which determines the full and incremental costs of providing services and goods to patients and customers. To determine the full cost of providing a service, it must insured that all costs have been included. For example a number of departments, which do not provide direct patient or customer services, are absolutely essential to the operation of the institution. The overhead departments of the health care organizations must be allocated to the using departments. To make sound management decisions in any organization, costs must be known at the procedure, patient, and department levels.

The costs of the organization may be determined based on historical methods of charging for services, such as patient days and procedures. The products or product lines are also defined for cost analysis. Finally to health care organization determines full and incremental costs within the structure of our organization (revenue center or department). The cost of each procedure and the product line is essential to financial stability of every healthcare institution. If the organization does not have accurate cost information, hospitals are at financial risk when making decisions considering current operations as well as long-term plans. The cost of providing services is one of many considerations. However accurate costing has been a major missing component of the decision-making process.

Questions

• What is hospital and health care cost accounting?
• What are the costs of the health care organization based on?