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Evaluation of Alternative Costing Methods for Improved Hospital Management

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This case revolves around a private hospital in Hong Kong. The hospital suffered a huge net loss during the preceding fiscal year, and the board of directors would like to improve cost management. Dr. Harris Pang, a prominent endocrinologist in the hospital, was appointed to review the existing costing model and to pinpoint opportunities for cost reduction.

The case commences with an introduction of the “dual-track” system of the Hong Kong healthcare financial model. It then provides a brief background explanation of the hospital through four lenses: positioning strategy, organizational culture, financial structure and management, and the existing costing. The background information is intended to instill a key message: While the hospital focused on the value of operational excellence and patient-centered care, it failed to capture such value from patients due to inaccurate cost information.

While considering the aforementioned case background, Dr. Pang began to design an alternative costing model that would improve the accuracy of cost information. He proposed adopting activity-based costing (ABC). Various costing systems have different results in terms of accuracy and administrative efficiencies. Based on the explanation of the costing methodologies, students are required to (1) compare the individual patient costs of different clinical considerations through the original and proposed costing models, (2) propose potential areas of application, and (3) acknowledge the embedded limitations.

Learning Objective:

  1. To discuss and introduce the market environment of the domestic healthcare industry
  2. To understand the importance of costing information in strategic planning decisions
  3. To apply the concepts and frameworks of various kinds of costing methodologies and indirect cost allocation in healthcare organizations
  4. To compare, analyze, and evaluate the advantages and disadvantages of each costing methodology and how various outcomes affect management decisions

 

Year of Publication: 2021
Ref. No.: 21/703C
Discipline: Accounting & Control
Industry: Health Care Equipment & Services
Country: Hong Kong SAR
Languages: English
Pages of Text: 9