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ABSTRACT
Ten years ago, activity-based costing systems were becoming established as a performance management tool and the use of activity-based costing/management (ABC/M) was spreading from manufacturing to service industries. One area that looked especially promising was the field of healthcare.
This paper compares the results of a survey on the use of activity-based costing by healthcare organizations with those from a similar survey conducted ten years ago. This comparison reveals that while healthcare organizations remain, on average, unsatisfied with their costing systems, the use of ABC/M has declined slightly in the past decade and fewer organizations are considering adopting the technique. This decline is due to the perceived difficulty and cost of implementing ABC/M systems, along with a lack of senior management commitment to them. Healthcare organizations also appear, in general, to have failed to transition from ABC to ABM, limiting the benefits achieved from implementation of these systems.
The steep rise in the cost of providing healthcare services in the United States has lead to pressure to identify the causes of this increase and to find ways to more effectively utilize the nation's healthcare resources. As in other industries, this has lead to a search for better management tools and techniques.
Ten years ago we examined the adoption of one of these tools, activity based costing, in the healthcare industry. In this paper we present the results of a follow-up survey that examines various issues related to the adoption of ABC/M at the present time and compare the results of this survey to those obtained a decade ago. Issues examined include the satisfaction of healthcare organizations with their costing systems, the reasons for the adoption or nonadoption of ABC/M by healthcare organizations, the rate of utilization of these systems, and the perceived costs and benefits of ABC/M systems. We also compare ABC/M to other performance management (PM) tools.
ACTIVITY BASED COSTING
First appearing on the management accounting scene in the mid 1980s, activitybased costing promised to revolutionize the way costs were allocated to the products produced and services performed by organizations. Numerous articles have appeared since its introduction, detailing the effectiveness of this technique for a variety of purposes. Activity based management, which emphasizes managing the activities an organization performs rather than...