The remuneration system that is applied in healthcare organizations in several countries (e.g. Australia, the USA, Switzerland, Spain and Italy) enables ABC profitability analysis to be applied in hospitals. These countries apply the Diagnosis Related Groups (DRGs) reimbursement system to fund hospital activities. With this system, diagnoses requiring similar treatments are assumed to require similar resources resulting in reimbursement at a standard unit price by the National Health System for the healthcare services. Diagnostic-Therapeutic Pathways (DTPs) identify all the services needed to diagnose and treat a specific disease from the first access of the patient into the healthcare system and are made comparable with the DRG. Cannavacciuolo et al. (2015) report on how ABC was used in an Italian hospital to determine the amount of resources used by each activity included in the DTP and thus develop a DTP cost. The DTP cost was derived from the sum of activity cost pools needed to perform a DTP. Thus it is possible to determine the profitability of each DTP by comparing its cost with the DRG tariff. Where the DTP cost exceeded the DRG tariff, activities are examined with a view to performing them more efficiently. ABC also enabled the most cost-consuming activities to be identified. The determination of the cost of each activity of a DTP also provided the potential to compare the costs of DTPs with those in other hospitals and thus highlight potential for carrying out the activities more effectively and efficiently.
Questions:
1 In some countries revenues may be received in a lump sum and are not assignable to individual diagnosis related groups. What role can ABC play in such organizations?
2 Do you think many business organizations utilize ABC techniques? Why or why not?