Questionsunder caserequirements: case 1-6 can negotiate for price. so much info including references...

St George Hospital: Flexible Budgeting, Volume Variance,

and Balanced Scorecard Performance Measurement

Gillian Vesty

RMIT University

Albie Brooks

The University of Melbourne

ABSTRACT: This case deals with funding, budgeting, and performance measurement in public hospitals. Data from

the Orthopedic Unit at St George Hospital is used to examine efficiency and effectiveness of management in meeting

budgeted targets. The Orthopedic Unit provides treatment for two common diagnosis-related group (DRG)

treatments: hip replacement surgery, commonly performed on older patients with arthritic pain or hip fractures; and

arthroscopy surgery for soft tissue knee injuries, commonly a result of sporting injuries in the younger population. As

a business consultant, you will help Vera Jones, a newly graduated accountant, to develop a flexible budget, and

calculate price, cost, and patient volume variances. You will then review the results in conjunction with St George

Hospital's balanced scorecard to determine the quality of public sector service delivery and the ability to meet patient

demands within the bounds of budgetary constraints.

Keywords: public hospital budgeting; flexible budgets; volume variances; balanced scorecard performance

evaluation; DRG accounting; activity-based funding.

INTRODUCTION

The St George Hospital1 is one of the oldest metropolitan hospitals in the region. It is a leading teaching hospital with

three main campuses. In addition to pediatrics (babies and children) and obstetrics (childbirth), St George Hospital

offers a broad range of comprehensive medical and surgical care to nearly 120,000 patients per quarter. Patient

volumes include patients who are treated in the emergency department, admitted to the hospital, given same-day care, and those

who are treated in outpatient clinics.

Funding for public hospitals like St George comes primarily from taxpayers. Because of the need to preserve and

demonstrate proper stewardship of the tax money, it is vitally important to track the performance of entities receiving this type

of funding. The government treats hospitals, like St George, as engineered cost centersmeaning that the standard input

volumes and prices for the treatment of patients are directly linked to the output activity (payment for that treatment). The

hospital receives funds from the government funding agency for an agreed-upon level of patient throughput. Payments are

capped to prevent over-servicing (over-treatment of patients) and budgetary blowouts. The government has the discretion of

offering additional funds for treatment if waiting lists for certain patient conditions increase, or if there is capacity in their

budget to pay for additional care. However, for individual hospitals like St George, funding is based on standard costs, even if

their own actual costs go up during the contracted period.

We thank the clinicians who were extremely helpful during the conceptual stage of this case study. We are extremely grateful to the two anonymous

referees for their insightful comments, as well as the comments and feedback from the editor and associate editor. We also thank Naomi Soderstrom, at

The University of Melbourne, who provided advice on the international use of this case. Finally, we thank our students who trialed our case study at

varying stages throughout its development.

Editor's note: Accepted by Lori Holder-Webb.

Submitted: October 2014

Accepted: June 2016

Published Online: September 2016

1 The hospital highlighted in this case is fictitious but relies, to the extent possible, on publicly available data from a typical public hospital in Australia.

The activity-based funding model, developed according to diagnosis-related group (DRG) costs, is a widely adopted model used in many countries

throughout the world.

103

If St George Hospital costs increase, then this means either fewer patients can be treated for the same standard of care or

that the hospital can treat the same number of patients but go into a budgetary deficit, which will ultimately be paid by the

taxpayers. To help avoid this problem, hospitals use an Activity-Based Funding (ABF) approach whereby the individual

managers of public hospitals are held strictly accountable for their financial management as well as patient activity

performance.2 Public hospitals compete for the same pool of funds and when additional funds are available, the hospitals

with the best performance are rewarded. Thus, efficiency and effectiveness of public hospitals is regularly measured and

reported, via key financial and nonfinancial performance indicators. The hospital's management accountants play an

important role in helping to prepare the performance reports. Because of this, internal management control systems are

relatively advanced and developed in a way that provides transparency in utilization and management of the activity-based

funds.

St George's performance, in terms of its ability to meet clinical performance targets, is disclosed to clinicians and managers

on a daily basis. Referred to as the CEO Daily Scorecard, reported measures include the ability to meet performance targets

based on emergency, elective, quality, and financial indicators. Key performance indicators and targets, reported to the

overseeing government agency, are presented in Table 1. The CEO Daily Scorecard is also accessible to the public because of

the role of tax revenues in financing the hospital's operations. As part of the CEO's remuneration, bonuses are awarded for

achievement of these performance targets, thus providing a strong incentive for achieving them. Performance is tracked on both

a daily and annual basis, and input data are provided by a team of accountants and other health economics experts working

alongside Vera in St George Hospital's Performance Unit. A more comprehensive set of key performance indicators (KPIs) is

provided in Appendix A, which is used by the government funding agency to benchmark and incentivize individual hospital

performance.

THE PERFORMANCE UNIT

There are two accounting departments at St George Hospital: the Conformance Unit, in which the main function is the

preparation of statutory reports; and the Performance Unit, in which the main function is performance measurement in addition

to providing budgetary performance support to each of the clinical units. Actual volumes and hospital costs are monitored

against the budget. In addition to monitoring financial performance, the Performance Unit is also in charge of providing up-todate

nonfinancial performance data for the CEO Daily Scorecard.

Vera Jones, a bright, enthusiastic accounting graduate, was very excited to obtain an accounting position at St George's

Performance Unit. Although Vera had completed an undergraduate accounting degree, she was concerned that she knew very

little about the intricacies of public hospital funding mechanisms because accounting for public hospitals was not taught at her

university. She wondered how long it normally took before management accountants working at the hospital became familiar

with clinical terminology and the complex activity-based funding system. Because Vera started in the department at a very busy

timemost of the other accountants were occupied with preparing the monthly and annual performance data for the Board of

Directorsshe did not get a lot of personal attention. However, the Director of Management Accounting and Head of the

Performance Unit provided some background reading and assured her that it would not be long before she developed

competence and confidence. Vera reviewed the materials to better understand how the activity-based funding mechanism

worked before she started the detailed hospital budgeting. Vera's background reading can be found in Appendix B.

ST GEORGE HOSPITAL'S ORTHOPEDIC UNIT

After a few weeks of getting familiar with her new management accounting role, Vera Jones was assigned to the

Orthopedic Unit. The Orthopedic Unit treats bone diseases and injuries, including fractures and associated bone ligament and

tendon damage. This unit currently has 40 hospital beds available for patients who are being treated for both medical and

surgical conditions. It also is a major unit, and treats road, domestic, and workplace trauma. Patients are admitted directly from

the emergency department or from home as elective orthopedic patients. This year the orthopedic unit had been allocated 15

percent of St George Hospital's 92,770 total budgeted weighted activity cost units (WACUs). Of the different procedures

treated in the orthopedic unit, a common surgical procedure for knee injury is an arthroscopy (generally to repair anterior

cruciate ligament damage, mostly from soccer, football, or basketball injuries). The other common orthopedic procedure is a

hip replacement for older people (mostly from fractures associated with falls and/or wear and tear from chronic arthritis). These

2 Hospitals are paid according to the volume and mix of patients they treat. In Activity-Based Funding (ABF), standard activity costs are calculated for a

broad range of patient conditions, referred to as diagnosis-related groups (DRG). Originally developed in the United States, DRGs and ABF models

have been refined over the last few decades and adapted by many countries for local conditions.

104 Vesty and Brooks

Issues in Accounting Education

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two DRGs, on average, account for 30 percent of the orthopedic unit patient workload and this figure is used by the unit in their

budget allocation.

Vera was asked to help the Director of Orthopedics (a senior surgeon) with budget analysis. She was told that patient

demand for hip replacements had been continually high, and there are long waiting lists. Vera found that the hospital has about

1,500 patients waiting for hip replacements every year. Some patients might die from other causes (particularly the elderly)

while on the waiting list. Others might seek private surgery at their own expense. In addition to these patients, the Orthopedic

Unit also has emergency fractures to manage and arthroscopies to perform for sports injuries, such as football and

snowboarding. The waiting list for arthroscopies is 2,000 every year, with at least 50 estimated emergency treatments each

month that potentially displace the non-urgent-treatment patients currently on the list. There have been a growing number of

complaints from the community about the waiting times, in particular for hip replacement. The Hospital's CEO is unhappy

TABLE 1

CEO Daily Scorecard

(4 Months into Financial Year; Actuals Reflect Year/Month-to-Date)

Panel A: Emergency Indicators

Time Spent in Emergency Department Target Actual

Less than 4 hours (all attendees) 81% 94%

Less than 4 hours (to be admitted) 70% 89%

Less than 4 hours (not admitted) 90% 99%

Greater than 24 hours 0 0

Triage seen in time 80% 86%

Panel B: Elective Indicatorsa

Patient Admission Rates Target Actual

Category 1 Patients admitted (, 30 days) 100% 100%

Category 2 Patients admitted (, 90 days) 88% 82%

Category 3 Patients admitted (, 365 days) 97% 98%

Hospital Initiated Postponements 8% 2%

Panel C: Quality Indicators

Target Actual

Patient Indicators

Patients readmission # (within 30 days) 0 15

Hospital-acquired infection (annual #) 0 18

Process Indicators

Ambulance handover time % (, 40 minutes) 90% 80%

Patient paperwork completed (, 10 days of discharge) 50% 5%

Panel D: Financial Indicators (Monthly)

Activity versus Planned (WACUs)b

Target

per Month

Actual

per Month

Veterans 34 37

Private Compensable 580 518

Public 2,600 2,567

Transport Accidents 262 229

Total WACUs 3,476 3,351

a Patients are admitted for surgery based on the severity of their condition. Category 1 patients have lower survival rates without medical intervention

within a specific time frame.

b Weighted Activity Cost Units (WACUs) are standard cost weights used in activity-based funding. The patient treatment activity is expressed as a

common unit against which a standard price is paid. The WACU provides a way of valuing and comparing public hospital service provisions and is

weighted according to clinical complexity. More details on the calculation of WACUs are provided later in the case.

St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 105

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about these wait times, as they adversely affect some of the key performance indicators shown in Appendix A. The Director of

Orthopedics explained that the unit is allocated regular time in the operating room, which enables them to conduct, on average,

approximately 10 hip replacements per week and 40 arthroscopies per week. The Director of Orthopedics indicated that while

some arthroscopy patients go home the same day, others require a bed overnight. Hip replacement patients stay in the hospital

for 3 or 4 days before going to a rehabilitation unit or facility. Vera also spoke with the Director of the Operating Rooms (OR)

who told her that they try to run the OR at 90 percent capacity, which allows for additional cases or emergencies. Sometimes it

is necessary to operate outside of regular scheduled hours, when funds and clinical capacity allow. Vera was aware that the

government could possibly release more funds to reduce hospital waiting lists, but was not sure of the impact this would have

on St George Hospital's surgical capacity.

Vera was provided with this year's Orthopedic Unit budget and the recent actual results for performance comparisons

associated with their two important DRGs: hips (replacements) and knees (arthroscopies). This information is provided in Table

2. Above-average financial performance means the hospital can treat more than the budgeted patient volume, which would be

seen as a benefit to society, but only if quality of care is not compromised. Table 2 highlights that overall budgeted income for

the Orthopedic Unit was $1,223, meaning that they anticipate being able to undertake the same activity for less than the average

price paid by government. While the actual income is lower than anticipated, actual volumes were higher than anticipated,

which requires further investigation to determine whether the hospital received additional funds for these two DRGs, or if they

treated more patients to keep waiting lists down. Even though they still earned $254 net income from the two DRGs, Vera and

the Orthopedic Unit management team do not know the overall impact of patient volume on the actual income earned. Table 2

provided Vera and the Director of Orthopedics with the data to analyze, in more detail, the efficiency and effectiveness of the

unit in meeting patient treatment targets.

Vera found out that the actual total patient volume for the combined hips and knees across all major service providers was

47,000 WACUs. She also knew that St George's share of the budgeted patient volume is 12 percent. This market data allowed

her to compare St George Hospital's Orthopedic Unit performance with other hospital service providers in the government

funded region. Using this data, Vera prepared a flexible budget in which to analyze patient volume, price, and cost variances.

The Director wanted this information to confirm whether the Unit is performing better than the average activity costs for the

additional volume treated and whether they can potentially treat more patients in the future to meet the continual demand. Vera

Jones headed back to her desk and began the detailed performance analysis task.

TABLE 2

St George Hospital Orthopedic Unit Budget (WACU/$)

(in Thousands, except for WACUs Patient Volumes)

Income Statement

Budget Actual

WACUs

Patient Volume $

WACUs

Patient Volume $

Funds Received

Hips 2,132 10,645 2,281 11,390

Knees 2,288 11,424 2,425 12,109

Total Funds Received 4,420 22,069 4,706 23,499

Variable Costs (Hips)

Medical 500 2,497 650 3,245

Surgical 1,525 7,614 1,494 7,461

Variable Costs (Knees)

Medical 1,892 3,826 1,039 4,018

Surgical 259 2,206 257 2,164

Total Variable Costs 16,143 16,888

Contribution Margin 5,926 6,611

Fixed Costs

Hospital & Admin 3,661 4,240

Other 1,042 2,117

Total Fixed Costs 4,703 6,357

Net Income 1,223 254

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CASE REQUIREMENTS

1. Describe the major differences between private hospitals and public hospitals like St George. Explain the role of

management accounting and control systems in this setting.

2. Describe Vera Jones' new accounting role. What would she be doing in her daily budgeting and performance

monitoring activities? What challenges for Vera do you foresee because of this budgeting process?

3. Consider the current budgeting process at St George Hospital and address the following:

a. What amount of funds (revenue) will St George Hospital receive?

b. Determine whether the Orthopedic Unit can meet patient demand for arthroscopy and total hip replacement surgery.

c. Is the Orthopedic Unit over or under budget for patient activity? Discuss your findings.

4. Using the information provided in the case:

a. Prepare a flexible budget for the St George Hospital Orthopedic Unit.

b. Identify the following efficiency and effectiveness variances and explain what these results mean for the St George

Hospital Orthopedic Unit:

i. Total sales variance for funds received;

ii. Total variable cost variance;

iii. Total fixed cost variance; and

iv. Total volume variance.

c. Calculate the following effectiveness variances and explain what these results mean for the St George Hospital

Orthopedic Unit:

i. Market size variance;

ii. Market share variance; and

iii. Patient mix variance.

5. In addition to the CEO Daily Scorecard, develop a series of performance measures for use within the Orthopedic Unit to

ensure that clinical unit managers meet broader effectiveness expectations related to patient access to hospital treatment

and quality patient care. Outline some of the key financial and nonfinancial metrics that would be suitable for this

performance evaluation. You might want to present your results in a balanced scorecard format.

6. Describe the ethical issues presented in the case. Discuss how these ethical issues impact accounting choices or the fair

reporting of accounting information. Highlight the role accounting can play in ethical decision making.

REFERENCES

Department of Health. 2013. Victorian Health Service Performance Monitoring Framework. Available at: http://docs.health.vic.gov.au/

docs/doc/7BA5A82EB127BADDCA257C2D007059DF/$FILE/1309009%20Performance%20Monitoring%20Framework_web.

pdf

St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 107

Issues in Accounting Education

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APPENDIX A

Key Performance Indicators

Program KPI KPI Description Target

Finance Performance

Finance Operating result Operating result as a % of total operating

revenue

Unit-specific

Creditors Trade creditor days 60 days

Debtors Patient debtor days 60 days

PP WACU Public and private WACU activity performance

to target

100%

Access Performance

Emergency Care Bypass % of emergency department operating time on

ambulance bypass

3%

40 min transfers % of patients transferred to hospital emergency

care within 40 mins

90%

Triage 1 % of triage 1 patients seen immediately 100%

Triage 1-5 % of triage category 1-5 patients seen within

recommended times

80%

4 hours % of patients leave the ED for admission to

hospital, be referred to another hospital for

treatment, or be discharged within 4 hours

81%

24 hours Number of patients remaining in the ED for

more than 24 hours

0

Elective Surgery Cat 1 admit % of category 1 elective surgery patients

admitted within 30 days

100%

Cat 2 admit % of category 2 elective surgery patients

admitted within 90 days

88%

Cat 3 admit % of category 3 elective surgery patients

admitted within 365 days

97%

ESWL Number of patients on the elective surgery

waiting list (ESWL)

Unit-specific

HIPs Number of hospital-initiated postponements

(HIPs) per 100 scheduled admissions

8

Service Performance

Elective Surgery Admissions Number of patients admitted from the elective

surgery waiting list

Unit-specific

Critical Care ICU Number of days adult intensive care unit (ICU)

operates below agreed minimum operating

capacity

0

PICU Number of days pediatric intensive care unit

(PICU) operates below agreed minimum

operating capacity

0

NICU Number of days neonatal intensive care unit

(NICU) operates below agreed minimum

standard operating capacity

0

Maternity Postnatal care % of women who have given birth and on

discharge have been offered prearranged

postnatal care

100%

Newborns Newborn screening % of eligible newborns screened for hearing

deficit before age 1 mth ! 97%

(continued on next page)

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APPENDIX B

Overview of Activity-Based Funding

Activity-Based Funding (ABF) is a management accounting control tool used by government agencies to monitor,

manage, and administer the funding of health care provisions by government hospitals. As well as being used to motivate

efficiency, ABF provides increased transparency in the funding of service providers. Use of this tool can help to increase

efficiency, improve quality, ensure the fair allocation of resources (or funding) within each healthcare facility and across

geographical areas, and improve transparency of hospital funding, activity, and management. It is based on standard costs for

patient-related treatment (the ''activity''). Funding models are tailored by governments to ensure that hospital funds are based

APPENDIX A (continued)

Program KPI KPI Description Target

Quality and Safety Accreditation Health service accreditation Full accreditation

Resi aged care Residential aged care compliance with

accreditation standards

Full compliance

Cleaning Compliance with external cleaning audit Full compliance

Infection Control Submission of infection surveillance data Full compliance

Hand hygiene Hand hygiene compliance 70%

SAB Staphylococcus aureus bacteraemia (SAB) rate

per occupied bed day ! 2/10,000

HCWIinfluenza Healthcare worker immunizationinfluenza 75%

PSM Patient Satisfaction Monitor Overall Care Index

(OCI)

OCI 73

CPI Patient involvement in treatment, care, and

wellbeing decisions

Care index 75

HEMI Participation in the health experience

measurement instrument

Full compliance

Clinical complianceemergency % of audited emergency cases meeting clinical

practice standards

95%

Clinical compliancenon-emergency % of audited non-emergency cases meeting

clinical standards

94%

Patient satisfaction % of patients satisfied or very satisfied with

quality of care provided

95%

Pain reductionadult % of adult patients experiencing severe cardiac

or traumatic pain whose level of pain is

reduced significantly

90%

Pain reductionpediatric % of pediatric patients experiencing severe

traumatic pain whose level of pain is reduced

significantly

90%

Stroke patients transported % of suspected stroke patients receiving care

within 60 minutes

80%

Cardiac survival to hospital arrival % of adult cardiac arrest patients surviving to

hospital

45%

Cardiac survival to hospital discharge % of adult cardiac patients surviving to hospital

discharge

20%

Workforce People Matters compliance Participation in the survey at least once every

two years and response rate of 30% or higher

Full compliance

Mental Health MH28Day % of adult general acute psychiatric inpatients

readmitted within 28 days of separation

14%

Post-discharge % of patients with a post-discharge follow-up

within seven days (child and adolescent,

adult, aged)

75%

Seclusion Rate of total seclusions (child and adolescent,

adult, aged) ! 15/1,000

Source: Adapted from Australia's Department of Health (2013, 9-10).

St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 109

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on a single unit of service delivery that can be compared across organizations. The challenge for hospitals is to keep their

patient treatment costs at the same level, or lower than, the government price.

ABF recognizes that some patient treatments are more costly than others, with each of the different condition types funded

according to its patient treatment type. There are hundreds of classifications such as appendix removal, heart attack, hip

replacement, treatment of football knee injuries (arthroscopy), eye surgery, stroke, or fracture, all classified according to their

diagnosis-related group (DRG). Funding for each DRG is determined using standard costing methods. Costs are calculated on

the average expected consumption of designated activity resources such as nursing and medical labor, equipment and drugs,

meals, bed and operating room costs, and other allocated overheads (support, cleaning, meals, accounts, admin, etc.).

As it is more costly to treat some patients than others (for example, it is less costly to set a simple fracture than it is to conduct

a liver transplant), an average cost weight for the multiple patient condition types is used. The costs for the weighted average

medical treatment activity are determined based on the average cost for patients in a DRG and compared with the average cost for

all patients across all DRGs. This is highlighted in the following weighted activity cost unit (WACU) calculation:

Weighted Activity Cost Unit WACU

Average cost of a patient in a DRG

Average cost of all patients across all DRGs

Sample DRG weights are shown below.

DRG (771 in total) DRG Cost Weight (WACU)

Heart Attack 1.0000 to 11.2000 depending on severity

Coronary Bypass 5.6830

Arthroscopy (knee) 1.1000

Tonsillectomy 0.6701

Hip Replacement 4.1742

Appendectomy 2.1000

Headache requiring hospitalization 0.1500

Liver Transplant 27.3869

The WACU calculation is effectively a cost index, based on an average patient cost of 1, indicating that a liver transplant is

27.3869 times more expensive than the average cost of all patients. Once the average cost weight per DRG is determined, a

standard price for 1 activity unit (WACU) is determined by the government agency. This price is set annually to accommodate

overall cost fluctuations (for example, incremental wage rises according to the Consumer Price Index).

A thorough revision of any individual underlying cost weight derivations is performed only when significant deviations

from standards are reported, possibly as a result of technological or clinical advances. The standard price is also referred to as

the efficient price as it is designed to motivate hospitals to match their individual costs to the government's efficiency target.

Thus, the funds received by the hospital are calculated as follows:

Activity-Based Funding ABF DRG Cost Weight WACU3Standard Efficient Price

The current-year standard efficient price set by the government to cover the variance and fixed costs of treatment is $4,993

per activity unit. To determine how much the government pays for a given DRG, multiply this figure by the DRG's WACU: 1

3 WACU, where WACU $4,993. Using the information about WACUs above, the government payment rate for a

tonsillectomy would be 0.67013$4,993, or $3, 346; the rate for a hip replacement would be 4.17423$4,993, or $20,842; and

the rate for a coronary bypass would be 5.6830 3 $4,993, or $28,375. To prevent over-treatment and budget blowouts, each

hospital contracts with the government for a specific number of funded activity units. The breakdown of WACUs agreed upon

for each of the different service providers is provided in Table 3. In the case of St George Hospital, it was agreed by the central

agency that their activity would be capped at 92,770 WACUs for the next financial year.

With the standard price of $4,993 this means the total ABF received by St George is $463,200,610 (92,770 3 $4,993).

Even though patient demand may be higher, the allocated ABF is limited to (capped at) the government's public healthcare

commitment to regulated budget expenditures. The overall mapping of the ABF allocated to St George Hospital is provided in

Appendix C. If they do not reach the 92,770 WACU target, then they will be required to return the excess funds deemed not to

be earned by St George Hospital. This might mean a reduction in future funding allocations.

Every month, the Performance Unit is required to compile a list of patient treatment activity for dissemination to the

management team. This report helps the clinical unit managers to monitor their activity levels to ensure they are competitive

with other service providers and to ensure they have the opportunity for additional funds, based on optimal performance. Once

the budgeted activity target is met, the hospital will be penalized for going over budget (i.e., they will create a deficit that will

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Issues in Accounting Education

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need to be subsidized by the taxpayers). Alternatively, the hospital is also penalized if they do not treat enough patients (i.e.,

they will not receive the same number of WACUs the following year, and another service provider will be allocated the

WACUs instead). In addition, patients who require care beyond the budgeted hospital stay are funded at penalty rates (and

prevent fully funded patients from being admitted), providing an incentive for hospitals to ensure patients are treated and

discharged on a timely basis. That is, if patients stay longer than expected, need to be readmitted because of poor treatment, or

if hospital-acquired infections occur, then the hospital is penalized. Thus, monitoring of clinical activities and measures of good

care are essential. Finally, given that each WACU is calculated on the average costs of the total patient pool, individual hospital

costs will more than likely differ from the standard cost. Hospitals may incur higher/lower costs than the government-calculated

ABF, which provides incentives for individual hospitals to improve financial performance.

In summary, monitoring efficiency and effectiveness of hospitals is an important priority for the government. The goal is to

motivate hospital managers toward achieving costs that match, or are lower than, funds received, without impacting quality of

care. Quality of care also relates to timeliness of treatment, patient length of stay, and avoidance of long waiting lists (capacity

management). To meet these contractual obligations, a hospital is therefore required to utilize all allocated WACUs.

TABLE 3

Budgeted Weighted Activity Targets (WACUs) for Major Service Providers

Major Health Service Provider General Admissionsa Veterans Transport Accidents Total WACUs

St George Hospital 85,818 1,131 5,821 92,770

North-Eastern Hospital 70,678 1,518 804 73,000

Bay Hospital 53,088 1,244 398 54,730

North-Metro Hospital 282,566 30,152 47,221 359,939

Mercy Public Health 36,329 174 1 36,504

Southern Hospital 146,748 813 635 148,196

Cancer Hospital 15,188 188 15,376

Children's Hospital 45,373 451 45,824

Eye & Ear Hospital 9,491 98 5 9,594

Women's Hospital 29,520 11 29 29,560

Central-Metro Hospital 48,071 290 99 48,460

Service Provider Total WACUs 609,200 6,040 12,827 628,067

a Includes elective surgery admissions.

St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 111

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APPENDIX C

Mapping Public Hospital Funding Through ABF

APPENDIX D

Resource Materials

Abernethy, M., M. Horne, A. Lillis, and M. Malina. 2005. Building performance models from expert knowledge.

Management Accounting Research 16 (2): 135-155.

Aidemark, L. 2001. The meaning of balanced scorecards in the health care organization. Financial Accountability and

Management 6 (1): 23-40.

Bible, L., S. Kerr, and M. Zanini. 2006. The balanced scorecard: Here and back. Management Accounting Quarterly 7 (4):

18-23.

Chan, Y., and S. Ho. 2000. Performance measurement and the use of balanced scorecard in Canadian hospitals. Advances

in Management Accounting 9: 145-169.

Ittner, C., and D. Larcker. 2003. Coming up short on nonfinancial performance measurement. Harvard Business Review

(November): 88-95.

Kaplan, R., and D. Norton. 1992. The balanced scorecard measures that drive performance. Harvard Business Review

(January-February): 71-79.

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Kaplan, R., and D. Norton. 2004. The strategy map: Guide to aligning intangible assets. Strategy and Leadership 32 (5):

10-17.

Llewellyn, S., and D. Northcott. 2005. The average hospital. Accounting, Organizations and Society 30 (6): 555-583.

Maher, M. W., and M. L. Marais. 1998. A field study of the limitations of activity-based costing when resources are

provided on a joint and indivisible basis. Journal of Accounting Research 36 (1): 129-142.

Simons, R. 2000. Evaluating strategic profit performance. In Performance Measurement and Control Systems for

Implementing Strategy, Chapter 6, pp. 110-137. Upper Saddle River, NJ: Prentice Hall.

St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 113

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