Abstract
Cost allocation for health care professionals can be an enigma within the health care
system. Activity-based costing (ABC) is an accounting tool that allocates costs incurred
through a company's practice of providing goods and services to the consumer. ABC
can provide insight into inefficiencies across the supply chain and unlock excess
capacity. This, in turn, can drive services provided toward generating more value
for the hospital system. ABC can be tailored to focus upon a unit of measurement that
holds value as it pertains to production. With time-driven ABC (Td-ABC), we look to
use the advantages of both the fee-for-service and capitation model to transition
to a value-based system. Providers are rewarded based on efficiencies and successful
outcomes in patient care while disincentivizing poor outcomes and superfluous volume/expenditures.
ABC, however, does not come without its own risks and disadvantages, and the user
must exercise caution in applying this cost-allocating tool to avoid detriment to
its practice. A review of the literature was conducted to analyze the implementation,
medical application, and advantages and disadvantages of Td-ABC.
Keywords
activity-based costing - accounting - health care
