Can activity-based costing be used to reverse rising healthcare costs?

Healthcare organizations have traditionally encountered great difficulty in accurately capturing the costs of the services and goods that they provide. Traditional costing methods (i.e., direct, step-down, etc.) have proven marginally useful despite decades of use. In general, this has caused problems within healthcare organizations as it obscures the true cost of care and overall profitability. Cost overruns and extraordinary spending by healthcare organizations harm the economic sustainability of the healthcare organization.

More recently, activity-based costing (ABC) has been used to more accurately capture the cost of health care services. However, this costing methodology has also encountered challenges.

For this research discussion, read the following articles:

· “The 100-Percent Solution to Improving Healthcare’s Operating Margins”, available at: https://www.healthcatalyst.com/insights/healthcare-activity-based-costing-transforming-cost

· “Activity-Based Costing: Healthcare’s Secret to Doing More with Less”, available at : https://www.healthcatalyst.com/insights/activity-based-costing-healthcare-improves-outcomes

· “Service Lines and Activity-Based Costing (ABC) Reveal True Cost of Care for UPMC”, available at: https://www.healthcatalyst.com/success_stories/activity-based-costing-in-healthcare-upmc

Respond to the following questions:

1. Can activity-based costing be used to reverse rising healthcare costs? Explain your perspective. Offer supportive evidence.

2. Can ABC be used to improve internal business decision-making? If so, how might this be the case?

3. Can the use of ABC assist in communication with patients and overall patient perceptions of care? How? What obstacles do you see to this communication strategy implementation?

4. What challenges prevent the broader application of ABC in the healthcare industry? Is there a way to overcome them?

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