bility of most major health care institutions in the United States (Gregory, Baigelmann, & Wilson, 2003).
Even before the management care protocol became pervasive in American health care, health care financial managers recognized the need for cost accounting in major health care institutions (Young, 1988). The accurate costing of delivered services was assuming an ever-greater significance (Mendenhall, Shepherd, & Kabrinski, 1987). One of the more important cost accounting procedures introduced in the health care finance was a two-stage activity-based cost accounting process pattered after a similar cost accounting procedure developed for and applied in manufacturing industries (Cooper, 1987a; Cooper, 1987b).
Health care accounting involves a wide variety of complex processes and concepts. Among the more significant requirements of a health care accounting process are the following:
Patient status and treatment must be reflected in all revenue and workload data, because cost allocation and revenue pricing typically differ on the bases of (a) inpatient or outpatient status and (b) specific treatment delivered, and
Accounting records for services delivered must be maintained on both an aggregated and a disaggregated basis
Effective cost accounting can contribute to the fulfillment of each of these requirements. The cost models employed by most health care institutions in the 1980s differentiated between fixed and variable costs (Cooper & Suver, 1988). Fixed costs are those that must be borne by an organization regardless of activity levels, while variable costs are those that fluctuate according to activity levels. In addition to fixed/variable distinctions, health care and hospital costing models also differentiated between full costs, direct costs, indirect costs, job costs, process costs, and other concepts of cost (Thibadoux, Apostolou, & Greenberg, 1988). Through the application of these cost concepts, stand...