Overall, three areas of cost account challenges can be identified in the above cost account evaluation. 1) the hospital structure in Denmark influencing the cost account reporting and, thereby, 2) the usage of different cost centre definitions as well as allocation methods, and finally, 3) the inclusion of overhead costs and indirect costs with direct costs and the implications of aggregated costing data. These findings have substantial implications for the validity of cost account quality in DRG rate estimates and also for applying patient-level costing to estimate total resource use across departments, forming part of a value-based agenda (6).
The descriptive numbers of inpatient and outpatients as well as costs indicate the hospital organisation’s size. We see large differences in these sizes and additional set-ups. For example, Region E only has one set of cost accounting reports. Following the structural reform in 2007, a major focus has been mergers and specialisation in hospitals (11, 19). Thus within one region, a department in one hospital specialises in, for example, gall bladder operations mixed with other orthopaedic surgeries, whereas in another region, gall bladder operations may be placed in a hospital with heart surgery. Thus, due to hospital heterogeneity, a skewness in allocation of costs may exist, supported by the fact that the cost weights do not reflect the hospital treatment. This issue is illuminated by Ankjær-Jensen et al. (10), who claim major uncertainty in the statement of cost centres at the individual hospitals. This present evaluation identifies continued uncertainty ten years later. We further note a structural variation, which may substantiate this uncertainty. Different organisational set-ups challenge standardisation. Thus, a contradiction appears in the central wish from the Health Ministry and the Health Data Authority to align cost accounting and an ability to accomplish cost-effective decision-making in resource allocation as well as holding hospitals accountable for a specific activity level being distorted by geographical and regional structural differences.
According to Chapman et al. (3, p. 357), the government, and in this case the Danish Health Data Authority, influences costing practices through guidelines. Yet, we witness how these guidelines become decoupled from the actual costing practice, and the cost accounts show aggregated calculations and accounts (gross-costing). Thus, there is a lack of standardisation in the cost accounting foundation, both for the DRG rate calculations that influence fairness in the following application of DRGs for benchmarking, but also for future different patient-level cost initiatives. Both the DRG rates and the value-based agenda require strongly standardised costing practices (3, 7) in order to represent fairness and to enable comparison. Additionally, the calculations require adjustment for knowledge on patient activity and progress so that they can be fair, but this approach is absent in these cost accounts. Consequently, the different cost allocation procedures add skewness to cost information applicability.
Finally, melding overhead and indirect costs with direct costs influences cost transparency. Thereby, the ability for department management to influence measures upon which the departments are accounted for is not present. Although these practices appear to be common in DRG cost accounting, the practices contradict some of the basic management accounting principles that are essential in the value-based agenda (6). It is only direct and indirect costs (i.e., level 3 and 4 support costs in the empirics) that vary with actual patient activity in the medical departments. Level 1 and 2 costs are administrative overhead in nature, and they are decoupled from department activity. When these types of costs are allocated to departments, it implies a full costing system (20) and not an activity-based system, as illustrated by Kaplan and Witkowski (6). Thereby, the medical departments lack influence on the patient activity costing. Additionally, activity-based costing requires that direct and indirect costs are separated according to the cost objects’ use of resources (6, 21). In the current cost accounts from the Danish hospitals, this is not the case. All costs are allocated on a department level, which implies a highly aggregated cost information system with no primary relationship between the patient service and actual costs. The cost accounts, therefore, allocate service activity on an organisational level and not on a detailed level, which is required for activity-based costing (21). King et al. (22) and Balakrishnan et al. (15) evaluate several activity-based costing systems in health care, whereas none of these defined activity costs centre on the department level.
Due to the recent interest in a value-based agenda, a focus on the entire patient continuity of care cost (23) is essential and differs from DRG costing, which focuses on the cost of hospital events (inpatient admissions and outpatient visits). This new approach warrants the increasing relevance of investigating the patient’s total use of resources across hospital departments (and ideally for all healthcare providers), which has been empirically and theoretically lacking (6). Kaplan and Porter (24) suggest the application of TDABC, which seeks to allocate costs according to the core activities, the patient’s medical condition, rather than medical and surgical specialities (6, 7). This strategy will better inform patient-related decision-making, both on a financial hospital level and related patient treatments. Thus, whereas Tan et al. (4) and Chapman & Cahan (2) emphasise the hospitals’ cost accounting systems as a pertinent managerial foundation because it informs hospitals’ and central authorities’ decisions, the costing information becomes even further relevant in a value-based agenda.