Brookwood Medical Center
Brookwood Medical Center (BMC) cost data did not make any sense because they used the hospital wide cost-to-charge ratio, applying it to all four diagnostic related groups to prepare their first bid. By doing so BMC calculated cost on a facility wide basis. The system only provided aggregated cost by department. Managers needed a more detailed cost system that would accurately provide cost by diagnostic group as well as individual patient basis to effectively compete when bidding on specialized health care services. They needed to have a better understanding of diagnostic groups and individual patient level costing.
In response they developed a computerized information system, Transition I (TSI). The TSI system attaches cost to a patient or procedure by using the internally calculated direct cost for each test or procedure, and by adding the cost for supplies and pharmaceuticals that are actually used for each individual patient. A major design issue that the TSI system has is that it does not add in the length of stay as the old system did.
Nursing Med/Surg department acuity level 1 daily rate is determined by the direct cost plus the indirect cost multiplied by quantity, or by dividing the allocated costs by the budgeted volume of days in acuity level 1. Budgeted cost for acuity level 1 was allocated as a percentage of the total budgeted minutes. The reciprocal method used allocates indirect costs to revenue-producing departments by using cost drivers that are indentified by BMC and simultaneously ???allocating cost associated with all indirect activities to revenue producing activities??? (Blocher, Stout, Cokins, & Chen, 2008, p. 12-7) I do believe the manner in which the TSI cost system allocates cost to patients is activity based since cost is determined based off of variable data collected by test, procedure, and actual cost for supplies and pharmaceuticals.
Blocher, E., Stout D., Cokins G., & Chen K. (2008). Brookwood medical center.
Advanced managerial accounting: cases and readings (2nd ed.). (pp. 12-7). United States: McGraw-Hill Companies, Inc.