POSSIBILITIES AND CONSTRAINTS FOR IMPLEMENTATION OF FULL COSTING METHOD IN PUBLIC HOSPITALS IN CROATIA AND SLOVENIA

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1 POSSIBILITIES AND CONSTRAINTS FOR IMPLEMENTATION OF FULL COSTING METHOD IN PUBLIC HOSPITALS IN CROATIA AND SLOVENIA Ivana Dražić Lutilsky, PhD Faculty of Economics and Business, University of Zagreb Tatjana Jovanović, PhD Faculty of Public Administration, University of Ljubljana Davor Vašiček, PhD Faculty of Economics and Business, University of Rijeka

2 Introduction This paper presents possibilities and constraints for implementation of Activity Based Costing (ABC) method, as a full costing method, at public hospitals in Croatia and Slovenia. We investigated current practice and trends in developing cost allocation method at public hospitals in Croatia and Slovenia. Precisely, we analysed data gathered through conducted empirical research.

3 Current accounting system in NHS Modified accrual basis VS. accrual basis The basic features of accounting system show that it is impossible to directly confront revenues and the associated expenses, which is a fundamental premise for expressing real financial results. The expenditures incurred in the operation of earning income during the reporting period are recognized immediately after the occurrence, while in order for revenues to be recognized, claims must be charged.

4 Research methodology and data The principal area of research is to present the current opinion of accountants and financial officers in Croatian and Slovenian public health care institutions (hospitals) about possibilities and constraints regarding full costing implementation. To determine all of the above, an empirical survey using questionnaires was done in December 205 and January 206 in all Croatian public hospitals in order to gather the necessary data and in Slovenia in March, April and May 206. The questionnaires were sent by in an online form to accountant and financial officers in 57 Croatian public hospitals. Out of 57 public hospitals (59.65%) 34 responded to the questionnaire. In Slovenia out of 22 public hospitals (59.09%) 3 responded to the questionnaire.

5 Research questions the authors have studied following main research questions: RQ: What do they see as a main constraint in implementation of full costing method? RQ2: Is there a calculation of costs per patient or per provided service? RQ3: Are the accountants and financial officers in public hospitals ready for the implementation of the full cost approach for calculation of costs in order to track costs per patient or healthcare service?

6 RQ: What do they see as a main constraint in implementation of full costing method? First research question is investigating what accountants and financial officers see as main constraint in implementation of full costing methods. authors asked about their perception on constrains.

7 Constrains in implementation of full costing method in Croatia Constrains Response structure (%) Average Standard deviation Rank Human resources Financial resources IT support The long duration and complexity of the process Political and legislative support Support of administration and management of hospitals

8 Constrains in implementation of full costing method in Slovenia Constraints Response structure (%) Average Standard deviation Rank Human resources Financial resources IT support Long duration and complexity of the process Political and legislative support Support of administration and management of hospitals

9 RQ2: Is there a calculation of costs per patient or per provided service? In order to test the research question, the authors asked the respondents how they calculated costs and to rank the usage of cost accounting methodology from to 5, being the lowest and 5 being the highest grade of use.

10 Sign Tests for Median and Wilcoxon Signed Rank Test Results for Calculation of Costs Variable in Croatia Calculation of costs By nature for the whole hospital Per place of cost or organizational unit Per type of provided service (DRG and DTP) Statistical hypotheses Statistical test p-value Decision, significance level % H Sign test for median 0.06 H0 Wilcoxon signed rank test H0 H... 5 H Sign test for median H0 Wilcoxon signed rank test H0 H... 4 H Sign test for median H0 Wilcoxon signed rank test 0.0 H0 H... 3 Per type of service in H Sign test for median.000 H0 internal calculation of Wilcoxon signed rank test H0 costs H... 2 Per patient H Sign test for median H0 Wilcoxon signed rank test H0 H... 2

11 Sign Tests for Median and Wilcoxon Signed Rank Test Results for Calculation of Costs Variable in Slovenia Calculation of costs By nature for the whole hospital Per place of cost or organizational unit Per type of provided service (DRG and DTP) Per type of service in internal calculation of costs Statistical hypotheses Sample size H H... 5 H H... 5 H H... 4 H H... 4 Per patient H... 3 H Statistical test p- value Decision, significance level 5% Sign test for median H0 Wilcoxon signed rank test 0.37 H0 Sign test for median H0 Wilcoxon signed rank test 0.8 H0 Sign test for median H0 Wilcoxon signed rank test 0.6 H0 Sign test for median H0 Wilcoxon signed rank test H0 Sign test for median H0 Wilcoxon signed rank test 0.6 H0

12 Results of Tests on Assumed Proportion Value for Allocation of Direct and Indirect Costs in Croatia

13 Results of Tests on Assumed Proportion Value for Allocation of Direct and Indirect Costs in Slovenia Question Do you allocate direct costs to places of costs or organizational units? Do you allocate indirect costs to places of costs or organizational units? Alternative hypothesis... p 0.66 Number of yes answers in the sample Sample size Sample proportion p- value H H p 0.66

14 RQ3: Are the accountants and financial officers in public hospitals ready for the implementation of the full cost approach for calculation of costs in order to track costs per patient or healthcare service? To test the third research question we asked the respondents how they would improve the current accounting system and they answered with the implementation of the full costing approach for calculation of costs in order to track costs per patient or healthcare service. In Croatia 9% of respondents would improve the current accounting system with full costing method while in Slovenia 00% of respondents would implement full costing method.

15 Conclusion The qualitative analysis determines that the existent accounting model of public health care institutions in Croatia based on modified accrual basis does not allow for the confrontation of revenues and expenses and capitalization of the costs of acquiring fixed assets. Accountants and financial officers recognize the constraints to the implementation of the accrual accounting basis in the current accounting system. Furthermore, the authors investigate the current usage of cost accounting methodology in public hospitals. From the conducted statistical test, based on the accountants and financial officers responses, it can be concluded that the usage is very poor, since they currently calculate costs primarily by nature for the whole hospital and then per place of cost or organizational unit.

16 Allocation of direct and indirect costs is done mainly on the basis of place of cost or organizational unit and only a negligible number of accountants and financial officers calculate costs per type of provided service and per patient. That is the first level of cost allocation under traditional costing methods. The second level of cost allocation, i.e., allocation to patient and to provided service, is not done in public hospitals. Accountants and financial officers see the improvement of governance in public hospitals through implementation of the full costing approach for calculation of all costs in order to track costs per patient or per provided service.