Management Accounting In Hospital Case Study

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Management Accounting Systems in Hospitals for the Management of Expenses

Traditionally, accountants introduced Management Accounting Systems (MAS) to hospitals as a means of managing expenses. MAS analyze costs, resources and timeliness, associated with services provided by a hospital (Padovani, Orelli & Young 2014). An aspect of management accounting commonly used in hospitals is the Diagnosis-Related Group System (DRG System) (Hammad, Juosh & Oon 2010). The DRG System organizes patients into groups, based on their diagnosis. Each group has a pre-determined time and resource allowance that hospitals can spend on them. The government then refunds this allowance through Medicare (Toplicianu & Tabirca 2012).

Australian society
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In order to sustain sufficient high quality health care it is essential to make efficient use of resources (Quintana & Oritz 2003). The DRG System has been placed in hospitals to not only make reimbursements for patients treated but also as a means of constraining expenditure as hospitals administrators need to encourage staff to operate within the restraints of the reimbursements.

If the DRG System is found to not adequately reimburse or restrain use of resources, this could potentially lead to severe shortages of time and resources within hospitals (Hammad, Juosh & Oon 2010). In turn, hospitals will have increased expenses as their staff will be working overtime and more staff will need to be employed. Because of the increase in expenses, hospitals will need more funds allocated to them from the Health, Goods and Services Budget. Hospitals are already allocated 40% of the budget (Tatchell 2004). If their allocation is increased other health services such as dental, medicines and mental health will have a cut of money. Additionally, other areas of the financial budget may suffer if money is taken from them such as; education, disability services, public institutions and armed forces. Cuts to these areas of the budget could result in society getting less of the services they need to ensure their
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Stakeholder theory is the management of powerful stakeholders who control resources, for the vitality of the business (Rankin et al. 2012). As stakeholder theory puts forth, businesses (in this case hospitals) need to manage their powerful stakeholders who control resources (in this case employees), for the vitality of their company (Rausch, 2010). Employees can be managed by giving them more accountability and responsibility for the resources they use and their time spent with patients. In doing this it should make employees work more efficiently and in turn reduce hospital expenses (Rausch 2010).

The basis of this research is to determine whether the DRG System is working efficiently in hospitals by managing expenses, and whether other expense managing methods need to be introduced to hospitals. Despite some theorists finding that the DRG System does manage expenses in hospitals, a majority found it does not. Many suggested further research into management of employees through the delegation of accountability and responsibility, as a means of managing hospital expenses. Because of this conclusion, a hypothesis has been formulated:

Hospital expenses will be managed more efficiently through the management of employees. Management will be achieved by making them more accountable and responsible for how they use their time and

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