Você está na página 1de 26

ISSUES IN ACCOUNTING EDUCATION

Vol. 24, No. 4


November 2009
pp. 553–577

Activity-Based Management in a Medical


Practice: A Case Study Emphasizing the
AICPA’s Core Competencies1
Gail Kaciuba and Gary H. Siegel
ABSTRACT: Activity-based management uses information from an activity-based cost-
ing (ABC) system for both recurring and nonrecurring management decisions. In this
case study, an ABC system that assigned only indirect costs to the final cost objects
has already been created and students must expand this ABC system to include the
assignment of direct costs to the cost objects, and then compare these total unit costs
to the revenue collected for each cost object. Students then analyze this cost and
revenue information to give advice to management about case mix, capacity con-
straints, and mergers.
In the health care industry, most medical practices have little control over customer
demand for services or the amount that a practice will be reimbursed for its services.
Students are asked to comment on the ethical and social implications of this fact, in
the context of the results of their profitability analyses for a particular thoracic surgery
practice. This case assists students in the development of a large number of compe-
tencies found in the AICPA Core Competency Framework.
Keywords: activity-based costing; activity-based management; AICPA core compe-
tency framework; critical thinking; group case study; health care
accounting.

A BRIEF INTRODUCTION TO THE HEALTH CARE INDUSTRY

T
he Office of Health Policy of the Assistant Secretary for Planning and Evaluation in
the Department of Health and Human Services released a study in 20052 that ana-
lyzed the effects of cost increases in health care on the U.S. economy. This report
states that 2003 spending in the U.S. was $1.67 trillion, or $5,670 per person. These costs
have been increasing at a rate that is nearly triple the rate of increase in the U.S. Gross
Domestic Product since the late 1990s. By 2002, 46 percent of all health care spending
came from public funding, up from 25 percent in 1960. Health care is a significant portion

Gail Kaciuba is a Professor at St. Mary’s University, and Gary H. Siegel was an Associate
Professor at DePaul University (now deceased).
We are grateful to all users of the case who assisted in its evolution. Two anonymous reviewers and an associate
editor provided extremely helpful input. This case study is dedicated to my coauthor and true friend, Gary Siegel,
who is sorely missed.
1
This case contains numerous tables that are best distributed to students as Microsoft Excel䉸 files, and supple-
mentary materials in Microsoft Word䉸 format for instructor use. To obtain electronic copies of these files please
email Gail Kaciuba at gkaciuba@stmarytx.edu.
2
See: http: / / aspe.hhs.gov / health / costgrowth / index.htm.

553
554 Kaciuba and Siegel

of the U.S. economy and U.S. health care policies and funding have a major impact on all
Americans.
Most physicians and surgeons in the U.S. receive a substantial portion of their revenues
from third-party payors (insurance companies or government Medicare or Medicaid reim-
bursements). In many instances, the amount a surgeon receives for a particular service has
declined over the years because doctors have less bargaining power with the U.S. govern-
ment and insurance companies than they had when they received payments from their
patients. This has made cost control in a medical practice more important than ever.

CASE INTRODUCTION
Thoracic surgeons treat diseases involving organs of the chest. Cardiac surgery (a type
of thoracic surgery) is the surgical management of diseases of the blood supply to the heart,
heart valves and the arteries and veins in the chest. Cardiac surgeons replace and repair
valves in the heart, install pacemakers, perform coronary artery bypass graft (CABG) sur-
gery for disease, treat cancers of the lung and esophagus, treat tumors of the chest, and
perform heart and lung transplants. General thoracic surgery, on the other hand, focuses on
treatments for problems of the lungs and esophagus.
Dr. Don Fannon and Dr. Dan Martens are two renowned thoracic surgeons. They are
graduates of the Stanford University School of Medicine and have each worked in the fields
of cardiac and thoracic surgery for more than 30 years. Both are frequent speakers at
medical conferences. In 1981, they formed the Fannon and Martens Cardiac and Thoracic
Surgery Medical Group (FMMG) in the San Francisco Bay Area.
Drs. Mikos, Cord, Carson, and Smith (MCCS) are also thoracic surgeons. They have
been practicing together in San Francisco for more than 11 years, and they have all known
Drs. Fannon and Marten of FMMG for just as long.
All six surgeons (the four from MCCS and the two from FMMG) attended last year’s
annual meeting of the Society of Thoracic Surgeons (STS), and during a break between
sessions, began talking about the way they manage their respective practices. There are
numerous differences between the two practices. For example, FMMG maintains a central
location—a traditional medical office—for patient examinations. Although they have sur-
gical privileges at several hospitals, all patients are seen in the exam rooms at the FMMG
office. Drs. Fannon and Marten prefer this, as it saves them (and their junior partner) a
great deal of travel time.
MCCS, on the other hand, maintains only an administrative office. That is, no patients
are seen at the MCCS office. All patient office visits are handled at examination rooms
close to the hospital where the surgery was performed or will be performed. Some of the
rooms where patients are examined are in the hospital itself, or in office facilities located
close to the hospital. Of course, MCCS’ patients prefer this as they have a shorter drive
for pre-op and post-op office visits, but the MCCS surgeons spend much more time com-
muting to various hospitals than do the FMMG surgeons.
After hearing of this arrangement, Drs. Fannon and Marten expressed surprise that their
MCCS colleagues would be willing to spend so much time on the road. Additionally, they
question their friends about the heavy fees they must pay for the occasional use of such
examination rooms in hospitals and ambulatory surgical centers. They are convinced that
MCCS is headed for trouble with such a strategy. However, the MCCS surgeons believe
that it is FMMG that has over-burdened itself with avoidable overhead. The MCCS surgeons
say that the office space they use is essentially free. That is, in almost all cases, they pay
nothing for the use of the space to examine patients. There is only one hospital that charges
them for the use of the space.

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 555

The two groups of surgeons agree to compare financial information about their practices
in order to determine who is right.

THE STS COST STUDY


Both FMMG and MCCS previously participated in a cost study project sponsored by
the Society of Thoracic Surgeons. This study built an activity-based costing (ABC) model
for indirect costs, which generated the cost of each process (activity) and the unit costs of
the four cost objects for the practices that participated in this study. Table 1 describes the
business processes that generate the indirect costs of these thoracic medical practices.
The Center for Medicare and Medicaid Services (CMS) administers U.S. government re-
imbursement to physicians giving care to persons covered under Medicare and Medicaid.
In the CMS nomenclature, these indirect costs are known as practice expense.
Table 2 gives the results of this cost study for FMMG, MCCS, and the average for the
practices that participated in the study. The assignment of process costs to the cost objects
in the study is shown in Figure 1. The costs of two of the processes, Sustain and Manage
Business and Maintain Facility, were not allocated directly to the cost objects. Rather, the
costs of these processes were allocated back to the other processes. Hence, the total costs
listed for these two processes are displayed for informational purposes only; these amounts
are included in the total process costs because they were already reallocated to the other
processes. Table 2 also lists the final indirect cost/unit for the four cost objects in this
study, the count for each of the four cost objects, and the number of full-time equivalent
(FTE) MDs.
According to CMS, the reimbursement to physicians for the work they perform is based
on three components: work, malpractice insurance, and practice expense. The work com-
ponent compensates physicians for the estimated time required by the physician to perform
a certain procedure. The more complex the procedure, the more time is required, and hence,
the greater the reimbursement. The work component is a reimbursement for the direct cost
of providing a medical service. Practice expense includes all the costs of running a medi-
cal practice other than physician compensation and malpractice insurance. In accounting
terms, practice expense is an indirect cost.
In the STS cost study, the purpose was to build and implement an ABC model for
practice expenses, the indirect costs of a medical practice. Therefore, information about the
direct costs (compensation to doctors and malpractice insurance) was not collected. Infor-
mation about the effort levels of the physicians across the types of services rendered was
not relevant because physician compensation is considered a direct cost. For this case,
however, we want to focus on practice profitability. Consequently, we have to add both
revenue and direct cost to the model.
Cost Objects in the STS Study
The ABC model built to determine the practice expense per unit of cost object identified
four major groups of services delivered by thoracic surgeons. These were the cost objects
for thoracic surgery, and are shown below.
● No-Charge Office Visits: These are the post-operative outpatient office visits that are
not chargeable within the ‘‘global period’’ (usually 90 days for most surgeries).
● Chargeable Office Visits: These are pre-operative visits or outpatient visits not within
the global period.
● Chargeable Hospital Visits: These are in-patient visits that could have been triggered
by the patient’s admission to an emergency room or post-operative visits not within
the global period.

Issues in Accounting Education, November 2009


556 Kaciuba and Siegel

TABLE 1
Medical and Business Activities (Processes) in the STS Cost Study

(1) Service Patients in Office


This is the process of treating and managing patients during office visits. Two categories of
patients are seen this way: initial office visit and post-op visits. The process includes all activities
necessary to service the patients including taking patient history, scheduling appointments, pre-
paring examination rooms, typing prescriptions, ordering tests, answering patient / family ques-
tions (in person and on the phone), transcribing dictation, completing disability forms, etc. This
process includes providing information and reports to the referring physician. The process does
not include maintaining medical records or obtaining insurance authorization—these are separate
processes.
(2) Service Patients in Hospital and Other Facilities
This is the process of treating patients in the hospital and interacting with patients and family
in the hospital. It includes making rounds, examining patients, etc.
(3) Obtain Insurance Authorization
This is the process of verifying insurance coverage, contacting the insurance company, HMO,
or Workers’ Compensation to obtain permission to provide services to a patient, etc.
(4) Maintain Medical Records
This is the process of collecting, entering, and copying information for patients’ medical charts.
It includes pulling charts and re-filing charts, etc.
(5) Schedule and Coordinate Surgery Patients in Hospital
This is the process of keeping track of patients in the hospital. It includes arranging patient
admissions, managing transportation of patients, scheduling physician rounds and surgeries,
keeping track of every patient in the hospital: where they are and why they are there, delivering
and picking up medical records, recording all daily physician services, scheduling physician
meetings, etc.
(6) Billing
This is the process of recording patient charges for services rendered and submitting claims to
insurance companies, Medicare, HMO, Workers’ Compensation, etc.
(7) Collect Payments
This process includes collecting funds from individuals, insurance companies, HMOs, etc., main-
taining accounts receivable records, making bank deposits, etc.
(8) Resolve Collection Disputes and Re-Bill Charges
This is the process of evaluating EOBs and working with insurance companies, HMOs, etc., to
resolve payment / billing disputes, submitting additional information to payors, rebilling, etc.
(9) Provide Information to Third Parties
This process involves providing information to third parties, such as attorneys, insurance com-
panies, etc. It does not include providing information to the referring physician.
(10) Teaching and Research
This is the process of conducting medical research and teaching medical students, interns, and
residents.
(11) Maintain Professional Education
This is the process of the physicians and office staff maintaining their respective intellectual
capital.
(12) Sustain Business by Managing and Coordinating Practice
This is the process of running the business side of a medical practice. Activities include general
office management, STS database reporting, accounting, marketing, negotiating contracts, com-
plying with regulatory requirements, managing human resources, taxes, etc.
(13) Maintain Facility
This is the process of maintaining an environment in which to practice medicine and run the
business. It includes negotiating leases, acquiring medical and office equipment, installing com-
munications systems, etc.

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 557

TABLE 2
Process Costs and Practice Information from the STS Cost Study

Database Process
Total Cost of Processes MCCS FMMG Average Abbvn
Service Patients in the Office $39,970 $347,045 $212,046 SPO
Service Patients in the Hospital $94,018 $186,764 $173,192 SPH
Obtain Insurance Authorization (a) $94,743 $45,930 $28,991 Auth
Billing (a) $20,487 $64,950 $45,352 Bill
Collect Payments (a) $17,979 $54,199 $26,234 Collect
Resolve Collection Disputes (a) $13,799 $58,333 $32,792 Disputes
Maintain Medical Records $43,342 $69,705 $57,133 MMR
Schedule & Coordinate Surgeries $121,783 $30,915 $36,415 Sched
Provide Information to 3rd Parties $23,805 $16,989 $17,230 3rd pties
Teaching & Research $0 $0 $297 T&R
Maintain Professional Education $51,411 $31,118 $37,163 MPE
Total $521,337 $905,948 $666,845

(a) Total Reimbursement Processes $147,008 $223,412 $133,369 Reimb


Sustain & Manage Business $191,547 $153,906 $170,211 Sust Bus
Maintain Facility $59,429 $223,180 $121,203 Facility

Number of MDs 4 3 4.1


Number of no-charge office visits 1,424 1,188 1,038
Number of charge office visits 288 1,975 422
Number of charge hospital visits 530 779 97
Number of surgeries / procedures 1,312 639 727

Indirect cost/ unit:


No-charge office visit $41 $139 $190
Charge office visit $82 $169 $227
Charge hospital visit $26 $45 $66
Surgery $324 $581 $505
Note: Of the total practice expense for MCCS, $24,000 is for rental fees for examination rooms, $94,000 is for
automobile leases and expenses, and $44,000 was for rent expense for the administrative offices. The $24,000
was assigned to Service Patients in the Office, the $94,000 was assigned to Service Patients in the Hospital, and
the $44,000 was assigned to Maintain Facility.

● Surgeries and Procedures: Although a surgeon’s effort across types of surgeries or


procedures varies greatly, there is not a large difference in the administrative resources
consumed by a minor surgery or a major surgery. Therefore, the original ABC model
grouped all surgeries and procedures together so that the practice expense assigned to
each surgery was the same.
A distinction is made between chargeable and no-charge office visits because they
consume activities differently. No-charge office visits do not require the staff to obtain
insurance authorization (because the authorization for the surgery includes the follow-up
office visits) or to process the collection of payments. However, a bill for $0 is prepared
for a no-charge office visit. Therefore, the CPT codes for chargeable office visits were

Issues in Accounting Education, November 2009


558 Kaciuba and Siegel

FIGURE 1
Flow of Process Costs to Cost Objects in the STS Cost Study

Processes Cost Objects


Service Patients in the Office

Service Patients in the Hosp.


No-Charge Office Visits

Obtain Ins. Authorization

Billing

Collect Payments
Charge Office Visits

Resolve Collect’n Disputes

Maintain Medical Records

Schedule & Coordin. Surgeries Charge Hospital Visits

Provide Info to 3rd Parties

Teaching & Research

Maintain Profess’l Education Surgeries/Procedures

Sust. & Manage Business

Maintain Facility

The lines show how process costs were assigned to the cost objects in the STS Cost Study, using various cost
drivers. For example, Service Patients in the Office Process costs were assigned to No-Charge Office Visits and
Charge Office Visits. Maintain Medical Records and Billing process costs were assigned to all four cost objects.

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 559

bundled as a separate cost object from the CPT codes for no-charge office visits because
they consume process costs differently.
All chargeable office visits, regardless of length or physician services provided, were
considered as a single cost object because these office visits consume practice expense at
about the same rate. A chargeable hospital visit does not usually require insurance author-
ization as this authorization is linked to the surgery, and it does not consume any office-
related processes.
All surgeries and procedures, regardless of complexity, consumed about the same
amount of practice expense. Therefore, all surgical CPT codes were bundled together as a
single cost object.

Expanding the Model to Include Direct Costs


In order to expand the ABC model to include direct costs such as physician compen-
sation and malpractice insurance, the number of cost objects must be increased. This is
because, within each major cost object category, there are a number of different services
rendered. For example, office visits and surgeries vary widely in terms of the amount of
physician time consumed. MCCS has been maintaining records that will allow for a rea-
sonable grouping of the CPT codes3 when different surgeon effort levels are taken into
consideration. MCCS uses, in addition to the No-Charge Office Visit code, six different
codes for Chargeable Office Visits (Outpatient E&M4 codes) and seven different codes for
Chargeable Hospital Visits (Inpatient E&M codes). In order to better manage information
for decision-making purposes, Linda, the MCCS practice manager, has grouped the surgical/
procedural codes that MCCS uses into 11 categories that represent the ‘‘product lines’’ of
MCCS. These categories are:
● CABG (Coronary Artery Bypass Graft)
● Renal access (the vascular connection between the patient and a hemodialysis machine,
where cleansing of the blood takes place for persons with kidney disease)
● Vascular surgeries (for example, removal of obstructions in veins or arteries)
● Bronch/Mediastinoscopy (surgical procedure to allow physicians to view areas of the
cavity behind the breastbone)
● Thoracotomy (lung cancer surgery)
● Tracheostomy (for emergencies or patients on long-term ventilation)
● Pacemakers (insertion and management)
● Debridement (removing nonliving tissue from wounds)
● Other cardiac surgeries
● Valve repair and replacement (to correct a malfunctioning heart valve)
● Other surgeries
Table 3 gives additional information about the direct costs MCCS incurs for each of
these, as well as estimates for the amount of doctor time spent, on average, for the various
cost objects. Surprisingly, MCCS’ malpractice insurance costs are computed based on the
practice’s geographical region, its volume, its broad specialty (e.g. thoracic and/or cardiac
surgery), and the practice’s claims experience. The specific case mix for the practice is not
taken into consideration in determining malpractice rates. Since MCCS’ geographic location

3
CPT codes are used in billing Medicare and other third-party payors. There is a code (designated as either
a CPT code or a HCPCS code) for each type of service offered by a medical practice.
4
The codes that are used for in-patient and outpatient consultations with the surgeon are called Evaluation and
Management (E&M) codes.

Issues in Accounting Education, November 2009


560 Kaciuba and Siegel

TABLE 3
MCCS’ Direct Costs and Direct Cost Drivers

Direct Costs:
Malpractice insurance $329,976
Doctors’ compensation $2,020,775
Total direct costs $2,350,751

Avg MD Total MD
Information about Cost Objects: Minutes Count Minutes
No-Charge office visit 20 1424 28,480

Chargeable office visits:


99213⫽Office / outpatient visit, est level 1 15 18 270
99214⫽Office / outpatient visit, est level 2 25 7 175
99242⫽Office consultation, level 1 30 14 420
99243⫽Office consultation, level 2 40 45 1,800
99244⫽Office consultation, level 3 60 117 7,020
99245⫽Office consultation, level 4 80 87 6,960
Total chargeable office visits 288 16,645

Chargeable hospital visits:


99251⫽Initial inpatient consult, level 1 20 5 100
99252⫽Initial inpatient consult, level 2 32 20 640
99253⫽Initial inpatient consult, level 3 45 99 4,455
99254⫽Initial inpatient consult, level 4 65 184 11,960
99255⫽Initial inpatient consult, level 5 88 217 19,096
99262⫽Follow-up inpatient consult, level 2 20 4 80
99263⫽Follow-up inpatient consult, level 3 30 1 30
530 36,361

Surgeries / procedures:
Coronary Artery Bypass Graft (CABG) 320 421 134,720
Renal Access 243 18 4,374
Vascular 163 68 11,084
Bronch / Mediastinoscopy 125 82 10,250
Thoracotomy 132 223 29,436
Trach 75 60 4,500
Pacemaker / AICD 128 53 6,784
Debridement 54 20 1,080
Other cardiac surgery 220 151 33,220
Valve repair/ replacement 248 134 33,232
Other surgery 200 82 16,400
1312 285,080

Total MD minutes for all services rendered 366,566

and its specialty are fixed, the MCCS surgeons feel that they can decrease malpractice
premiums only by reducing the limits of coverage, reducing patient volume, or attempting
to reduce malpractice claims. The first two alternatives are not seen as viable by the MCCS
surgeons, and they feel they already use all their expertise and resources to minimize
malpractice claims. The surgeons therefore feel that the cost of malpractice insurance is

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 561

not within their control. Most malpractice claims come from patients that have had a surgery
or procedure, and to date MCCS has never been found to be liable for any claim (although
the insurance company has sometimes settled with the plaintiff). MCCS has not noticed a
pattern where these claims are associated with a specific type of surgery or procedure.

Expanding the Model to Include Revenues


In today’s environment of managed care and decreasing Medicare and other third-party
reimbursements, surgeons are receiving less for their services than they were under the fee-
for-service circumstances of the past. MCCS continues to bill for its services for amounts
that are considered ‘‘usual and customary’’ charges. Of course, the practice most often does
not receive a reimbursement anywhere close to what was billed. It is not unusual to see a
ratio of collections to charges (amounts billed) of about 33 percent.
Table 4 presents billing and collection information, as well as count information, about
MCCS’ services by payor category. The collections listed for Medicare include CMS’ three
components of reimbursement. In other words, these amounts are intended to reimburse a
surgeon for practice expense, malpractice insurance costs, and his or her time. Linda has
grouped MCCS’ payors into the following categories:
● Medicare: Medicare reimbursements are computed using a formula based on RBRVUs
(resource-based relative value units), which are indices of average physician time, ex-
perience, and risk for a surgery. A surgeon will receive only the computed reimburse-
ment for a particular service, regardless of the amount billed for that service. Often
Medicare patients have supplemental health insurance that covers amounts or services
that Medicare does not cover. Linda categorizes reimbursements received under these
Medicare supplemental policies as payments for a Medicare patient.
● BCBS: A reasonable number of MCCS’ patients carry Blue Cross/Blue Shield health
insurance where BCBS pays MCCS a reimbursement that is computed based on (al-
though it is higher than) the Medicare amount. Usually patients must pay a percentage
of the covered amount (patient’s co-pay), up to an annual limit, and the BCBS policy
pays the remainder. Linda includes the BCBS payments, as well as the co-pay from a
BCBS patient, in this category.
● Commercial: A local laborers’ union provides health insurance coverage for its mem-
bers. The union is self-insured, so that all reimbursements are paid to the physician
directly, and the members are free to choose the physician of their choice. Depending
on the nature of the individual’s membership, a small co-pay is sometimes required of
the patient. Remittances from the union and the patient are included in this category.
● Department of Public Aid (DPA): A state-sponsored program pays a portion of the
medical bills of individuals in financial distress.
● Managed care: This is the term Linda applies to the discounted fee arrangements that
MCCS has with some hospitals and health care networks. It is not a ‘‘capitated con-
tract’’ in the sense that MCCS receives a flat amount per member per month to be the
specialist provider of cardiac/thoracic services to a network of enrollees in a Health
Maintenance Organization (HMO). Rather, MCCS is compensated by the healthcare
networks based on a predetermined fee schedule.

Additional Information about FMMG and MCCS


FMMG consists of two senior partners and one junior partner, all thoracic surgeons
who work full-time at the practice. FMMG employs 1.8 FTE physician assistants who assist
the surgeons in the operating room and 5.1 FTE administrative staff. All FMMG personnel

Issues in Accounting Education, November 2009


Issues in Accounting Education, November 2009

562
TABLE 4
MCCS’ Case Mix Billing and Collection Information

Number of Units of Service Amount Billed


Medicare BCBS Comm DPA Mgd Care Medicare BCBS Comm DPA Mgd Care Total
No-Charge OV 707 182 81 100 354
Chargeable OV 162 94 17 6 9 $29,160 $17,326 $3,133 $1,106 $1,659 $52,384
Chargeable HV: 252 62 55 19 142 $59,427 $14,589 $12,942 $4,471 $33,414 $124,843
Surgeries / Procedures
CABG 229 38 12 17 125 $2,518,435 $417,906 $131,970 $186,958 $1,374,691 $4,629,961
Renal 6 4 3 1 4 $46,010 $30,673 $23,005 $7,668 $30,673 $138,030
Vascular 39 9 5 4 11 $397,999 $91,846 $51,025 $40,820 $112,256 $693,946
Bronch 33 12 6 12 19 $113,841 $41,397 $20,698 $41,397 $65,545 $282,878
Thoracot 111 31 10 7 64 $397,196 $110,929 $35,783 $25,048 $229,014 $797,971
Trach 18 6 8 13 15 $29,563 $9,854 $13,139 $21,351 $24,636 $98,544
Pacemaker 20 11 5 3 14 $187,990 $103,395 $46,998 $28,199 $131,593 $498,174
Debridement 11 2 1 2 4 $24,969 $4,540 $2,270 $4,540 $9,080 $45,399
Other cardiac 85 21 8 15 22 $157,530 $38,919 $14,826 $27,799 $40,773 $279,848
Valve rep 72 17 11 6 28 $481,856 $113,772 $73,617 $40,155 $187,389 $896,788
Other surgery 27 17 6 12 20 $160,180 $100,854 $35,596 $71,191 $118,652 $486,473
651 168 75 92 326 $4,515,570 $1,064,085 $448,928 $495,127 $2,324,302 $8,848,012
1772 506 228 217 831 $4,604,157 $1,096,000 $465,004 $500,704 $2,359,375 $9,025,239

Kaciuba and Siegel


(continued on next page)
Activity-Based Management in a Medical Practice
TABLE 4 (continued)

Number of Units of Service Amount Collected


Medicare BCBS Comm DPA Mgd Care Medicare BCBS Comm DPA Mgd Care Total
No-Charge OV 707 182 81 100 354
Chargeable OV 162 94 17 6 9 $19,826 $12,112 $2,977 $332 $419 $35,665
Chargeable HV: 252 62 55 19 142 $39,973 $13,421 $12,295 $2,912 $9,555 $78,155
Surgeries / Procedures
CABG 229 38 12 17 125 $1,016,302 $308,356 $123,120 $56,082 $346,844 $1,850,704
Renal 6 4 3 1 4 $17,588 $17,409 $21,843 $1,852 $7,014 $65,707
Vascular 39 9 5 4 11 $158,791 $59,220 $45,624 $11,333 $18,211 $293,179
Bronch 33 12 6 12 19 $44,992 $23,790 $19,320 $10,800 $16,422 $115,324
Issues in Accounting Education, November 2009

Thoracot 111 31 10 7 64 $158,467 $69,109 $33,422 $7,012 $56,873 $324,883


Trach 18 6 8 13 15 $14,944 $6,839 $12,540 $4,215 $7,262 $45,800
Pacemaker 20 11 5 3 14 $75,948 $66,415 $44,478 $6,214 $35,425 $228,480
Debridement 11 2 1 2 4 $12,088 $3,128 $2,012 $855 $3,306 $21,389
Other cardiac 85 21 8 15 22 $61,642 $23,247 $13,844 $6,188 $12,589 $117,510
Valve rep 72 17 11 6 28 $214,670 $73,880 $71,821 $5,411 $43,519 $409,301
Other surgery 27 17 6 12 20 $69,713 $60,832 $34,826 $14,222 $29,124 $208,717
651 168 75 92 326 $1,845,145 $712,225 $422,850 $124,184 $576,589 $3,680,993
1772 506 228 217 831 $1,904,943 $737,758 $438,122 $127,428 $586,563 $3,794,814

563
564 Kaciuba and Siegel

work at the practice’s office, which contains office space for the doctors, examination rooms,
waiting rooms, and administrative offices.
MCCS maintains only administrative office space for their 3.0 FTE administrative staff.
The four surgeons have their own individual offices in their homes. These home offices are
used mostly for the maintenance of their professional education, as the practice manager
in the firm’s administrative office handles all administrative work. (MCCS does not com-
pensate the doctors for the cost of maintaining their home offices.) MCCS has relationships
with several hospitals and ambulatory surgical centers. Under most of these arrangements,
the facility that contains the operating room bills the patient or the patient’s health care
provider for the use of the operating room, and this charge includes patient pre-operative
and post-operative office visits in examination rooms either in or adjacent to the facility.
In only one instance is MCCS billed for the use of these examination rooms, and MCCS
rents this space only on Tuesday mornings. This rental fee is $24,000 per year.

CASE REQUIREMENTS
When responding to the questions below, include tables and graphs or charts that will
help the reader better understand your discussion. The References section provides a list
of texts and articles on Activity-Based Costing, if you would like to refresh your under-
standing of this topic. Many of these questions are designed to help you increase your
strengths in the AICPA’s Core Competencies. It would be helpful to your progress in
your education if you familiarize yourself with the AICPA Core Competency Framework,
which describes the skills and abilities the profession feels are necessary for persons en-
tering the accounting profession. The Framework is located at http://www.aicpa.org/edu/
corecomp.htm.
1. The results of the ABC model that assigned indirect costs (practice expense) to the bus-
iness processes is shown for MCCS, FMMG, and the database average (from the STS
study) in Table 2. Compare the process costs shown and comment on the differences.
Pay particular attention to the reimbursement processes, comparing both the bundled
(all four sub-processes included) and the unbundled costs of the reimbursement process.
Make sure you consider size effects in this comparison. Also compare the MCCS,
FMMG, and the Database Average patient encounters per surgeon. How do the different
business models used by the two practices show up in these comparisons?
2. Based on your answer to Question 1 and the information in Table 2 and elsewhere in
this case, what can you say about the advantages and disadvantages of a merger of
MCCS and FMMG? What additional information would FMMG and MCCS need in
order to evaluate the pros and cons of such a potential merger? In your response, try
to consider issues such as patient mix, case mix, the surgeons’ specialty areas, the
different business models used by the two practices, and the effects on the employees,
patients, surgeons, and the community.
3. Use the information presented in Table 3 to expand the ABC model for MCCS to
include the direct costs. Determine the doctors’ compensation and the malpractice costs
per unit for each cost object. Compute the total unit cost for each cost object before
doctors’ compensation is included by adding the malpractice unit costs and the indirect
unit costs from Table 2. In order to do that, you will need to determine a methodology
for assigning doctors’ compensation cost to the cost objects, and a methodology for
assigning malpractice insurance cost to the cost objects. Make sure your response fully
describes each of these methodologies and support your reasons for choosing them.
For example, should malpractice costs be assigned to each and every cost object? Why

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 565

or why not? Should malpractice costs be assigned equally to each relevant cost object
or should they be assigned in proportion to some cost driver? Why? Which cost driver
did you use to assign doctors’ compensation to the cost objects and why? Also compute
a total unit cost for each cost object that includes doctors’ compensation. Discuss these
results in your write-up, and include comments as to why the cost objects are different
for this question than they were in the model that only assigned indirect costs to four
cost objects.
4. Use the information in Table 4 to compute the average collected revenue per unit for
each of the surgery/procedure cost objects, and compare it to the unit costs (direct plus
indirect) assigned to that cost object. Compute the profit per unit both before MD
compensation is included and after MD compensation is included. What is the most
profitable ‘‘product line’’ for MCCS? What are the reasons it is more profitable? For
example, is the collection rate higher? Are the costs lower? How does this break down
by payor class? Given that the surgeons are the business owners and can take business
profits in the form of compensation or partnership distributions, do you think MD
compensation should be included as a cost in the profitability analysis? Prepare the
most useful profitability analysis that you can and interpret it for Linda and the MCCS
surgeons. Do you have any advice for MCCS?
5. Given that a surgeon can only work a certain number of hours per year, what can you
say about the profitability of the cost objects when this constraint is taken into consid-
eration? Compute the profit per MD minute for each cost object. Think about the
allocation of scarce resources when making product mix decisions. What is the scarce
resource in a medical practice? Is it always scarce? What role does capacity play in a
medical practice? Do you have any advice for MCCS?
6. Prepare an analysis of the profitability by payor for the CABG and pacemaker services.
Which payor (like a ‘‘customer’’) is more profitable with respect to CABG services?
With respect to pacemaker services? Explain. Do you have any advice for MCCS?
7. Linda stated that the number of no-charge office visits in the post-surgery global period
varies widely for different types of patients. Patients over age 65 who have a CABG
surgery come in for an average of five such visits after surgery. Most of these patients
are covered by Medicare. On the other hand, patients under 65 who have this surgery
often only come back for two such visits. She believes that most of these types of
patients are covered by BCBS. Extend your analysis from Question 6 so that the cost
of a CABG for different payors (consider only Medicare and BCBS) includes the
costs of the average number of no-charge office visits. What advice do you have for
MCCS?
8. Suppose that the MCCS surgeons actually work 80 hours per week each, 50 weeks per
year (not every work hour is ‘‘billable,’’ as they spend time studying new medical
procedures and drugs and managing the business). Now comment on the ethical and
social policy issues raised by your analyses in earlier questions. Should government
play a role if surgeons make decisions that are best for their practices’ profitability but
perhaps not best for society? Explain, and make sure to consider the long-term rami-
fications of your suggestions. For a good approach to moral reasoning, see ‘‘Thinking
Ethically: A Framework for Moral Decision Making,’’ developed by Velasquez et al.,
and located at http://www.scu.edu/ethics/publications/iie/v7n1/thinking.html.

Issues in Accounting Education, November 2009


566 Kaciuba and Siegel

CASE LEARNING OBJECTIVES AND IMPLEMENTATION GUIDANCE


Overview and Objectives
This case is based on an actual project that designed and implemented activity-based
costing systems at a number of thoracic surgery medical practices and the data is real. We
have used various versions of this case in class at three different universities for over five
years. Different aspects of this case were presented at AAA meetings over the years; we
were asked several times for the teaching notes, and know that the case has been used by
other professors as well. We always assign the case as a group project and the groups are
given most of the academic term to work on it.
We realize that many instructors do not favor group projects as it sometimes requires
them to be the mediator for group disagreements. This has not been our experience since
we implemented the use of the group member evaluation form. We have had situations
where three group members in a group of four submitted evaluation forms stating that the
fourth member did not contribute at all. The participating group members knew throughout
the project that the fourth member would not receive any credit for the case, and this may
be the reason they did not come to us to intervene. However, it is possible to use the case
as an individual assignment. We believe this would best be done in a graduate class, and
the instructor should request interim project due dates to check the progress of each indi-
vidual student.
Undergraduate accounting or M.B.A. students should graduate with the ability to an-
alyze data, even if the quantity of data seems at first overwhelming, and synthesize what
they learned from the analysis into coherent responses to open-ended questions. This, in
fact, is a key element in critical thinking. (See, for example, the 2006 College Faculty
Handbook, found under the ‘‘resources’’ tab on http://www.WolcottLynch.com.) The orig-
inal purpose of this case was to strengthen students’ analytical and critical thinking skills,
but it actually covers even more of the competencies in the AICPA Core Competency
Framework.5 The coverage of the competencies listed below represents the learning objec-
tives for this case study.
The AICPA Core Competency Framework (the Framework) is an outgrowth of the CPA
Vision Project. It was developed after extensive communication with the profession about
the necessary competencies of all persons entering the accounting profession. It provides the
means for educators to categorize the knowledge, skills, and abilities they hope to develop
in their students. However, the Framework itself does not discuss how these competencies
should be developed. An excellent tool for accounting educators is the AICPA’s Educational
Competency Assessment website.6 This website discusses the various levels of each com-
petency and, according to the research upon which the website is based,7 students must
achieve each competency level sequentially. We strongly suggest that the instructor utilize
a bit of class time to discuss the AICPA Core Competency Framework, and maybe even
the levels of each competency, so that students understand why we assign projects like this
case.
The Framework places these competencies into three groupings, one of which is the
Broad Business Perspective category. Competency elements in this category allow for a

5
The AICPA Core Competency Framework can be found at http: / / www.aicpa.org / edu / corecomp.htm.
6
Go to http: / / www.aicpa-eca.org / library / ccf / competencies. You must register, but it is free. Choose the Library
tab, then choose Core Competency Database.
7
King, P. M., and K. S. Kitchener. 1994. Developing Reflective Judgment: Understanding and Promoting Intel-
lectual Growth and Critical Thinking in Adolescents and Adults. San Francisco, CA: Jossey-Bass.

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 567

new accounting professional to understand both internal and external business environ-
ments. This case gives students practice in several elements of this competency category.
For example:
● Strategic/Critical Thinking: The case questions are quite open-ended and request that
students evaluate the pros and cons of a potential merger, locate and discuss the
strengths and weaknesses of one business model over another, and interpret accounting
information in a new and unfamiliar context. Level 1 of this competency includes the
ability to identify uncertainties about an organization’s strengths, weaknesses, oppor-
tunities, and threats, and the ability to analyze strategic information is a Level 2 skill.
For an undergraduate class of juniors or seniors, it is likely that students will only
exhibit these skills to Level 2. In a graduate class, however, you may see students with
skills at Level 3, which includes the ability to list pros and cons for various decisions.
Just about every question in this case requires students to use strategic and/or critical
thinking skills.
● Resource Management: Question 5 in this case is specifically targeted at this compe-
tency. As students work on the case they realize that the doctors in the case are them-
selves the resource to be managed and allocated to the various services rendered by
the surgical practice. The ability to identify the scarce resources in an organization,
and to understand that there are uncertainties about resource availability, is a Level 1
skill in this competency. At Level 2, students should be able to discuss how the MCCS
surgeons should make decisions when they are at or near full capacity. Question 8 in
this case emphasizes Level 3 of this competency by asking students to discuss the
social costs and benefits that come from the business decisions of surgeons, such as
those at MCCS, when faced with capacity constraints. In our experience, undergraduate
students are likely to exhibit low Level 3 skills here, but graduate students may be able
to demonstrate Level 4 skills and describe how these social costs and benefits may
change as the environment (e.g., demographics) changes.
● Marketing/Client Focus: In Questions 4 and 6 of the case, we ask students to determine
the profitability of the product lines and the payors for MCCS. This makes them con-
sider uncertainties about its relationship with its customers, which is a Level 1 skill in
this competency. Students should be able to recognize that MCCS can define either the
patients or the insurance companies as the customer, and understand the expectations
of each. This is Level 2 for this competency.
Another category of competencies in the Framework is the Functional Competencies,
which are the skills that allow accountants entering the profession to assess pros and cons
of alternatives and implement decisions. The questions in this case give students practice
on these elements of the Functional Competency category:
● Decision Modeling: In this case students are asked to analyze relevant data and then
offer advice to the medical practice on issues such as case mix, evaluation of third-
party payors, and a possible merger. They must identify the problems (Level 1) and
consider alternative solutions (Level 2), given in the form of advice to the surgeons
(supporting their decisions with their quantitative analyses is Level 3). We believe that
undergraduate students will perform at a low Level 3 (the analysis might not perfectly
support the decision), but graduate students should perform at a high Level 3.
● Measurement: The case requires students to determine the best measurement to use
when comparing the costs of different medical practices. No guidance (except ‘‘re-
member to remove size effects’’) is given in Question 1, and the case write-up must

Issues in Accounting Education, November 2009


568 Kaciuba and Siegel

include their reasoning as to why a particular measurement methodology was chosen.


The ability to identify what needs to be measured is a Level 1 skill, and being able to
describe the pros and cons of alternative measurement methods is Level 2. If students
are able to successfully defend why their methodology for normalizing costs in Ques-
tion 1 is relevant, then they are exhibiting skills at Level 3. Similarly, a cost assignment
process must be chosen for two direct costs in Question 3, and the reasoning for the
designed process must be given. We have found that undergraduates usually show skill
Level 2 abilities for these two questions and graduates exhibit Level 3 skills.
● Reporting: The end result of this case is a lengthy report. Group members will have
had the opportunity to merge various files into one Word䉸 document, which will include
tables and charts from Excel䉸. The professional appearance (format, communication
abilities displayed, etc.) is assessed as part of the score for the case, as is the group’s
ability to clearly communicate their thoughts. Level 1 skills for this competency are
not tested with this case; Level 1 skills include being able to list the information that
is relevant to a given report, and the case questions proscribe what needs to be included
in their final report. Usually both undergraduate and graduate students are able to
provide reports that are at Level 3; the reports describe the work the group performed
and the conclusions reached in ways that make the report useful to the reader.
● Leverage Technology to Develop and Enhance Functional Competencies: This case
gives students a good experience working with Word䉸 and Excel䉸. Using electronic
spreadsheets to model solutions to questions posed is a Level 2 skill.
Finally, the Framework includes a category called Personal Competencies, which en-
hance the way a new professional works with others. As a group assignment, this case
provides opportunities for students to improve the following skills:
● Professional Demeanor: In our experience, students often demand more of themselves
in a group setting, so as to not let down their colleagues. Group members must prepare
for meetings or promptly respond to discussion board postings by uploading additional
analyses. Further, group members must consider various potential responses to ques-
tions and come to a consensus. These all represent Level 2 skills in this competency.
Question 8 in the case asks the students to consider the social implications of the
surgeons’ decisions, and this is a Level 3 skill.
● Problem Solving and Decision Making: Every question in this case poses a problem in
vague terms and requests analysis and a decision. Students must reevaluate initial anal-
yses prepared for a case question in order to respond to a subsequent question. When
they identify the information needed to answer a specific question, this is a Level 1
skill. Considering how to approach the solution is a Level 2 skill, and the ability to
seek consensus in the group requires Level 3 skills.
● Interaction: Students are told that this case cannot be handled by assigning various
questions of the case to specific group members and then collating these results. The
questions are interdependent, and the case must be self-consistent. For example, if a
group member used a particular method to normalize process costs of the different med-
ical practices, the group member assigned to a later question cannot use a different
method. Group interaction for every question is essential. Being able to work in a team
to achieve a common goal is a Level 1 skill, and interacting cooperatively and produc-
tively within the team shows Level 2 skills. At Level 3 of this competency, students
will, as team members, freely accept the input of all team members, and at Level 4, a
team member acts as a mentor to the team or a particular team member. It is difficult
for us to see the students’ progress on this competency, as we only see their final

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 569

submission. The only information available is the comments we get from students either
orally or in their group member evaluation forms. Surprisingly, our anecdotal evidence
here is that undergraduate students perform at a higher level in this competency than
do graduate students. It may be that graduate students are also often employed full-
time and less likely to act as mentors due to time constraints.
● Communication: The magnitude of the final product and the dynamics of the group
environment require students to work on their communication skills. Additionally, each
group is given its own webpage within Blackboard or WebCT, complete with email,
discussion board, digital drop box, chat rooms, and virtual classrooms. This is often a
new means of communication for the students but we have found they make very good
use of many of these tools. We see all students exhibit a Level 1 skill here in that they
identify uncertainties about the best way to communicate. Postings on the group dis-
cussion board show that they take a few iterations to figure out whether they should
all commit to checking the discussion board daily or whether they should use email or
a cell phone to let group members know that something has been posted. Level 2 skills
here include the ability to place information in an appropriate context, but we can
assess this only for the group, which usually represents the person with the best writing
skills. Similarly, Level 3 skills can only be assessed for the group as they include the
capacity to display information so that it is meaningful to the reader.
● Project Management: The groups have approximately eight (under the quarter system)
or 12 (under the semester system) weeks to complete this project. To assist students in
the development of their project management skills, we usually provide interim dead-
lines for submission of drafts. However, within these deadlines, it is up to the groups
to manage the disparate schedules of the group members so that the project is completed
in a timely fashion. At Level 1, students can identify project goals and determine what
information is relevant to achieving that goal. When group members use methods to
measure the project’s progress, these are Level 2 skills. The facility to prioritize and
delegate is a Level 3 skill, and Level 4 skills include the capacity to effectively manage
the human resources assigned to the project. All four skill levels are needed in this
case study.

Implementation Guidance
We have used this case in several different settings and several different ways. Our
experience allows us to give advice on the audience, managing the case in the classroom,
and assessing the case.

Suggested Audience
Most frequently this case is used in an undergraduate cost accounting class with most
students being accounting majors. However, we have successfully used this case in a Mas-
ters in Accountancy program and in M.B.A. programs. When using the case in a graduate
setting, we change only our expectations for the results and we do not change the case.
Students should have been exposed to the concepts of direct and indirect costs, fixed and
variable costs, and activity-based costing. Most cost accounting texts include an early chap-
ter that reviews cost concepts, which should act as a refresher for students in a cost ac-
counting course. This is usually the first chapter we cover. Next, we usually cover the
chapter on job-order costing as it helps students remember the basics of assigning costs to
cost objects. After that, we go immediately to the activity-based costing chapter, and often
cover that material in the context of this case study. By the third week of class, we feel
that this gives the students enough background information to begin the case study.

Issues in Accounting Education, November 2009


570 Kaciuba and Siegel

Managing the Case in the Classroom


We use this case as a group case, where students are organized into groups very early
in the academic term. Sometimes we let students self-select into groups and give only a
minimum and maximum for group size, but we have also assigned students to groups using
various criteria. The case is introduced in class as soon as the required concepts (discussed
under the previous subsection) are covered. A discussion of the case and the approach the
groups should take to managing the project usually takes about 30 minutes. The case is
worth a large portion of the course grade (usually 20–25 percent) in order to provide the
incentive for groups to work hard on the case study.
We provide a lot of support for the groups. A website dedicated to the group is created,
as mentioned earlier, and this is an important case tool because students have such different
schedules. We monitor the groups’ communication on these sites and drop helpful hints on
their discussion boards when they seem to be getting off track. Occasionally, a few minutes
of class time is dedicated to group meetings. It’s best if students are given a set of instruc-
tions and examples of completed case scoring rubrics and group member evaluation forms.
(See Exhibits 1–3 in the Appendix.) In the past we have also uploaded examples of good,
mediocre, and poor case submissions for a similar, but different, case study so that students
see what we expect.
We refer to the case study often when we cover the topics in cost accounting. For
example, when we introduce the case we relate the case material to the cost behavior
concepts with which they are already familiar. There is no information in the case that tells
students which costs are fixed and which are variable, but after discussing the process costs
and which types of costs are likely to be assigned to each process, the students are able to
make informed choices on costs classifications. Students suggest, for example, that rent is
probably included in the Maintain Facility process cost, and staff wages or salaries are
likely included in the Service Patients in the Office process cost. Rent, they immediately
recognize to be a fixed cost, but they often believe staff wages or salaries are variable costs.
This leads to a discussion about whether a medical practice can really hire staff that will
only come to work when the practice is busy, and the nature of step-function costs.
Also in the case introduction, we contrast ABC for a medical practice to the concepts
in the job-order costing chapter, which in most texts is centered on manufacturing. What
does it mean for a cost to be an indirect cost to a cost object, but a direct cost to a process?
How are direct costs for a manufactured product different than and similar to the direct
costs for a service? Malpractice insurance premiums are defined as a direct cost by the
CMS for Medicare and Medicaid purposes, but the truth in the insurance company’s de-
termination of the premiums for MCCS is that malpractice is an indirect cost.
We usually cover the chapters on cost-volume profit analysis and relevant costs for
decision making right after we cover the ABC chapter. The concepts in the decision-making
chapter include the allocation of scarce resources. When there is only one scarce resource,
the business entity will concentrate on producing the product with the highest contribution
margin per unit of that scarce resource. Question 5 in the case is related to this theory,
which is why we ask students to compute the profit per MD minute. Of course, ‘‘profit’’
is different from ‘‘contribution margin,’’ and this allows us to discuss whether we can still
reasonably say that MCCS should emphasize services that have the highest profit per unit
of constrained resource.
Finally, the chapter that covers standard costing and variance analysis, particularly as
it relates to the volume variance, gives us a chance to share a few insights about
the Medicare and Medicaid reimbursement rate-setting process with the students. One of the
arguments used in the late 1990s to support a decrease in the reimbursement amounts for

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 571

some surgeries and procedures, despite evidence that these costs were increasing, was that
the reimbursement rates should not necessarily be based on practices’ cost per unit of the
surgery or procedure. The CMS stated that the cost per unit would increase if surgeons
simply did fewer surgeries and procedures. We call this ‘‘the lazy doctor argument’’ in
class. If many of the costs of a surgical practice are fixed costs, the CMS is indeed correct,
and this can be related to the volume variance coverage. This leads to a discussion about
the motivations of surgeons and how it is likely or not likely to alter their behavior.
Interim due dates, we’ve found, are essential. We provide feedback on these drafts and
keep copies of our comments so that we can assess whether the final submission has
incorporated this feedback. Additionally, instructors must consider the fact that students
may share files from semester to semester. If the case were to be used in consecutive
semesters, students must be made aware that reuse of any portion of a previously submitted
case will have severe consequences. We often use different cases from semester to semester,
and do not frequently use this more than once in an academic year.

Assessing the Case


In order to provide an incentive for each group member to participate, group members
are made aware that each member may not receive the same score for the case. Rather, an
individual’s score would be the case’s score multiplied by a scalar, where the scalar may
be less than one. The scalar is subjectively determined based on the instructor’s evaluation
of the group members’ evaluation forms. In the past, students have been remarkably honest
in these evaluations. A member that is a ‘‘slacker’’ usually notes a lower evaluation of
herself on her own form. Generally there is also agreement about who were the most active
group members. The threat of a score of zero for the case has stopped a great deal of the
free-rider problems often seen in case studies, and it has only happened a handful of times
for the hundreds of students who have completed this case. Most often the scalar used is
1.0 or close to 1.0 for all group members.
The case rubric we use has changed over time but there are four categories that we
believe are important in the case’s assessment. First, the group must learn project manage-
ment skills, so a portion of the case score is allocated to whether the group met the interim
due dates. If a group did meet the interim deadlines, but the quality of the submission is
poor, the group does not earn 100 percent of the points available in this category. Second,
since teamwork is one of the major learning goals of this case, this is part of the group
assessment. There are a couple of ways to assess this teamwork in addition to reviewing
the group members’ evaluation forms. If students corroborate mostly via the discussion
boards, then the evolution of the case and the group dynamics can be assessed by reviewing
the postings there. On the other hand, if a group meets mostly face-to-face, then they are
told (in class) that they should post minutes of the meetings, including an agenda, who
attended, what was accomplished, and what was assigned for the future to various group
members.
A third major learning objective of this case is successful report writing. In this area
of the rubric we assess spelling, grammar, punctuation, format, and the overall profession-
alism of the final product. Finally, we very much hope that this case helps students analyze
complex data, arrive at conclusions, and be able to support their reasoning for those con-
clusions. This is what we assess in the fourth rubric category.

Student Evaluation of the Case


For many academic terms, the student evaluation forms only included an evaluation of
their group members. However, the most recent group member evaluation forms include a

Issues in Accounting Education, November 2009


572 Kaciuba and Siegel

student assessment of the case, and we have collected these assessments from 171 students.
These responses are summarized in Exhibit 4 in the Appendix.
We asked students whether the case helped them develop their analytical abilities and
their critical thinking abilities. We use a scale of 1 to 5 where 1 represents ‘‘strongly
disagree’’ and 5 represents ‘‘strongly agree.’’ (Refer to Exhibit 4 in the Appendix.) In class
we explain to them that, for evaluation form purposes, analytical abilities include the skills
to understand and manipulate the data. Critical thinking skills, on the other hand, are those
that allow a student to bring these details to a higher level so that he may analyze a bigger
picture. The average score for the students’ assessment of the case’s ability to enhance
analytical skills was 4.27. Nearly 91 percent of the student respondents said that they agreed
or strongly agreed with the statement that the case helped improve his or her analytical
abilities. Similarly, nearly 92 percent agreed or strongly agreed that the case helped improve
critical thinking abilities. The average score for whether the case improved critical thinking
skills was 4.35.
We’ve found that students often don’t like working in groups. Anecdotally, they tell us
that their schedules prevent a sufficient number of face-to-face meetings. Since the students
are given online communication tools to alleviate this problem, we asked them whether
this case improved their ability to work in groups. Nearly 70 percent of the students reported
that they agreed or strongly agreed that the case was helpful in this regard. The average
score on this questionnaire item was 3.88.
We are aware that this is a time-consuming project and were interested in whether
students thought so as well. Before summarizing the evaluation forms, we thought the
average score on this item would be close to 5.0. However, the average score was 3.79,
indicating that the students’ perception of the workload was not as bad as we had thought.
Since we believe this case covers numerous AICPA core competencies, we thought we
would ask students if they believe the learning experience was worth the amount of effort
required on this case. Just over 53 percent of them agreed or strongly agreed that it was
worth the effort. The average score on this item on the questionnaire was 4.11.
We left space on the questionnaire for student comments about the case. Here is a
sampling of the positive comments:

● This project was very difficult, but helped [relate] what was taught in the classroom to
the real world. After the fact I can honestly say that I really did enjoy the case because
I learned a great deal.
● This case was great hands-on practice for the concepts we were learning in class. I
also felt a great sense of relief and accomplishment in completing this project because
it did take so much time and effort.
● This case study made me think about things from different perspectives ... It is probably
the first time that I did a project that encompassed accounting, ethics, and the practi-
cality of running a business all into one project.
● This case involved a lot of time and work, but I think it benefited the overall learning
experience of the course. I would definitely recommend continuing to use this particular
case in the future.
● I really enjoyed this case. I like doing real-world applications of classroom teachings.
This case provided a good background for a lot of the work we did this semester.
● It is nice to finally use real-world examples in the accounting program. I am tired of
problems that have ‘‘pretty’’ answers that aren’t realistic.
● This was a valuable project experience that added to my knowledge of the health care
industry. I cannot believe some of the things that take place out in the business world,

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 573

and this project highlighted those hidden realities. I had a good time learning about
analysis based on cost accounting.
● I like how we did not have to meet in person with the use of the message board. It
saved a lot of time and all of our thoughts were much more organized.
● At first, I was nervous about this case because just reading the information intimidated
me and I was sure that I would not be able to contribute because it was going to be
too difficult. But, since we took it step-by-step, it was easier to approach and dissect
one topic at a time, and after answering the first question and really understanding
what was required, I grew more confident in my abilities. At the end, I felt a real sense
of accomplishment and felt more confident in my ability to do analysis and use critical
thinking skills. I am glad I did this.
● It was definitely interesting. I guess I never knew that there was so much to consider
when providing health care.
● It was a good challenge, and a good way to prepare us for what we would expect to
encounter in real-life situations.
Although the frequency of positive comments was greater than that of the negative
comments, here is a sampling of the negative comments:
● It was definitely a tough assignment. It was especially difficult going into it without
any prior knowledge of surgery practices.
● The material was really confusing and it was hard to understand.
● I see how the case relates to the class, but I just hated it. It was really hard working
over the net. I don’t like working over the net and I hope that I never have to again.
● Some members had trouble doing this case due to the level of critical thinking involved.
The case did take up entirely too much of our time.
● I wish we talked more about the case in class where you could tell us more about the
situation.
● Hard to communicate via WebCT. I wasn’t in the habit of checking it regularly.
● I found the case a little confusing at times. The data did not make good sense to me,
but I guess that was intentional to make us think. I was intellectually challenged and
for that I thank you.
● We should be able to choose our own group members.

APPENDIX
SUPPLEMENTARY MATERIALS
EXHIBIT 1
Example Cover Page with Instructions

ACCT XXXX Group Case Study Due Thursday XX-XX-0X by midnight*


This case study is worth 20 percent of your grade in this course. The case submission must be ONE
Microsoft Word file (not Excel) and must be submitted electronically to the digital drop box on
Blackboard. Please send only one file, so if you created tables or graphs in Excel that are part of
your case submission, you must paste them into the Word document. Please name the Word file so I
can tell which group’s case it is when I download it from Blackboard. Also, please format your case
so that your response to each individual question posed is clearly labeled. Remember, this is a pro-
fessional report and I am your client!
To see how this case will be scored, look at the example case scoring sheet. You can see that format
and presentation count, written communication skills count, and so does the depth of your understand-
(continued on next page)

Issues in Accounting Education, November 2009


574 Kaciuba and Siegel

EXHIBIT 1 (continued)

ing of the material in the case that is apparent when I read it. Also, each group member will com-
pletean evaluation form about the other group members. This form will be used to determine whether
each individual group member deserves to get the same score for the case that the case itself earned,
or if they should receive a lower score. You should look at the example group evaluation form. For
example, in this group, all members said that Lazy Larry did nothing and Lazy Larry himself did not
even bother to turn in the group evaluation form. Therefore, the example case earned 122 points but
Lazy Larry got zero points. This is an attempt to reduce the free-rider problem often seen in such
group case assignments. So, participate in your group or your score will suffer!
Have fun and learn a lot!
* Note these interim due dates for drafts:
● A draft of your group’s response to Questions 1 and 2 is due electronically by midnight on XX-XX-0X.
● A draft of your group’s response to Questions 3–5 is due electronically by midnight on XX-XX-0X.

EXHIBIT 2
Example Competed Case Scoring Rubric

Group name: WeLoveABC Dumb Debbie


Group members: Pleasant Patty Suzy Student
Responsible Rita Lazy Larry

Max Group’s
Points Points My Comments
Met interim due 20 15 Your group was late with the first interim due date.
dates
Group dynamics 15 15 The group’s discussion board was lively and I could see
and case by reviewing it, and the group’s minutes of their
development face-to-face meetings, that most of the group
members contributed. Although most group members
contributed in different ways, most did add value. I
could see the seed of an idea in a spreadsheet or
document, and then the changes made to this piece
of analysis as the members made their comments.
Overall case 15 15 Your case looked very professional. You had headings
format and for your answers and even subheadings that helped
presentation me follow your logic. You had footers with your
group’s name and page numbers, which really helps
make a printed document look nice. Your graphs and
tables were included next to or near the text that
discussed them, and you even wrapped the text
around these images. Very cool. Everything about the
presentation made me aware of the time, effort, and
degree of care put into the creation of the final
submitted document.
(continued on next page)

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 575

EXHIBIT 2 (continued)

Written 20 12 This is the only part of your document that kept it from
communication being an example of something you would submit to
your boss. Your writing style was too informal. You
should use the spelling and grammar checker in
Word (under Tools, Options, Spelling and Grammar;
you can choose to check your writing style as
‘‘casual’’ or ‘‘standard’’ or ‘‘formal’’). It seems that
someone in your group should have noticed this
informality. For example, consider this sentence from
your case:
‘‘MCCS’ travel costs are way high. What’s up with
that? Are the docs just cruising around in their cars
all the time?’’ Remember that the document should
have been proofread several times by your group
members before I received it, and that Word’s spell
checker and grammar checker should be used each
time. It doesn’t catch everything but it does catch a
lot. At least you had complete sentences, and you did
separate your topics into paragraphs, rather than
leaving large masses of unrelated text for me to sort
through.
Depth of analysis 80 65 Please see my comments embedded in your case. Note
and content that the final rubric I use will be much more detailed
here, and will contain several SPECIFIC things I
will be looking for in each question. But I can’t tell
you those things here because I want you to discover
them.
Group Total 150 122

EXHIBIT 3
Example Competed Group Member Evaluation Form

Your name: Suzy Student Group name: WeLoveABC

Each individual group member: Please complete this form and return it directly to me via email in
order to complete your case submission. It is due at the same time as the case study is due.

Section 1—Please indicate the level of your agreement with the following statements.
1-Strongly Disagree 2-Disagree 3-Neutral 4-Agree 5-Strongly Agree
Level of
Statement Agreement
This case helped improve my analytical abilities. 5
This case helped improve my critical thinking abilities. 5
This case helped improve my ability to work in groups. 3
This case was one of the most labor-intensive projects I’ve been assigned 5
in college.
What I learned doing this case was worth the time and effort. 4
(continued on next page)

Issues in Accounting Education, November 2009


576 Kaciuba and Siegel

EXHIBIT 3 (continued)

Please include any comments you have about the case:


Wow, this was the biggest project I’ve ever worked on! It seemed like an impossible task but we
finally mastered it. I know we all learned a lot about analyzing things and writing reports (and
about lazy group members!). I think this assignment will help me in my career in the future, but I
still think it was too long of an assignment to do in eight weeks.

Section 2—Group assessment


Please assess the sharing of the workload between the group members by sharing 100 points
between all group members, including you, in the ‘‘all members’’ column. Then do the same thing
in the next column, but leave yourself out of the scoring. Assign higher point values to those who
had the most input into the completion of the case. I know this is subjective, but please give it a
try.
% shared across % shared across
Group member name all members other members
Suzy Student 30% XXXXXXXXX
Lazy Larry 0%
Dumb Debbie 15% 22%
Pleasant Patty 15% 22%
Responsible Rita 40% 58%
100% 100%

Comments and explanation of the above % assignment


This was hard for me to do, Professor! Except for the Lazy Larry thing. He’s a pig. He never
answered emails, never posted messages or responded to messages on our group discussion board.
He blew off face-to-face meetings that the group set based on ‘‘his schedule.’’ When we tried to get
him to explain or apologize he just said ‘‘He’s very busy.’’ Like I’m not! Patty’s pregnant, Debbie
has a hard time figuring out the train schedule just to get to school, Rita’s got 23 siblings and 3 of
her own children. We all have issues. It was easy to give him a zero, ‘cuz that’s what he is—a big
fat zero.
I really like all the other people in my group, so I was really tempted to give us 25 percent each.
But Debbie really did not contribute much at all, she’s not very analytical, and Patty didn’t either.
Debbie tried a lot though. She put lots of stuff on the message board. Unfortunately we did not use
any of it. My points to her are for effort. Patty didn’t do a single piece of original work, as in a
Word doc or Excel file. But she is very nice and had lots of helpful suggestions on the stuff that
Rita and I did. My points to her are for her helpful suggestions.
Mostly Rita and I did the case, at least most of it. So I shared the 70 percent left after I gave 15
percent each to Debbie and Patty between us, and gave her more than I gave myself because I
think that Rita is the one whose mind was the best. She thought of all the cool things to say and
the kinds of spreadsheets we should look at, and even the kinds of graphs we should include. But I
did the spreadsheets and I did all the final editing, including pulling the graphs from Excel and
putting together the final beautiful package we sent you, so I did a ton of work.

Issues in Accounting Education, November 2009


Activity-Based Management in a Medical Practice 577

EXHIBIT 4
Summary of Students’ Assessment of the Case

Mean on Scale of 1
(Strongly Disagree)
to 5 (Strongly Agree)
Item on questionnaire n ⴝ 171 students
This case helped improve my analytical abilities. 4.27
This case helped improve my critical thinking abilities. 4.35
This case helped improve my ability to work in groups. 3.88
This case was one of the most labor-intensive projects I’ve been 3.79
assigned in college.
What I learned doing this case was worth the time and effort. 4.11

TEACHING NOTES
Teaching Notes are available only to full-member subscribers to Issues in Accounting
Education through the American Accounting Association’s electronic publications system
at http://aaapubs.aip.org/tnae/. Full-member subscribers should use their usernames and
passwords for entry into the system where the Teaching Notes can be reviewed and printed.
If you are a full member of AAA with a subscription to Issues in Accounting Education
and have any trouble accessing this material, then please contact the AAA headquarters
office at office@aaahq.org or (941) 921-7747.

REFERENCES
American Institute of Certified Public Accountants (AICPA). 1999. AICPA Core Competency Frame-
work for Entry in to the Accounting Profession. Available at: http: / / www.aicpa.org/ edu /
corecomp.htm.
———. AICPA’s Educational Competency Assessment. ECA Website. Available at: http: / /
www.aicpa-eca.org/ default.asp.
Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services.
(undated). Effects of Health Care Spending on the U.S. Economy. Available at: http: / /
aspe.hhs.gov / health / costgrowth.
King, P. M., K. S. Kitchener. 1994. Developing Reflective Judgment: Understanding and Promoting
Intellectual Growth and Critical Thinking in Adolescents and Adults. San Francisco, CA: Jossey
Bass.
Velasquez, M., C. Andre, T. Shanks, and M. J. Meyer. Thinking Ethically: A Framework for
Moral Decision Making. Available at: http: / / www.scu.edu / ethics/ publications / iie/ v7n1 /
thinking.html.
Wolcott, S. 2006. College Faculty Handbook. Available under the ‘‘resources’’ tab at: http: / /
www.WolcottLynch.com.

Issues in Accounting Education, November 2009