CAEA3231

INTEGRATED CASE STUDY

Instructor: Dr. Ahmad Zahiruddin Bin Yahya
Case 2: Using Activity-Based Management in a Medical
Practice

Group Members:
Name

Matric Number

1.

Chin Wei Xun

CEA130013

2.

Koay Shi Ying

CEA130030

3.

Lim Whye Kiat

CEA130045

4.

Ong Ying Yar

CEA130071

5.

Tan Peggy

CEA130085

Since
1966

Extracted from: Medicare.gov

Official U.S Government Site for

Declining
revenue

Strategic Cost Management

Improve a firms strategic position
Reduce cost & maximize total value
Create a strategic competitive advantage
Extracted from: American Institute of CPAs
(AICPA)

Trace indirect cost to cost

objects
Identify how resources
are consumed by
activities
Utilize multiple cost pools
Extracted from: Institute of Management

STEP
1 and allocate OVH to
Classify the activities
cost pools.

STEP
2 cost
Identify
drivers.

STEP
3
Compute activity-based
overhead rate.

STEP
4
Assign overhead
cost to
products.

Activity-based Costing System

Compare FMMGs process costs to other

practices.

No proper cost control & inefficiency in

5 Deming Principles in Process Improvement

Quality improvement is the science of

management.

If you cannot measure it, you cannot

improve it.

Managed care: managing process of care

Right data, right format, right time, right

hands

Engaging smart cogs of healthcare.

By Dr. John

Cost Reduction
Cost
Identification
Cost Elimination
through Process
Improvement

2. Compare the Maintain Medical Records

process costs across the five benchmarks.
Suppose you are told that Practice #1
outsources its Maintain Medical Records
process. What are the implications for FMMG?
What would you recommend? Are you sure?

HIGHE

Medical Reports
Materials

Handwritten notes
Computerised records
Correspondence between health professionals
Laboratory reports
Imaging records, including x-rays
Photographs
Video and other recordings
Printouts from monitoring equipment
Text or email communication with patients.

Medical Reports
Contents

Relevant clinical findings

The decisions made and the actions agreed, and who is
making the decisions and agreeing the actions
The information given to patients
Any drugs prescribed or other investigation or treatment
Who is making the record and when.
Source : Medical Protection Society Limited
The Medical Protection Society Limited (MPS) is the worlds leading protection
organisation for doctors, dentists and healthcare professionals.

WHY IMPORTANT ?
Ensure continuity of care for the
patient
Legal purposes ( Evidence )
Defending complaint or clinical
negligence claim

OUTSOURCE

RISK OF OUTSOURCING
Privacy issue
Unaligned culture
Communication problem
Leak of business knowledge
Quality of service
(failure to deliver, low productivity)

R
E
C
O
M
M
E
N
D
A
T
I
O
N
S

List down
job scope
of MMR
division
Identify number of
staffs required and
compare with
existing

Reduce
excess
staffs
Access
the
suitability
of wages
amount

3. Four processes are activated for thoracic

practices to be paid for their services: Obtain
Insurance
Authorization,
Billing,
Collect
Payments and Resolve Collection Disputes. How
does FMMG compare to other practices? What
should FMMG do?

Obtain
Insurance
Authorization
Billing
Collect
Payment
Resolve
Collection
Disputes
Total

1
$41,79
7

3
$17,4
22

7
$9,122

$51,58
4
$16,76
6
$11,26
3

$18,2 $41,001 $64,95

18
0
$6,44 $35,759 $54,19
5
9
$6,75 $60,938 $32,79
1
2

$121,4 $48,8 $146,8

FMMG
$45,93
0

$223,

What should FMMG do?

Identify
inefficie
nt
activitie
s

Identify
Cost
Driver of
Each
Activity

Identify
greatest
potential for
cost

Eliminate
unnecess
ary cost

48% of total
reimbursement

Biggest
Cost
Driver

Administrati
ve Cost

What should FMMG

do next?
Review
Review

number of
admin
staffs

Review
administration
process (e.g
billing, coding)

salaries of
admin
staffs

4. Practice #1 does not use physician's assistants

(PAs) to assist its doctors in the operating room
because Medicare does not reimburse for this
expense. The rationale is that hospital employed
PAs can assist in the operating room. FMMG,
however, does use PAs in the operating room.
Should FMMG continue to use its PAs in the
operating room?

Should FMMG continue to use its

PAs in the operating room?
PAs are
experienced staffs

Yes
Reduce safety risk
of patients

FMMG has more

capacity to spend
on PAs since it
incurs lower cost
on other expense
line items

5. Compare FMMGs per unit cost of the

four cost objects to average shown.
Discuss.
Practice#

FMM Databa
G 27% se
<
Averag
26%
< e
139 32%
190
<

No-Charge office
visit
Charge office
visit
Charge hospital
visit
Surgery

133

157

236

149

187

330

169

24

82

178

45

66

353

666

165
6

581

505

15%227
>

Consistent with answer 1

No proper cost control & inefficiency in

6. Which process costs seem the

most out of line ( too high) for FMMG?
Pratice #

FMMG

Database
Average

Maintain Medical Records

15

25

Billing

14

20

Collect Payment

16

21

Obtain insurance Authorization

28

31

292

238

Schedule & coordinate Surgeries

49

50

Resolve collection disputes

91

45

Provide Information to 3rd Parties

27

24

49

51

581

505

Process costs in a surgery

Service Patients in hospital

Teaching & Research

Maintain Professional Education
Total

What is Capacity?
Capacity: how much we can do based on
the assets we have.
Theoretical capacity: pie-in-the-sky or
perfect-world capacity. Full efficiency all
the time.
Practical capacity: Maximum level of
capacity after having taken into account
of unavoidable operating interruptions.

7.1 Relevance of Capacity

Considerations
Practical Capacity determines cost
allocation rates in cost accounting. (ABM)
Accuracy most accurate cost
Enhanced decision making
Better utilization of resources

7.3 Practical Capacity vs.

Actual Capacity
Actual Capacity Utilization is the volume
of production achieved in relation to
installed capacity.
- Types of medical service (basic or
surgery)
- Timing
- Maturity of the said business
- Department (Purchasing , Customer
Service)

References
Hansen, S. C., & Magee, R. P. (1993). Capacity Cost
and Capacity Allocation. Contemporary Accounting
Research, 9(2), 635-660.
Kaciuba, G., & Siegel, G. H. (2009). ActivityBased
Management in a Medical Practice: A Case Study
Emphasizing the AICPA's Core Competencies.
Issues in Accounting Education, 24(4), 553-577.
Benchmarking TQM in health care for best practice.
(1996). Benchmarking for Best Practice, 313-360.
doi:10.1016/b978-0-7506-3948-4.50012-3
What Is Six Sigma? (n.d.), from
https://www.isixsigma.com/new-to-sixsigma/getting-started/what-six-sigma/

 The Importance of Medical Records: A Critical

Professional Responsibility. (2016), from
http://www.gapmedics.com/blog/2014/03/25/the
-importance-of-medical-records-a-criticalprofessional-responsibility/
M. (n.d.). England factsheets, from
http://www.medicalprotection.org/uk/resources/f
actsheets/england/england-factsheets/uk-engmedical-records
Lawyers, H. (2014). The importance of keeping
accurate and timely medical records - Henry
Carus Associates Injury Lawyers, from
https://www.hcalawyers.com.au/blog/theimportance-of-keeping-accurate-and-timelymedical-records/