Cost driver analysis in hospitals: A simultaneous equations approach

Recent cost driver research is extended to the health care sector. In various case studies it has been suggested that overhead costs are driven by volume and complexity variables. The significance of these variables in determining hospital overhead costs, how they are structurally related and how th...

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Bibliographic Details
Published in:Journal of management accounting research 1998-01, Vol.10, p.279
Main Authors: MacArthur, John B, Stranahan, Harriet A
Format: Article
Language:English
Subjects:
Correlation analysis
Costs
Hospitals
Overhead costs
Regression analysis
Studies
Variables
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Summary:Recent cost driver research is extended to the health care sector. In various case studies it has been suggested that overhead costs are driven by volume and complexity variables. The significance of these variables in determining hospital overhead costs, how they are structurally related and how the cost impacts of these variables can be estimated in practice are investigated. A unique feature of the research is the treatment of complexity as an endogenous variable. It is hypothesized that the level of hospital complexity, in terms of the number of services, is simultaneously determined with the level of general services costs needed to support the complexity. Two-stage least squares regression is used to estimate the model. The volume and complexity variables were all statistically significant drivers of hospital overhead costs.
ISSN:1049-2127
1558-8033