Understanding Medical Cost Accounting

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A Subset of Managerial Accounting

By Dr. David E. Marcinko MBA CMP®

By ME-P Staff Reporters

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SPONSOR: http://www.CertifiedMedicalPlanner.org

Managerial and medical cost accounting is not governed by generally accepted accounting principles (GAAP) as promoted by the Financial Accounting Standards Board (FASB) for CPAs. Rather, a healthcare organization costing expert may be a Certified Cost Accountant (CCA) or Certified Managerial Accountant (CMA) designated by the Cost Accounting Standards Board (CASB), an independent board within the Office of Management and Budget’s (OMB) Office of Federal Procurement Policy (OFPP).

The Cost Accounting Standards Board

CASB consists of five members, including the OFPP Administrator who serves as chairman and four members with experience in government contract cost accounting (two from the federal government, one from industry, and one from the accounting profession). The Board has the exclusive authority to make, promulgate, and amend cost accounting standards and interpretations designed to achieve uniformity and consistency in the cost accounting practices governing the measurement, assignment, and allocation of costs to contracts with the United States.

Codified at 48 CFR

CASB’s regulations are codified at 48 CFR, Chapter 99.  The standards are mandatory for use by all executive agencies and by contractors and subcontractors in estimating, accumulating, and reporting costs in connection with pricing and administration of, and settlement of disputes concerning, all negotiated prime contract and subcontract procurement with the United States in excess of $500,000. The rules and regulations of the CASB appear in the federal acquisition regulations.

North American Industry Classification System (NAICS) codes are used to categorize data for the federal government.  In acquisition they are particularly critical for size standards.  The NAICS codes are revised every five years by the Census Bureau.  As of October 1, 2007, the federal acquisition community began using the 2007 version of the NAICS codes at www.census.gov/epcd/www/naics.html

Cost Accounting Standards

Healthcare organizations and consultants are obligated to comply with the following cost accounting standards (CAS) promulgated by federal agencies:

  • CAS 501 requires consistency in estimating, accumulating, and reporting costs.
  • CAS 502 requires consistency in allocating costs incurred for the same purpose.
  • CAS 505 requires proper treatment of unallowable costs.
  • CAS 506 requires consistency in the periods used for cost accounting.

The requirements of these standards are different from those of traditional financial accounting, which are concerned with providing static historical information to creditors, shareholders, and those outside the public or private healthcare organization.

AssessmentTwo Doctors

Functionally, most healthcare organizations also contain cost centers, which have no revenue budgets or mission to earn revenues for the organization.  Examples include human resources, administration, housekeeping, nursing, and the like.  These are known as responsibility centers with budgeting constraints but no earnings.  Furthermore, shadow cost centers include certain non-cash or cash expenses, such as amortization, depreciation and utilities, and rent. These non-centralized shadow centers are cost allocated for budgeting purposes and must be treated as costs http://www.CertifiedMedicalPlanner.org



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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com


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3 Responses

  1. Providers progressing toward pay-for-value but have many needs, HIMSS survey finds

    As more healthcare organizations begin adopting some form of a value-based payment model, only 3 percent of providers believe their organizations are highly prepared to make the pay-for-value transition, according to the new 2016 HIMSS Cost Accounting Survey.

    Dr. David E. Marcinko MBA


  2. October Hospital Operating Margins Fell 69.4% Year-to-Date

    Kaufman Hall recently published an analysis of hospital finances as of October. Here are some key findings from the report:

    • October hospital operating margins fell 69.4% year-to-date (YTD) and 9.2% year-over-year (YOY).
    • Operating EBITDA Margin fell 41.6% YTD and 9.8% YOY, but was 3.1% above budget.
    • Adjusted Discharges fell 11.2% YTD, 9.3% YOY, and 5.5% below budget.
    • Adjusted Patient Days decreased 7.7% YTD and 2.9% YOY, but were up 1.4% above budget.

    Source: Kaufman Hall, November 2020


  3. Dr. Vivian Lee is the President of Health Platforms for Verily – the Healthcare Arm of Alphabet / Google

    She is the Former CEO and Dean of University of Utah Health Where She Instituted Cost Accounting at their Hospital for the First Time.

    She Also Started the University of Utah Health Plan, Adding it to the List of Other Hospitals in America that Run Health Insurance Companies Including Intermountain Health, UPMC and Geisinger.

    Dr. Vivian Lee’s Book, ‘The Long Fix’ is Excellent. She Describes the Changes in Healthcare Payment AWAY From Fee-for-Service That are Necessary to Improve Quality and Decrease Costs.

    Dr. Vivian Lee Has So Much Credibility That She Just Might Be Able to Pull Off the Changes That She Describes.

    However, Reducing Healthcare Waste by 30% and Decreasing Healthcare’s Input to the US Economy Would Result in Decreasing the 20 Million Healthcare Jobs We Have Today. It is the Loss of These Healthcare Jobs that May Be Healthcare’s Biggest Barrier to Change.

    Eric Bricker MD
    via Ann Miller RN MHA


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