Activity-Based Costing and Inter-District Flows in the New Zealand Public Health Sector
Changes in the New Zealand public health sector in recent years, such as heightened political, economic and social pressures to manage and reduce costs while improving the quality of care in conjunction with stringent health care guidelines, have forced district health boards (DHB) nationwide to reassess their approach to health care provision. This has chiefly involved evaluating current practices or institutions; revising health care systems, including locality of treatment; and assessing established accounting systems and mechanisms (or lack thereof) to understand the source of costs and resource consumption. Acknowledging that patient welfare has always held pre-eminence in the New Zealand public health sector, balancing the dual pressures to enhance the utilisation of limited resources and adhere to social pressures to provide sustained high quality health services has been a difficult exercise for DHBs. In recognition of the potential benefits of activity-based costing (ABC), and the fact that the New Zealand public health sector is severely underrepresented in current literature, this multi-site case study examines how sophisticated costing systems (such as ABC), are being used by DHBs. Using an institutional theory framework, this study posits that DHBs will use sophisticated costing systems to (1) improve cost understanding with the goal of managing and reducing their costs; and (2) contribute to more informed National Prices for Inter-District Flows (IDF), the aim of which is to plan and provide services to meet the directives and outcomes outlined by the Ministry of Health. Overall, the findings are compelling and reveal that costing systems are used on three levels to plan and provide health services, including unsophisticated costing systems that are not formally recognised; moderately sophisticated costing systems (such as CostPro) that are formally recognised; and sophisticated costing systems (such as PPM) that are formally recognised. Furthermore, the findings reveal that DHBs with sophisticated costing systems generate event-level information, which directly influences the calculation of National Prices for IDFs. The findings of this exploratory study also indicate a need to examine the nexus between ABC and IDFs in a New Zealand public health sector context further.