Prior to 1983, hospitals received reimbursement from governmental programs such as Medicare and Medicaid on a cost-plus basis. That is, if the hospital reported total costs of $100 to provide care for Medicare/Medicaid patients, it received $135 from the government (given a 35% cost-plus mark-up). 

After 1983, hospitals received reimbursement from governmental programs such as Medicare and Medicaid on a fixed-fee basis. That is, every time the hospital provided a particular type of care (for example, diagnosis and treatment of an ear infection) to a Medicare/Medicaid patient, it received the same payment from the government (e.g., $65 for every ear infection diagnosis and treatment). 

Explain why hospitals are likely to have increased their investment in accounting information systems after 1983, given the descriptions of the two reimbursement plans. Be explicit about the costs and benefits involved. 

Consider the question from the perspective of a cost accountant and/or a manager using cost accounting information. 

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After the change in reimbursement methods from costplus to fixedfee basis hospitals had a strong incentive to increase their investment in accounting ... View the full answer