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Accounting and Medicine: An Exploratory Investigation into Physicians' Attitudes Toward the Use of Standard Greg M. Thibadoux Marsha Scheidt Cost-Accounting Methods in Medicine Elizabeth Luckey ABSTRACT. Research studies demonstrate wide varia- question, 'As a physician working in a hospital environ- tion in how physicians diagnose and treat patients with ment, what are your reactions to and concerns with similar medical conditions and suggest that at least some combining standard costing techniques with EBBP?' The of the variation reflects inefficiencies and unnecessary interviews were in-depth and free form in nature. The medical costs. Health care researchers are actively exam- physicians' responses were recorded and analyzed using ining ways to reduce variations in practice through Grounded Theory Methodology. Using this methodol- standardization of medicine to reduce the cost of treat- ogy the field data was categorized into two major themes. ment and ensure the quality of outcomes. The most The most important theme centered on ethics and the widely accepted form of this standardization is Evidence second theme was concerned with the implementation Based Best Practices (EBBP). Furthermore, financial and use of a standard cost system in regard to EBBP. If health care providers such as hospitals and managed care physicians' worries about ethical dilemmas and imple- organizations are investigating methods to tie resource mentation issues are not resolved, then it is likely that usage to medical protocols in their efforts to monitor and doctors would be unwilling to participate in any efforts to control health care costs. Such proposals are contentious develop or use a standard cost-reporting system in med- because they report on physicians' medical practice icine. While this study was exploratory in nature, it behaviors (such as the number of tests ordered, use of should provide future guidance to accountants, health specific therapies, etc.) and such reports could potentially care researchers and health care providers about physi- be used to influence their clinical behaviors. The intent of cians' issues with the use of standard costing methods in this exploratory study was to examine physicians' medicine. perceptions about linking a standard costing system to EBBP guidelines. The authors interviewed nine practic- KEY WORDS: diagnostic related groups (DRGs), ing physicians asking each physician to respond to the evidence based best practices (EBBP), grounded theory methodology, health care ethics, physician practices Greg M. Thibadoux, Ph.D. is a Professor of Accounting at the University of Tennessee at Chattanooga. He has published extensively on cost accounting and the business aspects of healthcare in such journals as the Journal of Accountancy, Introduction he CPA Journal, and Health Care Financial Manage- ment. Healthcare costs in the United States have been Marsha Scheidt, DBA, CMA, is a Professor of Accounting at the University of Tennessee at Chattanooga. She has pub- rising at an alarming rate over the last several dec- lished exensively on cost accounting and information systems ides, outpacing the Consumer Price Index. Cur- in such joumals as the Journal of Accountancy, the CPA rently, nearly 16% of the Gross Domestic Product Journal, and Management Accounting Quarterly. (GDP) is spent on health care (Kolata, 2006), and it Elizabeth Luckey, B. S., CPA is a staff professional at Ernest & is projected to rise 7.3% annually for the next dec- Young, Nashville, Tennessee. ade. By 2013 health care spending is projected to be$3.4 trillion and 18.4% of GDP (Centers for Medi- dardizing medical treatment costs for specific disease care and Medicaid Services, 2004; Davis, 2003). classifications. The model could be used for planning In part rising costs have been attributed to an purposes, for reporting and for variance analysis. increasing use of unwarranted tests and treatments The authors believe it is only a matter of time performed primarily as defensive medicine against the before EBBP guidelines are tied to standardized costs threat of malpractice lawsuits and in some cases pos- and that such efforts will increasingly require the use sibly to increase revenue flow. These inefficiencies are of sophisticated cost-accounting methods. In fact, it often termed by researchers as clinical variations, was recently announced that 28 major companies although few researchers are willing to attribute such including Sprint, Corp., Lowe's Cos., J. C. Penney, variations to a specific cause. But regardless of the and Bellsouth Corp, were making available physi- reasons for variability, most researchers believe that cian 'scorecards' to their two million employees. these variations may represent inefficiencies in prac- These 'scorecards' would include information about tices. According to Dr. Blanton Bessinger, president the quality of care and would give patients financial of the Minnesota Medical Association, fewer varia- incentives to use doctors who were cost-efficient tions in practice would result in less unnecessary quality care providers. The 'scorecard" will include medicine and lower medical costs (Adams, 2001). information about how well the physician performs Carnett (1999) in Quality Management Health Care in comparison to accepted medical guidelines and states that a leading cause of inadequate care can be how effective she or he is at controlling the cost of traced to clinical variations unaccounted for by pa- care, information that will in part come from tient variations. Recently, the Wall Street Journal accounting systems (Landro, 2004). reported, "The Rand Corporation found that While the use of cost-accounting methods in Americans get the right treatment only half the time, medicine can be expected to provide much useful and other research shows the U.S. could reduce information particularly to institutional providers, health-care spending by 30% merely by eliminating third party payers and consumers, there will be unnecessary care, operating more efficiently and resistance from physicians. It is to be expected that improving quality" (Landro, 2004). many physicians will decry this as a pernicious form In theory, one way to reduce clinical variations of 'cookbook' medicine, and that it will create a and thereby control rising costs in healthcare, is to number of ethical dilemmas. If accountants are to encourage physicians to follow standard practice become more involved in the business aspects of guidelines known as Evidence Based Best Practices health care delivery, they must be fully aware of (EBBP), clinical pathways, clinical practice guide- the many ethical concerns that physicians have lines, and standards of quality. These are all methods about the application of management techniques to for defining a general plan for diagnosis and treat- their clinical practices. Without such awareness, ment of a disease including the appropriate tests and accountants may end up creating accounting sys- the best treatment regimes. These guidelines are tems that jeopardize physicians' relationships to based on results of scientific studies that provide health care institutions, to third party payers, to evidence about how to achieve the best outcomes in their professional commitment, and finally to their the most cost-efficient manner. Many studies have patients. reported on the efficacy of using such standards. For It was the intent of the authors to investigate what example, Flores et al. (2002) found that "clinical problems and concerns and also what (if any) ben- path guidelines can improve health processes and efits physicians believe will result from combining outcomes, including shorter hospital length of stays standard costs with EBBP guidelines to measure the and reduced utilization of resources." quality and the efficiency of medical treatment. Of Independent of the issue of clinical standards, stra- particular interest, will be whether such actions tegic and financial healthcare planners have expressed create ethical dilemmas for practicing physicians. interest in the standardization of medical costs as a tool Research methodology and the results of this study for budgeting, planning, and variance analysis. For are discussed after an introductory consideration example, Cleverly and Cameron (2002) in Essentials of of evidence-based medicine and standard cost- Health Care Finance have proposed a model for stan- accounting techniques in health care