A final note on cost accounting revenues

Contrary to what the term 'cost accounting' might suggest, costs and revenues are treated on an equal basis in a cost accounting system. Here also cash inflows can be distinguished from accounting revenues, according to the parallel distinction between cash outflows and accounting costs. Here also a distinction between direct revenues and indirect revenues can be made. As the ICU is a service center for other units in the hospital, it does not generate direct revenues from outside the hospital. Therefore the revenues allocated to the ICU in a traditional cost accounting system are almost exclusively indirect. Awareness of the relation between revenues and resources used by ICU managers can be increased by implementing a system of transfer pricing or cross-charging: the ICU services are then internally billed to those units who use them. Different transfer-pricing formulas can be devised, for example by taking into consideration the required level of care or the number of TISS points consumed. The advantage of such a system is clear: ICU activity does not have to be capped according to costs, but can be planned with reference to both costs and 'revenues'. A possible disadvantage is the problem of designing a good transfer-pricing system containing the incentives desired by hospital management or health care authorities. Needless to say these incentives should enable both monetary and non-monetary objectives to be achieved.

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