Existing literature often describes the modern business atmosphere as highly competitive, aggressive, and complex. Most healthcare organizations operate in that dynamic environment in which they are an essential component. Historically, most scholars have considered healthcare organizations as predictable, old, and reliable but recently, they have become intensely competitive and constantly changing. One essential factor that most hospital administrators have realized is that modern healthcare organizations do not only want to survive, but they also need to be profitable.
As such, scholars are continuing to develop managerial accounting or costing theories and combining them with advancements in information technology, which has greatly enhanced the theoretical capabilities of such systems. Having sound management accounting systems is vital in any sector, but the healthcare industry is a bit more complex due to its fast-changing pace. For instance, changes in the Medicare coding, the increasing integration of electronic health records systems, and the Affordable Care Act (ACA) have made the management of costs more intricate. These changes have made healthcare organizations reconsider their management accounting practices and procedures to improve their performance and remain profitable.
Pflueger, 2015 suggested that when an accounting practice has a measure of standard, provides public reporting, evaluates performance, and which the managers have control, it may provide a fundamental infrastructure for the improvement of quality care in the healthcare industry. The researcher further states that the successful implementation of managerial accounting practices has proved to be a difficult endeavor, one which results in dysfunctional outcomes. This statement, therefore, raises the question about the role of management accounting in attaining performance and improvement of quality. This paper, therefore, seeks to review the literature on whether management accounting can improve the performance of healthcare organizations. The paper starts with an overview highlighting the importance of the present topic, then a literature review of existing material, and finally a conclusion and personal thoughts. Despite the development of the theories of management and cost accounting, there are still some questions that existing literature has failed to exhaust. For example, whether these theories have contributed to actual improvements in performance or not.
The growing pressures that push for accountability and outcome reporting coupled with the increasing competition have driven the healthcare industry to employ improvement strategies to meet their internal and external objectives. The current changes in the business environment have resulted in increased costs for the healthcare sector. Most healthcare organizations are facing many inefficiencies, for instance, resource wastage, variations in clinical practice, fraud charges, and administrative problems (Stadhoudersa et al., 2018). The underlying reason however for the increase in costs is the inability to measure them effectively. Most healthcare organizations lack a proper system of identifying the costs associated with treating a patient mush less, how these expenses are associated with the achievement of outcomes.
Review of Literature
An array of literature has shown the relationship between management accounting and performance management but few have established how management accounting can help improve the performance in healthcare organizations. Some existing literature suggests that implementing management accounting practices strategically will improve performance in the healthcare industry, but have not done so exhaustively. However, most healthcare organizations are yet to adopt these practices.
Studies have applied different frameworks to investigate management accounting systems in the healthcare sector, which include institutional theory, agency theory, management theories, among others (Eldenburg et al., 2017). However, the literature does not explain whether these theories have contributed to the performance of healthcare organizations. Similarly, Pflueger (2015) contends that literature is yet to establish the relationship between accounting and quality improvement. The author further raises the question about management accounting’s role in attaining quality improvement.
Jovanović et al., (2019) further proposed that there is a need for future exploration to provide an exhaustive conclusion on the impact of management accounting systems concerning the utilization, monitoring, and outcomes on patient value, healthcare system, and the hospitals. The researchers posited that future research should concentrate on the formulation of guidelines for the introduction, exploitation, and implementation of the management accounting systems at all healthcare organizations that could support their business operations while increasing performance.
According to Mohammed et al., (2019), strategic management accounting (SMA) plays a significant part in maintaining a competitive edge in organizations. The researchers found that strategic management accounting information had considerable positive effects on hospital performance in Malaysian hospitals. However, the researchers concluded that the Malaysian private hospitals use SMA information in moderation. This implies that most health care organizations are yet to realize the full potential of management accounting systems.
A similar study investigated the impact of managerial accounting systems and management planning on the performance and profitability of private hospitals. The researchers based their study on the Conception Theory and found that practices in management accounting, which include increased knowledge of costs and the budgeting system, could influence the organization’s performance (Holopainen et al., 2019). Moreover, some of the contextual antecedents also affected the performance of private hospitals.
Kister, (2015) suggested management accounting plays a central role in medical institutions. The researcher contended that the utilization of the tools of management accounting such as budgets, and cost accounting techniques helped in assessing the efficiency of fulfilling objectives and evaluating the processes and sources of the creation of value. Moreover, further analysis of the results demonstrated that there was an improved performance measurement as well as the motivation of employees.
Carroll & Lord, (2016) asserted that even though scholars in management had identified various techniques that gave institutions correct estimates of their costs, there was little evidence to prove which of these techniques hospitals use. The authors’ further stated that, most hospitals were yet to utilize some of the complex methods of cost accounting because hospital characteristics make the process expensive and the benefits associated with it small. The researchers cite Arrendondo (2014) that most healthcare facilities perceived that, creating sophisticated systems for cost accounting would not improve their abilities of enhancing performance since the costs of the system outweighed the benefits.
Most healthcare facilities in the modern age operate in a constantly changing environment and as such, it is not only their survival is at stake, but they also need to remain liquid and sustainable. Management scholars have developed managerial and cost accounting theories and combined them with information technology that has greatly enhanced the theoretical capabilities of such systems. Nevertheless, the rapidly changing environment of the health sector has necessitated the need for new management accounting procedures and practices so that hospitals remain in business. However, the implementation of sophisticated systems of management accounting seems elusive for most healthcare organizations. This has therefore raised the question about the role of management accounting in achieving performance and improving quality.
Moreover, despite the evolution of management theories, the question of whether these theories have contributed to actual improvements in performance remains. There is a plethora of existing literature about management accounting and performance management but a few of them show how management accounting helps in improving performance. Some are of the view that strategic management accounting improves performance but most hospitals are yet to realize its full potential due to costs of implementation. Therefore, an information gap exists in the current literature that requires further exploration.
Most practitioners and academicians would agree that implementing sophisticated methods of management accounting in healthcare organizations would be an added advantage as opposed to the traditional methods. However, most hospital administrators, especially those that work in the government hospitals would not see it as a feasible option due to its expensive nature. That is the reason why some public hospitals are more than reluctant to endeavor in such investments because of their budget constraints and pressures from the political environment. Those who have managed to employ management accounting systems have done so sparingly and of whom most are from the private sector, as per the literature. In reality, management accounting systems if implemented effectively would be a powerful tool for hospitals giving them a comparative advantage over the others. However, this area needs further exploration since the theories that scholars have developed do not explain whether these models have contributed to actual improvement in performance.