An Evaluation of the Cost Accounting Procedures for Outpatient Care at a VA Medical Center (Veterans)

Carolyn Ann Patti Langston, Louisiana Tech University


Outpatient care is an increasingly important part of the Veterans Administration's role in providing health care for the nation's veterans. The cost effectiveness of outpatient care can only be evaluated using reliable cost data which has been gathered and reported in a manner consistent with accepted cost accounting standards.

The purpose of this study was to increase the usefulness of the Veterans Administration's outpatient care cost information for management and research purposes. The cost accounting procedures used by the Veterans Administration at its Little Rock Medical Center were compared to those prescribed by acceptable cost accounting standards available in the literature. Their adherence to these standards was evaluated, and recommendations for improved allocating and reporting techniques were suggested.

In the first phase of the research, a search of the literature was conducted for cost studies in the health care industry to identify the elements of costs incurred and the problems encountered in using the cost data. The second phase of the research required a survey of the publications of known authoritative sources to assemble relevant cost accounting standards which could be used for evaluation purposes. In the third phase of the study, the flow of cost data through the Veterans Administration's accounting system was documented and the procedures used to gather and report the cost information were examined. Finally, the procedures prescribed by the accepted standards were compared to those used by the Veterans Administration to assess the likely reliability of the total and unit costs reported for outpatient care.

From the evaluation of the Veterans Administration's application of accepted standards from authoritative sources to the procedures employed for determining the cost of care, it was concluded that the Veterans Administration applies many of the standards in an appropriate manner. Other procedures used by the Veterans Administration, however, seem likely to result in overallocations of costs to some cost centers and activities. When distortions appeared to occur, an attempt was made to suggest alternative procedures which more closely adhered to the accepted standards.