Responsibility Centers
Given the state of the global economy, it is necessary for all organizations to maximize revenue while controlling costs. Even within the healthcare field, careful management that serves both patient needs and operational necessities is essential to long-term survival, accomplished through intensive organizational design, accounting controls and continued excellence in quality and service. It is possible to efficaciously manage medical and business aspects by implementing responsibility centers throughout the organization.
There are different kinds of responsibility centers that may be of benefit to a healthcare facility. “In designing accounting control systems, top managers must consider the system’s impact on behavior desired by the organization” (Horngren, Sundem, Burgstahler, & Schatzberg, 2008, p. 431). In some cases, clinics may designate responsibility centers due to location or function, but in a healthcare setting the centers may be designated due to the autonomy of the managers within aspects of the organizational design. “In the context of a medical practice, comparable categories might be satellite offices, types of procedures (such as cataract, refractive), or categories of patients (such as pediatric, seniors)” (Freeman, 2004, p. 6). Within healthcare centers, there are examples of cost centers, profit centers, revenue centers, and investment centers.
Cost center managers are responsible for containing costs. An example of a department responsible for this would be supply and requisition, or purchasing, which is responsible for getting supplies needed for the rest of the organization. The cost center would interact with the investment center (the Research and Development department, for example), by helping to manage the expenses and in purchasing the items necessary for research and development. Likewise, the investment center (R&D department) interacts with the revenue center in identifying the necessary contracting for the R&D projects. The revenue center would set the sales price of the services within the healthcare setting, but is limited by federal regulations. Finally, the profit center would control the costs and revenue through a collections department (paraphrased from Freeman, 2004, Table 1).
Given the economic state, it is important to carefully identify the desired behaviors of responsibility center managers. By carefully selecting appropriate responsibilities within the accounting control system, organizations may control costs and maximize profits. Cutting-edge medical facilities implement the aforementioned responsibility centers as part of their business and accounting controls in order to continue their profitability.
Riley, M.
25 August 2009
References
Freeman, L., MD, MBA. (2004). Responsibility centers promote effective financial control. Retrieved 20 August 2009 from Ophthalmology Times ISSN: 0193032X.
Horngren, C., Sundem, G., Straton, W., Burgstahler, D., and Schatzberg, J. (2008). Introduction to management accounting. Upper Saddle River, New Jersey. Prentice Hall.
