The Effects of Changes in Cost Allocations on The Assesment of Cost Containment Regulation in Hospitals

By Leslie Eldenburg, Sanjay Kallapur
Journal of Accounting and Public Policy | April 2000

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www.sciencedirect.com/science/article/abs/pii/S0278425499000241?via%3Dihub

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Eldenburg, Leslie., Kallapur, Sanjay. The Effects of Changes in Cost Allocations on The Assesment of Cost Containment Regulation in Hospitals Journal of Accounting and Public Policy www.sciencedirect.com/science/article/abs/pii/S0278425499000241?via%3Dihub.

Journal of Accounting and Public Policy, 2000

Abstract

Empirical studies that examine the effects of regulation on cost containment frequently ignore the impact of changes in accounting practices. This results in a potential bias of research findings. For example, some studies found evidence of cost containment for inpatient services after a change in Medicare reimbursement in 1983. However, Eldenburg and Kallapur (1997, p. 33) found that more costs were allocated to outpatients and correspondingly less to inpatients after 1983, which could bias the cost comparisons. In this paper we examine changes in inpatient costs relative to outpatient costs, after controlling for allocations, to determine whether the magnitude of allocation changes was large enough to bias the findings of studies that ignored these accounting practices. As in previous health-care studies (noted in our paper), we found that inpatient full costs (i.e., direct cost plus allocated costs) decreased relative to outpatient full costs after 1983. However, when cost allocations were excluded, inpatient direct costs increased relative to outpatient direct costs, thus providing no evidence of cost-containment. When regulation provides incentives that have the potential to affect accounting practices and public policy researchers do not consider the implications of these accounting practices, analyses of the success of public regulation may reach improper conclusions. Accordingly, subsequent policy based on such research findings may be incorrectly motivated.

Sanjay Kallapur is a Professor of Accounting at the Indian School of Business (ISB). He joined ISB in 2005 from the Krannert School of Management, Purdue University, where he was a tenured Associate Professor.

Professor Kallapur conducts research on financial and managerial accounting, auditing, corporate governance, and risk management. He has published in each of the top three accounting journals, and his papers have been cited over 4,000 times (Google Scholar) and in regulatory policy documents in India and the UK. The American Accounting Association recently published his monograph on scientific inference in accounting research, beyond the use of p-values.

He is the founding Editor-in-Chief of Accounting Theory and Practice, a research journal focusing on India, published by Elsevier. He has been an editor of The Accounting Review from 2008 to 2011, the first person from outside North America to be appointed to that position.

Professor Kallapur is a member of National Financial Reporting Authority (NFRA), the regulatory body overseeing the accounting and auditing of listed companies in India. He is an independent director on the Board of IDBI Bank, where he serves on the risk management and audit committees. He previously served on the Board of the Life Insurance Corporation of India.

Professor Kallapur has held positions as Associate Dean and Deputy Dean for almost a decade at ISB. He started the PhD-equivalent Fellow Programme in Management at ISB and has placed his students in faculty positions at the London School of Economics, IESEG Paris, Aalto University, University of Queensland, University of Western Australia, and IIM Udaipur.

Professor Kallapur has a PhD in Business Economics from Harvard Business School, and B.Com. and M.M.S. degrees from Mumbai University. He is professionally qualified as a Fellow Member of the Institute of Cost Accountants of India (FCMA).

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