Saturday, February 1, 2014

Failures of Government to Recognize Cost Records value proposition:Series 1

Over the last decade we have been depicting the true picture about the requirements of Cost Accounting and Cost Records which would help the government, shareholders and overall which will improve the corporate governance segment of the Indian corporate. We have explained many times that how Cost Audit and Cost Records would help the Indian government to improve its economy. Well again today we are trying to explain the same stuff here too. But one of the most surprising things is that we are exploring those areas which were ruled by Chartered Accountants. Now when we have explored the path they want to name the path on their own name.  

Indian health care segment is very much scattered in term of the services. Government hospitals have juts managed to improvise and that too in the urban jungle whereas in the rural the situation is still under experimental phase. Some guidelines have been made to improvise the rural health care system but the public infrastructure remains glitch for development. On the other hand private hospitals made a stupendous growth in urban jungle through efficient resource management and cost management which finally lead to better pricing for the patients to use the service.  Here again we find that cost management has played the vicious cycle in the Indian health care segment to grow but the government hospitals failed to do so. This is mainly because the government has been taught only to pay subsidy and provide low cost facility without calculating the cost of the services. When the government found that they were not able to accommodate the rising cost the subsidy part dried away and it only became a Debate Topic for the Elections. In short government has failed to understand the implication of cost records for decision making. But the fallacy is this that Chartered Accountants were still their doing financial audit for these government hospitals. If cost records are of no use then why did not the financial audit reports help the government to improve the public health care system?

Examples and Failures of Government to Recognize Cost Records value proposition
Well how private sector hospitals made a stupendous growth within the same limits is the matter of concern. Limits I mean to say rising cost and accommodating the same within the price to the end user/patient. We must have heard about Dr.Devi Shetty the famous heart surgery who trimmed cost and through efficient resource management cut the price of artery-clearing coronary bypass surgery to 95,000 rupees ($1,555)—half of what it was 20 years ago. He wants to get it down to $800 within a decade. The same procedure costs $106,385 at Ohio’s Cleveland Clinic, according to data from the Centers for Medicare & Medicaid Services. Controlling costs is key in India, where more than two-thirds of the populace lives on less than $2 a day and 86 percent of health care is paid by individuals. Per capita health spending is less than $60 a year. Well financial accounting failed to develop this model.

Medical equipment cost have come down dramatically over the years due to efficient cost management. Their profitability have increased whereas their cost have come down is all due to efficient cost management. Poor costing systems have disastrous consequences. It is a well-known management axiom that what is not measured cannot be managed or improved. The public healthcare system went for a wrong path of cost management which included e-board cuts in expensive services, staff Compensation and head count. But imposing arbitrary spending limits on discrete components of care, or on specific line-item expense categories, achieves only marginal savings that often lead to higher total systems costs and poorer outcomes. When we complain about the service part of public health care system we should know the background for such ill behaviour from their end.

Benefits of No Cost Records
Poor cost measurement due to improper cost records has also led to huge cross-subsidies across services and products. Well I would like to remind here that cost accounting helps to create sales mix of product and services but government fails to understand the same. Now providers are generously reimbursed for some services and incur losses on others. These cross-subsidies introduce major distortions in the supply and efficiency of care. The inability to properly measure cost and compares cost with outcomes is at the root of the incentive problem in public healthcare system. This is reason why we prefer to opt for private hospitals and why private hospitals have been able to achieve stupendous growth. Well I remind you again here that financial audit was being executed by Chartered Accountants.

Financial accounting and Chartered Accountants were present in this sector since India got independence. Then why not the public health care system did not grew. Why better pricing, efficient resource planning were not implemented when the public health care system is struggling. If cost records are of no use then why did not the financial audit reports help the government to improve the public health care system? 

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