Management control and hospital cost reduction: additional evidence

Abstract We consider the consequences of the attempts of a particular hospital to control costs, through reductions in patients' length of stay (LOS), using management accounting control techniques, including physician profiling. Building on prior research discussed in our paper, that documents how profiling was more successful in reducing LOS but less successful in reducing cost, we demonstrate how the economic and social consequences of the profiling program were evaluated. Using data collected from a hospital as well as other data, we found that both LOS and the number of procedures performed per patient were significant determinants of monthly hospital costs, but the physician profiling policy was also found to be associated with a significant increase in the number of procedures performed per patient day. As a result, because the potential savings from fewer patient days appeared to have been offset by a concurrent increase in procedures performed per patient day, the profiling program did not produce a significant reduction in hospital costs.