Application of Activity-Based Costing (ABC) in a Peruvian NGO Healthcare System

This paper describes the application of activity-based costing (ABC) to cal­ culate unit costs for a healthcare or­ ganization in a developing country. It also describes the ways in which these calculations can provide infor­ mation for improving the efficiency and quality of healthcare services. The study was conducted from June 1, 1997 through May 31, 1998 at the MaxSalud Institute for High Quality Health Care, a nongovernmental, nonprofit healthcare provider in Chiclayo, Peru. At that t ime, MaxSalud consisted of a manage­ ment support unit (MSU) and one clinic in each of the communities of Balta and Urrunaga. Traditional costing frequently allo­ cates overhead and other support costs on the basis of units of produc­ tion, while ABC assigns these costs to direct services by tracing actual time and other costs through the or­ ganization. This provides more accu­ rate estimates of the full unit costs of services than traditional accounting methods. ABC also highlights areas in the healthcare process where effi­ ciency improvements are possible. Methodology The design of the study had two ma­ jor components: (a) development and implementation of an activity-based costing model and (b) evaluation of the results and usability of the model. Continued on page ii Application of Activity-Based Costing (ABC) in a Peruvian NGO Healthcare System