Which Cost Drivers Drive Cost in the Hospital Sector?(Manuscripts) (Homogeneous Sections Method‪)‬

INTRODUCTION This paper aims to explain some reasons for the low adoption rate of the Activity Based Costing method (ABC). In the first part, we will compare ABC and a method known as Homogeneous Sections. In the second part, we will examine the problem surrounding the choice of the cost drivers considered as the basis for cost allocation. In the ABC method, the resource consumption may be expressed by volume, complexity and efficiency-based variables, whereas in the Homogeneous Sections Method, only volume-based variables are used. Analysis of literature on the subject indicates that different results can be obtained when looking for the best cost drivers. In the third part of the article we will carry out an empirical study in the health sector. We analyse the cost function of Swiss and French hospitals. The objective is to find out how many and what types of cost drivers are necessary to explain the level of hospital indirect costs. We will see that the volume-based cost drivers alone explain the major part of the indirect cost variation. These results lead us to believe that the allocation of the indirect cost, based on volume criteria, is sufficient to produce realistic product costs.