Application of activity-based costing (ABC) in a Peruvian NGO healthcare system.

This paper describes the application of activity-based costing (ABC) to calculate unit costs for a Peruvian NGO health care system. It also describes the ways in which these calculations can provide information for improving the efficiency and quality of health care services. The study was conducted during June 1997 to May 1998 at the MaxSalud Institute for High Quality Health Care a nongovernmental nonprofit health care. Overall the study clearly shows that ABC calculates real unit costs by including support and administrative costs in the unit-cost information. It also reveals hidden costs associated with some non-value-added activities. Additionally ABC can calculate overall subsidy required by a nonprofit organization. Applying ABC to health care services in a developing country setting is both feasible and useful. However a potential constraint in the developing world is the generally poor availability and organization of a health care systems cost information. Therefore for ABC to be conducted efficiently cost information must first be organized both by cost category and department.