Explains how activity‐based costing (ABC) can be applied to hospitals and outlines some previous research on its use and benefits. Reports a survey of US health administrators to establish their view of the cost hierarchy and uses the information in a numerical example based on a radiology department to demonstrate the differences between using traditional costing methods and allocations based on the cost hierarchies. Shows that many survey respondents were dissatisfied with their traditional costing systems and argues that the use of ABC could not only improve pricing and product mix decisions but could also enhance profitability by facilitating the management of activities and elimination of waste at all levels of the cost hierarchy, i.e. continuous improvement of processes.

Managed care plans and other health care providers face a difficult task in predicting outpatient mental health services use. Existing research offers some guidance, but our knowledge of which factors influence use is confounded by methodological problems and sampling constraints. Consequently, available findings are insufficient for developing accurate predictions, which managed care plans need in order to formulate fiscally responsible service delivery contracts. This article reviews the primary data sources and research on ambulatory mental health services. On the basis of this review, the probability and intensity of outpatient visits are estimated. The primary predictors of use are also examined because they may help managed care plans forecast use by a given population or group of enrollees. Gender, age, race, education, health status, and insurance coverage are several variables surfacing as statistically significant predictors of use. The implications for planning capitated mental health services are discussed.

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Few studies have assessed the relationship between hospital administrators' efforts at planning and subsequent performance of health care organizations. Nonetheless, planning is viewed as an important mechanism for aligning health services delivery efforts with community needs and operating constraints. When prospective payment (PPS) was first introduced, hospital administrators had little choice other than to plan how they would respond to the new reimbursement policies. However, it is unclear whether they actively undertook planning in an effort to address prospective payment and related pressures. This article presents a case study of rural New Mexico hospital administrators' efforts to respond to prospective payment. Two dimensions of planning effort by administrators--intensity and formality--are analyzed within rural hospitals during the PPS transition (i.e., 1983 to 1987) and after its full implementation (i.e., since 1988). The findings suggest that planning intensity during the PPS transition is associated with higher performance; notably, higher net patient care revenues, lower costs per patient day, higher operating margins, higher net income, and higher planning effectiveness. However, the strength of these associations weakened as PPS was fully implemented. Given the exploratory nature of this evaluative case study, the results should be viewed as preliminary until confirmed by larger studies. The implications for research that evaluates planning-performance relationships in the health care field are discussed.