Activity cost analysis: a tool to cost medical services and improve quality of care.

This paper suggests an activity-based cost (ABC) system as the appropriate cost accounting system to measure and control costs under the microstatistical episode of care (EOC) paradigm suggested by D. W. Emery (1999). ABC systems work well in such an environment because they focus on activities performed to provide services in the delivery of care. Thus, under an ABC system it is not only possible to accurately cost episodes of care but also to more effectively monitor and improve the quality of care. Under the ABC system, costs are first traced to activities and then traced from the activities to units of episodic care using cost drivers based on the consumption of activity resources.