Ranjani Krishnan

Public versus private governance: a study of incentives and operational performance

Abstract This study explores incentives and performance in organizations governed by publicly elected boards of directors and subsidized by taxes. Such organizations are likely to underpay Chief Executive Officers (CEOs), resulting in selection and incentive problems and hence poor operating performance. We compare municipal district hospitals to private nonprofit hospitals. CEO compensation in district hospitals is significantly lower than in the nonprofits. Operating margins in district hospitals are lower and deteriorate more rapidly over time. We rule out a number of other factors that could explain differences in performance. We conclude that the weak governance structure hampers district hospitals.

The Effects of the Assimilation and Use of IT Applications on Financial Performance in Healthcare Organizations

Special Issue Pankaj Setia University of Arkansas psetia@uark.edu Monika Setia Duke-NUS Graduate Medical School monika.setia@duke-nus.edu.sg Ranjani Krishnan Michigan State University krishnan@bus.msu.edu Vallabh Sambamurthy Michigan State University sambamurthy@bus.msu.edu Volume 12, Special Issue, pp. 274-298, March 2011 The Effects of the Assimilation and Use of IT Applications on Financial Performance in Healthcare Organizations This research examines the impacts of the assimilation and use of IT on the financial performance of hospitals. We identify two dimensions of IT assimilation and use. They are the IT applications architecture spread, which is the adoption of a broad array of IT solutions, and IT applications architecture longevity, which is the length of experience with use of specific IT solutions. We examine the extent to which these dimensions of assimilation within the business and clinical work processes impact hospital performance. Compared with the effects of IT applications architecture spread, we find that the IT applications architecture longevity has a more significant effect on financial performance. In addition, the effects of assimilation manifest differently across the business and clinical process domains. Our results enhance understanding about the manner in which the assimilation and use of IT contributes to the financial performance of hospitals.

The Impact of Changes in Regulation on Cost Behavior

This study examines whether introduction of fixed-price regulation influences firms to increase the elasticity of their cost structures and to reduce the asymmetric behavior of cost in response to changes in volume. It also examines variations in the extent of such responses arising from differences in institutional constraints on the flexibility to make adjustments. We posit that introduction of fixed-price regulation results in cost pressures and a concomitant increase in the operating risk faced by firms. In response, firms will attempt to influence their cost structures by increasing their cost elasticity (i.e., the response of cost to changes in volume) and by reducing their cost asymmetry (i.e., the differential response of cost to decreases in volume relative to increases in volume). We empirically test these predictions using 16,186 hospital-year observations from the German hospital industry for the years 1993–2008. Our results indicate that fixed-price regulation increases cost elasticity and decreases cost asymmetry. Consistent with the tenets of institutional theory, the strength of response to regulation is stronger in for-profit hospitals, which have greater flexibility to make adjustments to their cost structures, compared to nonprofit or government hospitals. These results hold after controlling for economic and hospital-specific factors. Thus, economic as well as sociological aspects influence cost structure responses to regulatory changes.

Perceptions about quality of life in a school-based population of adolescents with menorrhagia: implications for adolescents with bleeding disorders

Summary.  This study examined the effect of menorrhagia on the quality of life (QOL) of adolescents. We used data from a survey of 45 adolescents. Using the Pictorial Blood Assessment Chart (PBAC) and a PBAC score of ≥100 we identified adolescents likely to have menorrhagia. Our statistical analysis indicated that menorrhagia adversely affects the QOL of adolescents. In this article we discuss the implications of our study and future research avenues.

Effects of hospital mergers and acquisitions on prices

Abstract This paper examines the price effects of mergers and acquisitions (M&A) in the US hospital industry, which has witnessed considerable consolidation in the 1990s. Using data from 113 hospitals including 20 acquisitions, we compare the change in revenue per patient, operating cost per patient and operating margins for merging hospitals with nonmerging hospitals located in the same market. Results indicate that hospital acquisitions result in increased revenue per patient and increased operating margins compared to nonmerging hospitals but do not result in lower operating costs. These results imply that acquired hospitals increased prices and improved their operating performance.

Management Accounting and Control in Health Care: An Economics Perspective

Abstract This chapter summarizes empirical archival accounting research in management accounting that is based on economic theory and uses health care settings. Three perspectives are investigated: (1) production cost economics, including cost structure, cost behavior, cost drivers, the design of cost allocation systems, and the appropriate level of cost aggregation; (2) agency theory, including incentives to bias information or shift costs, the relation between benchmark disclosure and cost containment, and issues pertaining to compensation contracts and performance evaluation; and (3) industrial economics, including the effects of competition and mergers on accounting systems and costs, and capital budgeting responses to regulation.

Do Hospitals Without Physicians on the Board Deliver Lower Quality of Care

This study examines whether hospitals without physician participation on their boards of directors deliver lower quality of care. Using data from California nonprofit hospitals from 2004 to 2008, the authors document that the absence of physicians on the board is associated with a decrease of 3 to 5 percentage points in 3 of 4 measures of care quality. This result was obtained using regression analysis, which controls for various hospital characteristics. The authors also identify factors that influence quality of care in hospitals. Specifically, hospital size, church affiliation, urban location, and system affiliation are positively associated with quality of care; proportion of Medicaid patient revenue and poverty level of the county in which the hospital is located are negatively associated with quality of care. These results highlight the importance of physician participation in hospital governance and indicate areas for hospitals and policy makers to focus on to enhance medical quality management.

Accounting Performance and Capacity Investment Decisions: Evidence from California Hospitals

Capacity decisions involve tradeoffs between the cost of capacity and the opportunity costs of lost sales. Accounting researchers posit that accounting performance provides sufficient information about these tradeoffs and thus can be used to formulate simple rules to assist capacity decisions. Empirical research has not examined the role of accounting information in capacity investment decisions at the department level in a multi-product firm in the presence of social costs. Empirical analyses using department-level data from California hospitals for the period 1998-2005 show that hospitals are more likely to make capacity investments in departments with high accounting performance. However, in the presence of demand variability, the association between accounting performance and capacity investment is attenuated because of the resulting increase in noise in accounting performance measures. Thus the weight on accounting performance as a decision tool for capital investments reduces when there is demand variability. Another factor that reduces the weight on accounting performance is capacity utilization. Higher capacity utilization can lead to turning away or rerouting of patients to other hospitals and negatively impacts reputation and quality of care, which increases the hospital’s social costs. Hence, hospitals do not require high accounting performance before investing in a department with high capacity utilization. This empirical evidence of the role of accounting performance in capacity investment decisions fills a gap in the capacity investment literature and furthers our understanding of the interactions between accounting performance and the operational determinants of firms’ capacity investment behavior.

Management Accounting in India

This chapter surveys the history, evolution and current status of accounting systems and practices in India. Tracing the roots of Indian accounting systems to the ancient civilization of the Indus Valley, we discuss the accounting contributions of historical writings such as the Smritis and the Arthashastra. We also discuss the accounting system used by the East India Company. Next we provide an overview of contemporary Indian accounting systems and institutions, and accounting education and curricula. We discuss the prevalence of modern management accounting practices in Indian companies. We conclude with a discussion of future research opportunities provided by Indias current status as an emergent economic power.

The Influence of Ownership on Hospital Financial Performance Strategies

This paper analyzes the effects of hospital ownership on three specific strategies to improve financial performance. These strategies include (1) spending on advertising to increase revenues through increased market share and premium prices; (2) spending on accounting systems to cut costs, increase accounts receivable collections, or increase legitimacy with stakeholders and donors; and (3) improving efficiency through professional administration. We analyze California hospital expenditures on advertising, accounting, and administration for the period 1998 to 2000 to determine differences in these strategies across ownership type. We also examine the relationships among these expenditures and revenues and excess income margins. We find differences in strategies by ownership, i.e., for-profit hospitals emphasize advertising whereas government hospitals emphasize accounting. We also find that expenditures on advertising, accounting, and administration are positively related to margins for some hospitals.