The dramatic escalation of health care costs throughout the 1990's has drawn critical attention to the efficacy of management control systems (MCS) in containing health care organizations' costs. This dissertation examines three different management control systems in an attempt to understand the role that such systems potentially play in health care organizations in particular, and in all firms in general. The operational homogeneity of health care organizations, the variation in control system choice of these organizations, and the availability of control system data combine with other factors make to health care an empirically attractive setting in which to study MCS design. The first two chapters examine hospitals, and the third explores physician group practices. Hospital financial mangers often responded to external pressure to contain costs, while maintaining quality, by implementing Total Quality Management (TQM) programs and/or new cost systems. Accordingly, chapter 1 examines the relation between TQM and financial performance in 129 hospitals and chapter 2 explores the relation between cost system design and financial performance in over 200 hospitals. While the health care literature generally advocates use of TQM (e.g., Berwick, et al. 1990; Gaucher and Coffey, 1993) and adoption of more sophisticated cost systems (e.g., Young and Pearlman, 1993; Cooper and Suver, 1994), it is not clear that such systems can be used to improve performance in hospitals or any organizations (Schmenner, 1991; Ittner and Larcker, 1997; Easton and Jarrell, 1998). I find that the use of specific TQM and advanced cost system techniques is positively associated with financial performance. The third chapter explores compensation systems for physicians, who play a key role in medical resource allocation. Several have demonstrated that compensation methodology influences physician behavior (e.g., Newhouse, 1973; Gaynor and Gertler, 1995; Pauly, 1996); however, few have examined what determines the wide variation found in physician compensation plans. Thus, chapter 3 explores potential determinants of compensation suggested by agency theory. Evidence from the analysis of over 16,000 physicians in more than 850 practices indicates that medical practices conform relatively well to economic theories on compensation design, although much of the variation in compensation plans remains unexplained.
Supervisor: Christopher Ittner. Thesis (Ph.D. in Accounting) -- University of Pennsylvania, 2002. Includes bibliographical references.