Managed health care perspectives: a study of management accounting reforms on managing financial difficulties in a health care organization

Abstract

This paper examines the effect of two accounting reforms on managing financial difficulties in a health care organization. At the beginning of the 1990s, Kronoberg County Council, a health care organization with more than 7,000 employees, was exposed to a strained financial situation. The County Council Assembly decided on a radical retrenchment policy. To make this policy workable, the management accounting system was subject to two major reforms: responsibility accounting and an internal market system. A longitudinal study was carried out between 1992 and 1997. To understand the development, four different conceptual models have been used in the study: the institutional theorist's perspective, a conceptual framework for the design of organizational control mechanisms, the importance of receptive contexts and the concept of ‘appreciative judgement’. Each of these frameworks contributes a different interpretation of the reforms. The study gives support to Pettigrew's theory on the contextual dependency of strategic change. A disciplining context made it possible to balance income and expenditure. Budget planning and responsibility accounting were powerful tools when this balancing strategy was carried out. The internal market system was not a solution to the problem. In this context, it threatened to aggravate the financial problem.