ACCOUNTING SYSTEM MANAGEMENT BY HOSPITALS OPERATING IN A CHANGING REGULATORY ENVIRONMENT

Under hospital accounting guidelines, contractual adjustments are an a llowable deduction from revenue that reflect the difference between gr oss charges and reimbursement amounts. This study explores the use of contractual adjustments to shift costs among payers and increase reven ues within a regulatory environment that attempted to limit cost shift ing and set revenue constraints, Throughout the regulatory period, we find that hospitals overestimated budgeted contractual adjustments in a systematic manner which allowed cost shifting among payers and incre ased revenues. In addition, budgeted patient volumes and variable cost s were manipulated in an attempt to relax the revenue constraint. Afte r deregulation, we find that volume and cost biasing behavior decrease d while overestimation of contractual adjustmentss increased. Further, we examine the interaction of this regulation with cost-containment r egulation at the federal level.