Strategic cost accounting helps create a competitive edge.

The way healthcare cost allocation is conducted has changed radically over the past three decades. Although government regulations have required the step-down allocation method be used for determining Medicare payments, this method is limited in its ability to generate relevant cost data needed for management decision making and effective managed care contract rate negotiation. Deriving such data depends on using appropriate cost drivers and allocation methods. Of the four method, that may be used to allocate the costs of health are organization service departments to revenue departments--the direct method, the step-down method, the double-apportionment method, and the reciprocal method--the reciprocal method is the most sophisticated and may provide the most accurate representation of costs.