The introduction of cost accounting systems in the Greek National Health System

“The introduction of cost accounting systems in the Greek National
Health System”

Filippos Stamatiadis1* , and Nikolaos Eriotis2

Abstract
Purpose – In an attempt to promote efficiency and effectiveness in health service
production, the Greek government introduced in 2003 business-like accounting
systems that support accruals in all public hospitals of the National Health System
(NHS). This study aims at examining the extent and some of the factors influencing
the governmental cost accounting initiative development in the public health sector
from an empirical point of view by drawing on the insights of the institutional
isomorphism, as well as on the signaling theory.
Design/methodology/approach – For the purposes of this study, mail survey
questionnaires were distributed to 132 public hospitals that are part of the Greek
public health sector. The questionnaires were directed to the Chief Financial Officer
(CFOs) of public hospitals. An ordered and a binary logistic regression analysis was
used to examine the cross-sectional differences on a number of implementation
factors of the cost accounting system (CAS) adoption level. Moreover, a series of
interviews were conducted to discuss the findings with six public hospital Financial
and Accounting executives.
Findings – The results indicate that the CAS adoption process in the Greek National
Health System (GNHS) is at an early stage, with a poor 24.4% adoption rate five
years after the reform’s official enactment. Overall, this study reveals the level of cost
accounting system introduction and implementation is restricted by both
organizational characteristics and wider institutional influences.
Research limitations/implications – Although this study takes into consideration the
work of previous researchers in the health care area, it acknowledges that empirical
research on the subject in the Greek environment is limited. Therefore this study
should be viewed as an initial step to address this limitation and understand
accounting changes in public health sector and thus any generalizing of the
conclusions beyond this context should be undertaken with care.
Contribution: This study contributes to the international literature of New Public
Management (NPM) initiatives by providing, to our knowledge, the first large scale
assessment of costing systems introduction in the public secondary and tertiary health
care sector in Greece. The empirical evidence of this study can enhance academics,
practitioners and policy-makers understanding of major implementation processes and
challenges and thus help them refine models of effective implementation process and
improve systems and processes on similar future projects.

1
Research Associate, Faculty of Management and Economics, Technological Educational Institute of
Athens, 122 10 Athens, Greece.
*
Corresponding author. Tel : +30 9637035926; Fax : +302103368167. e-mail address :
fstam23@gmail.com
2
Associate Professor, Department of Business and Finance, National and Kapodistrian University of
Athens, 5 Stadiou St., 105 62 Athens, Greece.

1

1. INTRODUCTION
Across the world many countries are implementing numerous market-based and
business-like reforms, broadly known as the New Public Management (NPM), aiming
at bringing the public sector in line with the private sector. Under the guise of New
Public Management (NPM) accounting reforms have often been the first step of
reforming and modernizing governments. Among the most important change that
accounting reforms brought to public sector organizations was the transformation of
the traditional budgetary cash accounting systems to more business-like accounting
systems that support accruals (Hood 1995). This change of public accounting systems
towards accruals accounting seems necessary given that the traditional budgetary cash
accounting system is now perceived as out-dated and no longer satisfactory, mainly
due to its inability to present an organisation’s “true” financial position as well as to
provide adequate, relevant and reliable managerial information for decision makers.
In the Greek context one of the most important public sectors to be affected by
this NPM trend was the public health sector, which was beginning to experience
strong pressures from customers, regulators, and resource providers to reduce costs,
improve clinical quality and health management services. Part of the response to deal
with this pressure was the introduction by the Greek government in 2003 of a
business-like cost accounting system based on accruals.
According to Pollitt’s framework of convergence (2002, p.278) the adoption process
of NPM practices and techniques, such as the cost accounting system in our case, can
be categorised at four distinct levels of organisational change: (1) disclosure, in the
sense of a conceptual agenda for NPM policies and techniques (2) decision, to be
taken by public sector entities regarding the adoption of technical NPM innovations
(3) practices, the manner in which the NPM techniques are implemented and used by
public sector entities, and (4) impacts of NPM techniques’ usage in public
administration.
Based on the second level of Pollitt’s framework, this paper aims to contribute to
the understanding of the relevant organisational change by obtaining an overall view
of the cost accounting reform adoption level in public hospitals and map possible
factors of influence at a certain point in time and within a broad institutional
framework. In particular, it draws on the insights of the neo-institutional theory as
well as on signaling theory in order to assess the extent to which the cost accounting
aspects of reform are introduced into hospitals, and also to explain the cross-sectional
differences on the level of compliance with the reform in a systematic way.
The remainder of this paper is structured as follows. The next section presents a
short background of the Greek public hospitals’ accounting system. The third section
provides the conceptual framework for this study and specific influential factors of
hospitals compliance with the reform. The materials and methods used in the research
are presented in the fourth Section. Results of the empirical research are presented in
the fifth section and the final section draws some conclusions and discusses
implications for policy makers and researchers.

2. FINANCIAL MANAGEMENT REFORM IN THE GREEK NATIONAL
HEALTH SYSTEM (GNHS)
The Greek NHS can be characterised as a “dual-mixed” system, in which elements
from both the Bismarck (i.e. insurance-based) and the Beveridge (i.e. tax-based)
model co-exist. The GNHS was founded in 1983 by the Greek Law 1397/83 which
declared that health is a “social good” and all citizens should have the right to high
quality health care. There are three major categories of health care providers in

2

Greece: (1) the GNHS facilities (public hospitals, health centres, rural surgeries and
emergency rooms per hospital care) administered by the MHSC; (2) public hospitals
administered by other ministries (primarily military hospitals and those operated by
sickness funds); and (3) the private sector (private hospitals, diagnostic centres,
independent practices, surgeries and laboratories).
Until recently the financial management of public hospitals was on a cash rather
than accrual basis, making it difficult to assess the financial position of hospitals and
determine the relationship between financial resources committed and how they are
used. The initial efforts of improving the accounting systems of public hospitals in
Greece started in 1997 under the Law 2519/97. This Law presented for the first time
the government’s intention to introduce a double-entry bookkeeping accounting
system and cost management applications in public hospitals based on the accrual
basis. For this purpose, in 1998 the Ministry of Finance assigned the development and
preparation of an Official Health Sector Accounting Plan (HSAP) to the national
Council of Accounting (ESYL) and to the Chamber of Finance (OEE). The
governmental efforts to reform the accounting system of the health sector escalated in
2003, when a law, the Presidential Decree 146/03 (P.D. 146/03), was passed.
The P.D. 146/03 enforced the adoption of the new accounting system, based on
accrual accounting, on all public hospitals that are part of the Greek NHS and
established the necessary guidelines and accounting principles for financial and cost
reporting. However, the previous traditional budgetary cash accounting system was
not totally abandoned but instead, the public hospitals just added the accrual
accounting system separately and most of the budgetary accounting principles were
maintained (Christiaens, 2001). In particular, the new accounting framework of the
P.D. 146/03 defined three accounting systems that should work simultaneously under
three independent accounting cycles; the financial accounting cycle3 (group 1-8
accounts), the budgeting cycle (group 10 accounts) and the cost accounting cycle
(group 9 accounts), within the same general ledger and while each one would still
retain its autonomy. The financial accounting system aims at reporting the financial
position and the yearly profit and loss of hospitals, the budgeting system aims at
authorizing and controlling the public spending and the cost accounting system aims
at calculating the health services’ full cost (i.e. Functions, services) by using the
accounting data of the financial accounting cycle (accrual accounting) and processing
them within a rather complicated framework of double entry journal entries following
exactly the same chart of accounts, procedures and principles used in the private
sector. (Venieris et al., 2003).
However, under this legislative framework, there is no reference to the Diagnosis
Related Groups (DRGs), which is a commonly used diagnostic codification and cost
assessment system for grouping costs and reimbursing hospitals on the basis of the
corresponding standard prices as well as no intention of connecting the cost of outputs
with the reimbursement received by the hospital for the services offered to patients. It
seems that the hospital cost accounting system has been designed mainly for external
financial reporting and inventory valuation purposes and not for decision-making
purposes (a description of hospital cost accounting system is provided in the
Appendix B)
Despite these shortcomings the deadline for the implementation of the cost
accounting system by public hospitals was the 1st of January 2005.

3
See Stamatiadis (2009) for an extensive presentation regarding the adoption of the accrual-basis
financial accounting system in the Greek public hospitals.

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3. EVALUATION OF NPM REFORMS
3.1 INSTITUTIONAL SOCIOLOGY FOR NPM REFORMS ADOPTION
NPM literature typically suggests that functional or rational reasons (i.e. improve
efficiency and effectiveness) are the primary motivations for change. However and
because the initiative of the accounting change in public hospitals has originated from
outside the health sector (i.e. instigated from the state), where hospitals have to
implement the new management accounting practices mainly in order to satisfy
legislative requirements, the use of institutional theory seems to be a useful theoretical
base when assessing organisational change, stressing that other factors related to both
internal and external organisational expectations and values can play also an
important part in the change process (Meyer and Rowan, 1977).
Institutional research has typically explored the extent to which wider institutional
contexts have influenced the adoption and development of new management and
accounting practices into public sector entities. In most cases its adoption and
development is considered to be a legitimating exercise to external constituents that
increases the chances of organizational survival through the process of isomorphism
(see for e.g., Lapsley and Pallot 2000; Järvinen, 2006; Windels and Christiaens, 2006;
Carruthers, 1995; Arnaboldi and Lapsely, 2003; Modell, 2002; Eriksen and Urrutia,
2005; Geiger and Ittner, 1996; Hassan, 2005; Dambrin, Lambert, and Sponem, 2007).
Institutional isomorphism is based on the idea that environments are collective and
interconnected, and that, in order to survive, organisations must be responsive to
external institutional pressures and expectations striving for similarity (see e.g.
DiMaggio and Powell, 1983; and Oliver, 1991). This is particularly true for the public
sector where the looser corporate ideology of public sector entities’, due to their social
role, and their dependence on financial resources allocated by central government
makes these entities, such as public sector hospitals, particularly susceptible to a need
for legitimacy in relation to their external controlling environment (Meyer and Scott
1992). Powell and DiMaggio’s model of isomorphism (1991) identifies three different
mechanisms of institutional pressures that are used to facilitate institutional change:
coercive isomorphism (response to external pressure); mimetic isomorphism
(organisations modelling themselves on other organisations); and normative
isomorphism (professionals operating in organisations are subject to pressures to
conform to a set of norms and rules developed by professional groups). The
consequence of these institutional pressures is the creation of institutional rules that
organisations attempt to adopt in order to obtain social legitimacy and secure their
survival.
However, in their focus on isomorphism, institutional-centred frameworks have
been criticized for their lack of attention to the role of organizational self-interests,
and particularly regarding the issue of resistance to change. Likewise, institutional
theory emphasizes the survival value of conformity and compliance and fails to
consider the advantages of defying external pressures and the ability of organization
to maintain autonomy over decision making. (Modell, 2002; Greenwood and Hinings,
1996; Oliver, 1991; Pfeffer, 1982; Hyvönen et al., 2009).
This paper departs from this deterministic claim to be found in early institutional
theory, suggesting great homogeneity and adaptation in organisational action in
response to external legitimacy and conformity pressures, and argues that
understanding organisational change and responses to a reform which is regulatory
prescribed and subsequently imposed in a top-down fashion, is about understanding
public hospital variations in response to the same coercive institutional pressure from

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the central government. (Windels and Christianes, 2006; Greenwood and Hinings,
1996; Oliver, 1991; Pfeffer, 1982).

3.2 DETERMINANTS OF NPM REFORM IMPLEMENTATION AND
SUCCESS
Regarding the influential role of several external and internal organisational
characteristics upon the adoption and implementation progress of the accounting
reform programs in public sector entities, previous studies on information system
change, management accounting innovation, and public sector reform have identified
a number of factors that are expected to influence the implementation and success of
new accounting practices and techniques in the organizations (i.e. the cost accounting
initiative in NHS hospitals in our case). These factors include human, organisational,
technical issues, and situational factors.
More specifically, previous research has provided empirical evidence that human
and technical resources of an organization, (such as: the level of the staff’s education,
staff and executive professionalism, training, skills, project leadership, IT capability,
etc) have a positive effect on the adoption and success of new accounting systems,
and are considered as necessary internal dynamics for putting in place the change
program at public and private sector entities and managing the shift. Moreover,
According to Ballas and Tsoukas (2004), one of the reasons why not enough attention
is paid to developing robust management tools is a lack of professionalism in the
administration of the GNHS hospital entities. Hospital CEOs are appointed on the
basis of political affiliation, and only a minority of these have the necessary
managerial skills. Thus CEOs with an administrative/business educational background
is considered to be a proxy of the necessary managerial skills a CEO must have in
order to mobilize the necessary resources to implement and adopt management
accounting practices and techniques and take advantage of the more accurate, reliable
and relevant information they provide.
Based on the signaling theory and related studies it is hypothesized that public
hospitals having a sufficient technical and operational capacity will show a higher
tendency to introduce and support the new accounting techniques prescribed in the
reform (see, for example, Christiaens, 1999; Cavalluzzo and Ittner, 2004; Kwon and
Zmud, 1987; McGowan and Klammer, 1997; Venieris et al., 2003; Ouda, 2008;
Kimberly and Evanisko, 1981; Arnaboldi and Lapsley 2003; Naranjo-Gil, Hartmann,
2007). These issues lead to the formulation of the first set of hypotheses:
H1: The extent of cost accounting reform adoption is positively associated with
education level of accounting department staff
H2: The extent of cost accounting reform adoption is positively associated with a
higher level of reform-related training of the accounting staff
higher level of existing information technology quality.
CEOs business-oriented educational background
previous financial and cost accounting knowledge and expertise of the accounting
staff
A second set of propositions relates to the effect of intra-organizational factors on
responsiveness of public hospitals to the mandated cost accounting system (i.e.
organizational support, conflict of interest between physicians and management,
satisfaction with the previous accounting system, and size). Previous studies in

5

management accounting innovation literature report that while technical factors are
expected to significantly influence the implementation of accounting systems their
impact may be secondary to that of organisational factors. Shields (1995), for
example, reports that top management and organizational support is crucial to the new
accounting system implementation success because these managers can focus on
resources goals, strategies and initiatives they deem worthwhile, deny resources to
initiatives they do not support, and provide the help needed to motivate or push aside
individuals or coalitions who resist the innovation. Also, the need for strong top
management support to accounting systems is recognized in the public sector reform
literature. Doyle et al. (2004), Ouda (2008), and Cavalluzo and Ittner, (2004) highlight
the role of top management support in creating a suitable environment for change and
increasing the appreciation on behalf of employees of the potential contribution of the
system to meeting organisational objectives. Moreover, Arnaboldi and Lapsley (2003)
report that besides issues of resource availability, management accounting techniques
(i.e. ABC) have not been implemented by the Scottish local authorities because of
inadequate commitment from senior management.
However, hospital settings are considered to have some unique features that are
typically not observed in other industries in a sense that administrators have to work
with different organisational actors, like health care professionals (physicians and
nurses). These organisational actors are “responsible” for the largest part of hospital
overhead and resources consumption but possess low commitment to managerial
values (Comerford and Abernethy, 1999; Kurunmaki et al., 2003; Pettersen, 2001;
Coombs, 1987). In such multi-service organisational environments, besides the top
management support found in previous studies, the support also from medical parties
should be considered an important factor that may influence organizational change in
hospitals. Cardinaels et al. (2004) in their survey about the cost system development
in Flemish hospitals found that hospital specific factors, such as organizational
support including the medical parties, and the management-physician conflicting
logics, have a statistically significant influence on management accounting change
process. Similar conclusions were reported in Lehtonen’s study (2007), which also
implies that successful implementation of new accounting and control systems in the
Finnish health care sector are strongly dependent on the involvement and support of
clinicians in this process. Lastly, the size-effect variable of the organisations in
question has also been incorporated in other previous studies on management
accounting innovation and public sector reform as an important factor influencing the
level of business-like management and accounting instruments adoption. However,
the relevant literature remains inconclusive as to the effect of an organisation’s size on
compliance with accounting standards. More specifically, the empirical evidence in
the studies of Christiaens, (1999), Cardinaels et al. (2004), Krumwiede, (1998), Innes
and Mitchell, (1990), and Bjornenak, (1997) supports the positive effect of an
organisation’s size on the level of business-like instruments adoption and compliance
with accounting standards. On the contrary, the studies of Evans and Patton, (1983),
Ingram and DeJong (1987), and Cohen et al., (2007), did not support such a
relationship. Our study takes the position that larger organisations, in terms of bed
capacity, have relatively greater access to resources and thus it is easier for them to
introduce and implement management systems and techniques. These issues lead to
the formulation of the second set of hypotheses:
higher level of organisational support.

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H7: The extent of cost accounting reform adoption is positively associated with the
absence of management-physician conflict.
lower-level of satisfaction with the previous accounting system.
hospital size.
A third set of hypotheses attempts to shed some light on inter-organisational
influences that might affect the responsiveness of the public hospitals to the
introduction of the cost accounting system of the reform (i.e. professional consultants’
support and political support). Christianes (1999) claimed that the assistance of
professional consultants and political support were found to be important positive
explanatory factors for the Flemish municipalities’ compliance level with the
accounting reform agenda by connecting them with their wider institutional
surroundings in processes of renewal. Moreover, according to Lapsley, (1988; 2004)
and Venieris et al., (2003) the lack of guidance from the relevant authorities and
political parties is a crucial factor that cannot be ignored in relation to the level of the
successful adoption and implementation of management accounting techniques in
public sector. Based on the above arguments the following set of hypotheses is
formulated:
Professional support of management consultants’ use.
higher-level of support by central government and regional authorities.
The expected relationship between the various factors described above and the
extent to which the cost accounting system is introduced and implemented in practice
by public hospitals is presented in the conceptual framework in Figure 1.
------------------------------------------------------------
INSERT FIGURE 1 ABOUT HERE
------------------------------------------------------------
Based on the above arguments, this paper intends not to investigate thoroughly the
reform implementation process in particular organisations looking at specific
processes, but to obtain an overall view of the reform adoption in public hospitals at a
certain point in time by conducting a large-scale survey of public hospitals and
drawing on the insights of institutional theory, as well as on signaling theory. The
assumption is made that both wider institutional forces as well as various
organisational features have a role to play in the implementation success of new
accounting techniques among Greek public hospitals.

4. RESEARCH METHOD
4.1 Research sample
In order to collect the necessary data and assess the change process of the accounting
reform in GNHS three major kinds of data are used. First, a survey using
questionnaires was conducted during 2009 in all Greek public hospitals of the
National Health System (ESY). The questionnaire was sent by electronic mail (e-
mail) and facsimile (fax) to 132 Chief Financial Officers (CFOs) of public hospitals.
The main criterion for the selection of CFOs as key informants in this study was their
expected knowledge about the adoption and implementation of the new accrual
accounting system within their organisations. Eventually, out of 132 distributed
questionnaires, 94 usable questionnaires were returned, yielding a total response rate
of 71.21%.

7

Secondly, a series of semi-structured personal interviews was conducted with six
(6) finance and accounting staff to discuss and fine-tune the stated findings and the
proposed conclusions of this research. The six participants are officials holding senior
positions in finance and accounting departments from six different public hospitals
randomly selected, with an average of 19.4 years of experience in health industry and
with an average tenure of 5.6 years in the current high-level position.
Lastly, in terms of size the sample counted 41.4% small facilities with less then
200 beds, 32.9% medium-sized hospitals with 200–499 beds and 25.5% large
hospitals with over 500 beds.

4.2 Measurement of the variables
Dependent variable
The primary dependent variable is the development stages of accrual-based costing
system as a proxy of the level or reform adoption compliance. This variable is
measured by one question, which builds upon previous work by Krumwiede, (1998),
Al-Omiri and Drury, (2007) and Cardinaels et al., 2004. Respondents were asked to
classify their level of reform compliance behaviour in one of the five categories of
decisions presented in the table 1.
------------------------------------------------------------
INSERT TABLE 1 ABOUT HERE
------------------------------------------------------------
Additionally, and for the purposes of the ordinal regression analysis in this study,
respondents were re-classified in the following three stages of cost system
development:
The first group of hospitals does not face the prospect of the adoption of the cost
accounting system even as a future prospect (stage 1: minimum
development/compliance). The second group (stage 2: Intermediate
development/compliance) of hospitals is currently in the process of developing the
CAS or has included its development in their future plans. The last group (stage 3:
advanced development/compliance) of hospitals has implemented and now it is in the
process of using the CAS.
Lastly, one should further note that hospitals in stage 1 are somehow distinct from
the other two groups. Unlike hospitals in stages 2 and 3, these hospitals do nothing in
terms of cost system introduction and adoption; it’s seems like they defy the CAS
adoption. In the fifth Section, an additional model based on this dichotomy (binary
variable) is reported.

Independent variable measurement
Previous accounting expertise (denoted ACCEXP) is measured using the percentage
share of accounting department staff having some previous accrual accounting experience
to total number of accounting dept staff. The CEO educational background (denoted
CEOEDUC) is measured using the years of business-oriented education to the total
number of education years. The size variable (denoted BEDSIZE) was measured using
the natural logarithm number of beds. Regarding the general level of accounting staff
education (denoted DEPTEDUC), Chief Financial Officers were asked to indicate the
percentage share of accounting staff’s finished studies (master, bachelor and
secondary level). Then a finished study category to the total percentage of accounting
dept. finished studies.
The other seven independent variables: the level of the management-physicians
relationship (denoted CONFLICTF), the level of management consultants

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professional support (denoted CONSUL), the level of existing information systems
quality (denoted ITQUAL), the level of the reform-related training (denoted TRAIN),
the level of the organisational support (denoted ORGSUP), the level of the political
support (POLSUP), and the level of satisfaction with the previous accounting system
(SATCASH) required the use of perceptive measures and thus multi-question Likert-
type five point scales (where 1 = to no extent and 5 = to a very great extent) were used
to derive composite scores for each factor. All of the measures are based on
previously validated instruments of previous studies. Multi-items variables were
preferred because they capture more of a construct’s multi-dimensionality than single
items (Cardinaels et al., 2004; Al-Omiri and Drury, 2007; Krumwiede, 1998).
The resulting composite factor scores are computed using mean standardized
responses, having a mean of zero and a standard deviation of one, to the survey
questions loading greater than 0.404 on the respective factors with eigenvalues in
excess of one. The construct validity and reliability for the multi-item variables were
assessed by using a principal component analysis and Cronbach coefficient alphas5
respectively. Based on this analysis, the factors appear to be reliable and reasonably
valid. The descriptive statistics of the independent variables in the study as well as
the results of these factor analyses are displayed in Table 2.
------------------------------------------------------------
------------------------------------------------------------
Finally, Table 3 also presents a Spearman Correlation matrix for the independent
variables. None of the Spearman Rank correlation coefficients are high thus
suggesting that multi-collinearity is not an issue. Lewis-Beck (1990) reported that
intercorrelations need to be 0.8 or above before they are of any concern.
------------------------------------------------------------
------------------------------------------------------------
5. Data Analysis
5.1 Main Results of the CAS Adoption
This section of the study empirically attempts to define the extent to which the
management accounting reform has taken place and, secondly, to shed some light on
technical, organizational and environmental aspects that might affect the
responsiveness of the public hospitals to the reform.
The survey revealed that the introduction of cost accrual accounting has not yet
seriously progressed, as only 23 out of 94 (24.4%) hospitals have an operating cost
accounting system based on accruals. Another 31.9% is in the process of developing
an accrual basis cost accounting system or have included its development in their near
future plans. Although the deadline imposed by the Presidential Decree 146/03
concerning cost accounting system (CAS) implementation in the public health sector
was the 1st January, 2005, the remaining 41 hospitals (43.7%) answered that the
development of such an accounting system is not an option for them even in the future
due to resources constraints. These results does not support the contention that
isomorphism is a strong influence within public hospitals at least for these hospital
entities.

4
This is in line with Hair et al. (1998) who considered items that display factor loadings of .40 and
above as important.
5
All factors have coefficient alphas above the minimum level of 0.5 suggested by Nunnally (1978)
Indicating that are all reliable and reasonably valid.

9

In general, these empirical results signal a low adoption level of hospitals with the
prescribed cost accounting reform five (5) years after its official enactment. However,
this situation does not consist of a phenomenon unique in the Greek context only, as it
is also consistent with the results of previous studies conducted in Europe and the US,
which also exhibit low adoption levels of cost accounting systems in hospital
organizations (Comerford and Abernethy, 1999; Hill 2000; and Arnaboldi and
Lapsley, 2005). In particular, these studies reported that hospitals traditionally had
little incentive or demand for cost accounting systems to be used as a management
control and decision tool. Hospitals primarily reported to external funding authorities,
such as the government, and therefore only served as external reporting factors by
focusing on financial accounting aspect. Finally, according to Arnaboldi and Lapsley,
(2005, p. 67) the situation of low cost accounting systems adoption level appears to be
typical in public sector organisations in which cost issues have been neglected for two
main reasons: “the need to provide products and services to citizens, without
consideration of financial matters such as cost recovery and second reliance on
government funding”.

5.2 Factors affecting the CAS Adoption
In order to test the hypotheses specified in Section 1, two logit analyses were
performed. First, ordered logit analysis is used by taking into account the three levels
of Table 1 as the dependent variable, to derive the factors that significantly change
between the different stages of CAS development (model 1). Next, binary logit
analysis is used to compare two important groups, those hospitals that show only a
minimum level of CAS progress versus all others, in order to single out the first
initiators (factors) of change (model 2).

Model 1 (ordered logistic ) : Ln(Yj=1,2) = αj=1,2 - β1 (ACCEXP) - β2 (DEPTEDUC) -
β3 (TRAIN) - β4 (ITQUAL) - β5 (ORGSUP) - β6 (CEOEDUC) - β7 (CONFLICTF) -
β8 (SATCASH) - β9 (BEDSIZE) - β10 (CONSSUP) - β11 (POLSUP) + e

Model 2 (binary logistic): Ln [Prob(Y=1)/1 – Prob(Y=1)] = a - β1 (ACCEXP) - β2
(DEPTEDUC) - β3 (TRAIN) - β4 (ITQUAL) - β5 (ORGSUP) - β6 (CEOEDUC) - β7
(CONFLICTF) - β8 (SATCASH) - β9 (BEDSIZE) - β10 (CONSSUP) - β11 (POLSUP) + e

------------------------------------------------------------
------------------------------------------------------------

The results of the ordinal regression analysis indicate that four out of the eleven
variables the effect of which upon hospitals’ different development stages of CAS
was tested in this study, the level of previous financial and cost accrual accounting
experience of the hospital’s finance and accounting Department (p<0.05), the level of
the existing information technology quality (p<0.1), the level of management
consultants professional support (p<0.05) and the level of organizational support
towards accrual basis cost accounting reform (p<0.1) were the most significant in
statistical terms. However, the other seven variables do not seem to play an important
enabling or negating role in the implementation and adoption process of the cost
accounting system as they do not seem to differentiate significantly among the
different implementation stages in both logit models examined. Additionally, results
of the binary logistic regression are similar to the ordered logistic regression reported

10

earlier, except for the fact that organizational support is not significant anymore. This
result shows us that this specific organizational factor, ORGSUP, becomes a dominant
and significant variable on a more advanced development stage as the costing system
is implemented.
Furthermore, the variables concerning the accounting department’s general
education level, the level of CEO administrative/business educational background,
and hospital size, are found to be not in the direction predicted in the hypotheses of
this study. Regarding the insignificance of general education level, this could be
attributed to the fact that in Greek reality hospitals’ financial and accounting
departments can be often recruited with employees having an important level of
finished studies (master, bachelor etc) but not in the field of accrual accounting or
accounting in general, as knowledge of accounting is not a prerequisite for staff
working in accounting departments of public sector entities in Greece (Venieris and
Cohen, 2004).

6. Discussion and conclusions
6.1 Research Findings
Since controlling operational costs was one of the main issues which initiated the
accounting reform, establishing an accurate and updated costing system based on an
accrual basis could not be but a precondition for the reform. However, 5 years after its
initial conception, it has not yet seriously progressed as only a minority of public
hospitals has complied with the respective regulatory requirements of the cost
accounting adoption. In particular, the empirical research findings indicate that only
23 out of 94 (2 4.4%) hospitals have implemented an operating cost accounting
system. The vast majority of hospitals have neither introduced nor developed any kind
of cost accounting applications, resulting into the absence of any cost-related
information with regards to their provided services.
The cross-sectional differences among hospitals in terms of adoption reveal that
there are certainly some significant constraints (or enablers) in the process of
organizational change. The Accounting Department personnel’s lack of sufficient
accounting experience or professional qualifications to initiate, support and
understand the merits of the reform, the inefficiency of existing information systems
to provide timely, reliable, and valid data in an accessible format, the lack of support
from the relevant organizations’ key actors, and the lack of professional support from
consultants, all do significantly hinder the cost accounting adoption process. On the
other hand, the hospital size, the level of the accounting department’s staff education,
the business/administrative educational background of hospital CEOs, the political
support, the training programs, the conflict between management-physicians, and the
satisfaction with the previous accounting system do not seem to exhibit a significant
influence on the level of reform adoption .
In order to discuss and improve the validity of the findings and conclusions of this
research, additional interviews were conducted with six (6) Financial and Accounting
executives of the examined public hospitals randomly selected.
All of the interviewees responded that the implementation of the cost accounting
system was considered to be quite a difficult and time consuming task, and that they
did not have the necessary organisational resources (human, technical and financial
resources) in managing the shift. This runs counter to institutional theorists thinking
that organizations are willing to incur substantial costs in the achievement of
legitimation (Meyer and Rowan 1977).

11

Moreover, the interviewees, even the adopters, pointed out that the main driver for
change was the legislative requirement (coercive pressure) and not economic
incentives for more efficient and effective organizational results. From an institutional
point of view this finding supports the view previously mentioned by Covaleski and
Michelman (1993), and Meyer and Rowan, (1977) that organizations adopt
managerial practises on a ceremonial basis and in search for social legitimacy in order
to appear well managed in their organizational field rather than for the rational
purpose of improving efficiency.
However, the high percentage of hospitals (44%) not implementing the mandatory
CAS does not support the assertion that coercive isomorphism regarding this
managerial system, constitutes a strong external influence and pressure within GNHS
hospitals. This finding indicates that in general public hospitals are not trying enough
to respond to governmental accounting demands either in search for improving their
decision-making, and control mechanisms or for reasons of legitimacy and financial
security. Institutional theory posits that an organisation’s survival requires it to
conform to institutional pressures (Covaleski and Dirsnith, 1988). However, if a non-
compliance with legislative requirements does not deliver the organisation a
legitimacy or survival problem, institutional inertia or limited isomorphism is then
likely to prevail (Windels and Christiaens, 2006).
Based on the conducted interviews with the CFOs, we present the following
explanatory factors regarding the slow moving implementation progress of the cost
accounting component of the reform in the GNHS:
First, public hospitals rely on a governmental funding mechanism, which
continues to be appropriated on a cash basis. Within the new accounting
legislation there is no reference of connecting the hospitals’ accruals and cost of
outputs with the reimbursement received for the services offered to patients.
Thus, no real economic incentive or gain is given to hospitals to control their
costs as they will continue to be eligible for funding and receive their subsidies
irrespectively of their cost efficiency results. The following comments from one
pubic hospital CFO demonstrate the importance of this:
“at the present we are reimbursed ex post at a per-diem basis without
any link to performance criteria. In order a hospital’s managers to be
considered successful he has to increase the production volume of the
hospital in order to allow additional revenues to be generated,
irrespectively of cost-efficiency issues” and concludes “it seems that this
payment system “punishes” the more cost-efficient hospitals”
As a result, most interviewees pointed out that their hospital management team
focuses on regularity and legality of the cash operations and thus the hospitals’
accountants and managers pay more attention to the budget and the budget
execution reporting, to the detriment of accruals and cost accounting systems.
Moreover, as also stated in the interviews carried out, another obstacle to
successful implementation of accrual accounting in public hospitals was the lack
of political support and engagement at the level of central government. In
particular, since the government accounting reform elaboration and until today,
i.e. 2003 to 2009, not much political debate has taken place and no serious
political interests were manifested in the sense of modernising public
management accounting systems and especially costing systems. All the
interviewees indicated that political will is a critical factor for the successful
implementation of the accrual and cost accounting reform and of NPM ideas
generally.

12

A further obstacle to successful implementation of the accounting reform was
the lack of an effective enforcement mechanism to actually mobilise and
accelerate the implementation process with budgetary cutbacks or explicit
financial restrictions and penalties in case of no compliance. Hence, although
fines and penalties have been established by the legislator in the P.D. 146/03 in
case of non-compliance with the reform adoption timetables, the interviewees
pointed out that no such action has been taken yet.
Finally, another factor that the interviews pointed out regarding the slow moving
adoption progress of the costing system was the departmental full costing
character of the reform. More specifically, this costing approach is considered
by the interviews to be not a useful tool for an effective and efficient
management of hospital internal operations. Rather it was being seeing as a
good external control mechanism serving the interests of the regulatory bodies
(i.e. the ministry of health in this case) and not the hospital decision makers, and
thus being inconsistent with hospitals organizational objectives. The following
comments from one CFOs illustrate this position:
“the departmental design approach to costing as introduced in the
legislation yields too little information on what is happening with
respect to each of our hospital product lines (i.e. hospitalization,
emergencies, Outpatient consultations) and specific customers (i.e.
patients)… with its focus on generate information for external financial
statements and inventory valuation and not for making key management
decisions”
According to Oliver (1991), organizations are more likely to comply with a
constituent’s requirements and demands when such pressure would enhance an
organization’s social legitimacy and economic gain, and is consistent with their own
goals, otherwise an institutional inertia may be prevailed towards adoption of
regulatory or legislative reforms.
In the current case and based on the empirical evidence provided by or research,
none of these institutional criteria seem to be fulfilled. These findings might provide
an acceptable explanation for the generally restricted level of cost accounting
adoption and are analogous with earlier studies conducted by Ballas and Tsoukas,
2004; Economou and Giorno, 2009; Mossialos et al, 2005, to investigate the role of
accounting in the GNHS. More specifically, they portrayed the Greek NHS context as
a high politicized socio-economic system and a highly institutionalized context in
which organizational legitimacy is not enhanced by making use of discourse of
rational calculation (such as accounting), but by reproducing the broader
institutionalized populist beliefs. In this context, where the use of political criteria of
evaluation is dominant, the role of accounting into the GNHS, has a low symbolic
significance, does not reflect socio-political expectations and its usage does not
contribute to organizational legitimacy enhancement; therefore it plays a rather
minimal role. As a result, a deviation from the legal demands and requirements
regarding the accounting reforms does not deliver the organization a legitimacy
problem.

6.2 Limitations and suggestions for future research
The study findings are subject to a number of limitations. First, in order to obtain a
quantified dependent variable we rely not on objective measures but on participant
opinions of cost accounting adoption level. This approach limitation lies in its
dependence on subjective and “hidden” personal judgements, which may or may not

13

be accurately disclosed by the survey respondent. The basis for their opinions remains
unknown and may differ across respondents and over time. However, the participation
of CFOs in our survey consist a knowledgeable source with first-hand experience of
accrual accounting reform adoption.
Secondly, another important limitation of this research is the fact that the adoption
of the accounting reform has only been examined from the sole perspective of
accounting function and financial staff, and may thus exhibit a bias, as it may offer
valid but only partial interpretations of events and situations. It does not attempt to
survey the views and opinions of other interest parties and stakeholders inside the
hospitals’ organisational environment, such as the hospital’s clinical managers,
physicians and nurses. Thirdly, the data were collected solely from public hospitals in
Greece, thus, caution is needed in generalizing the results to other countries. Fourthly,
interviews’ data were collected from individuals (i.e. six CFOs) that chose themselves
to participate in the study, resulting in a possible self-selection and reply bias.
Finally, on 2010 the Greek government due to a huge budget deficit requested the
activation of a European Union/International Monetary Fund financial aid package to
help pull the country out of debt crisis. According to Luder’s model (1992) the
financial crisis serves as a precondition for the decision to innovate and as a stimuli
pushing for reforms. Thus, future research should also take into account Greece’s
severe financial crisis’ impact on the accounting reform adoption decision and
assimilation process in public hospitals.

6.3 summary and implications
Despite these limitations, This study contributes to the international literature of New
Public Management (NPM) initiatives by providing, to our knowledge, the first large
scale assessment of management accounting practices introduction in the public
secondary and tertiary health care sector in Greece. Another important contribution of
our study is that it is one of the few to discuss the link of the hospitals’ unique
features that are typically not observed in other industries with the level of adoption of
costing systems in hospital settings.
The findings of this research seemingly support the view that –five years after the
reform’s official enactment- the level of cost accounting system introduction and
implementation is restricted by both organizational characteristics and wider
institutional influences.
Admittedly, Greek public hospitals cannot be considered as best practice in the
introduction of accruals accounting. However, the results and their implications can
be useful in better understanding the potential shortcomings of a management
accounting reform adoption process in a context where the use of political criteria of
evaluation is dominant,. Enhanced understanding can help academics, practitioners
and policy-makers to build and refine models of effective implementation processes
on similar future projects of other reforms, as they can learn from the experiences of
others.

14

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18

Appendix A:

Figure 1. Conceptual Framework of the study

Independent Variables (IV)

Human and Technical factors
General level of education (EDUC)
Accounting staff experience (ACCEXP)
Level of training provided (TRAIN) Level of
Legislative mandates Information Technology quality (ITQUAL) Cost accounting
Cost accounting CEO educational background (CEOEDUC) reform adoption
Reform
- Development stages (DV) -
(P.D. 146/2003) Intra-organizational Influences
Organizational support (ORGSUP)
Conflict-free interactions (CONFLICTF)
Satisfaction with cash accounting (SATCASH)
Size (SIZE)

Inter-organizational Influences
Political support (POLSUP)
Professional Support from consultants
(CONSUP)

Source: adapted from Windels and Christiaens (2006)

19

Table 1. Classification of cost accrual accounting system (CAS) development stages identified by the survey

Categories of CAS compliance level Number Level of CAS development stages Number Percentage
of of
(%)
hospitals hospitals
a. The cost accounting system (CAS) referred to P.D. 146/03 41 1. Minimum stage: Those that are neither using nor 41 (43.6)
has not been adopted and its implementation is not possible consider the prospect of the development of an accrual
to happen in the next two to three years. basis CAS in the near future
b. The cost accounting system (CAS) referred to P.D. 146/03
8 2. Intermediate or moderate stage: Those that are 30 (32)
has not been adopted but its implementation is possible to
either in the process of developing an accrual basis CAS
happen in the next one to two years in our hospital
or have included its development in the near future (next
c. The Cost accounting system (CAS) referred to P.D. 146/03 one to two years)
2
has not been adopted but its implementation has been
approved in our hospital
d. The cost accounting system (CAS) implementation project
20
team is currently in the process of determining project
scope, collecting data, analysing activities, cost drivers and
customizing the necessary software to support it
e. The cost accounting system (CAS) referred to P.D. 146/03
23 3. Advanced stage: Those that have implemented an 23 (24.4)
has been adopted in our hospital
accrual basis CAS

Total
94 94 (100)

20

Table 2. Independent Variables: Definition, Reliability and Validity
Variable Definition Actual Mean Std. Number
Range Value Deviation of scale
items
Panel A : Independent variables based on a single question
ACCEXP The level of Accounting Dept. staff previous cost accounting experience 0.00 – 1.00 0.30 0.214 1
DEPTEDUC The level of education of Accounting department staff 0.08 – 0.48 0.25 0.117 1
CEOEDUC The level of the CEO’s educational background (business orientation) 0.00 – 1.00 0.66 0.390 1
BEDSIZE The hospital’s size (no. of beds) 40 – 1200 368.39 302.96 1
Actual Coefficient Percent of Number
Range alfa Variance of scale
explained (%) items
Panel B : Independent variables as a result of a factor analysis6
ORGSUP The level of organizational support -2.35 ; 2.20 0.740 59.54 4
POLSUP The level of political support -2.04 ; 3.48 0.603 55.77 3
CONFLICTF The level of the management-physicians relationship -3.12 ; 2.45 0.521 73.80 2
TRAIN The level of the reform-related training -1.64 ; 2.74 0.682 72.41 3
ITQUAL The level of existing information systems quality -1.82 ; 2.43 0.801 62.72 4
CONSSUP The level of management consultants professional support -1.02 ; 2.08 0.731 80.59 3
SATCASH The level of satisfaction with the cash-based accounting system -1.29 ; 2.82 0.825 75.73 3

6
Factors extracted using the principle component analysis (with an eigenvalue >1)

21

Table 3. Spearman correlation matrix for the independent variables

Variables 1 2 3 4 5 6 7 8 9 10 11
(N = 94)
DEPTEDUC 1.000

CEOEDUC -0.026 1.000
**
ACCEXP 0.384 0.191 1.000

TRAIN 0.351** 0.132 0.442** 1.000
** **
ITQUAL 0.245 0.200 0.487 0.482** 1.000

CONFLICTF 0.043 0.022 0.076 -0.157 -0.012 1.000

SATCASH -0.292** -0.351** -0.472** -0.371** -0.390** 0.147 1.000
* ** ** ** *
ORGSUP 0.244 0.051 0.427 0.519 0.494 0.232 -0.218* 1.000
** ** ** **
POLSUP 0.112 0.051 0.428 0.572 0.471 0.126 -0.287 0.479** 1.000

CONSSUP 0.295** 0.071 0.362** 0.650** 0.518** 0.141 -0.344** 0.550** 0.613** 1.000
* * * **
BEDSIZE 0.128 0.185 0.263 0.233 0.213 0.126 -0.184 0.196 0.284 0.266** 1.000

Note: *, **, correlation is significant at respectively 5, 1% levels (2-tailed).

22

Table 4. Regression Results

Ordered logistic regression Binary logistic regression
Model 1a Model 2b
(three development/compliance stages) (minimum level of development/compliance vs. all others )
Regression Collinearity
Standard Collinearity Expected Regression Standard
Variables coefficient p-Value p-Value Exp. B statistics
error statistics sign coefficient error
estimate
Tolerance VIF Tolerance VIF
Coeff_1 -0.698 0.386 0.071* 0.796 0.426 0.061*
Coeff_2 2.775 0.545 0.000***
DEPTEDUC -0.330 0.304 0.276 0.663 1.509 + -0.085 0.469 0.856 0.919 0.730 1.370
CEOEDUC -0.057 0.293 0.846 0.917 1.090 + -0.470 0.442 0.287 0.625 0.778 1.287
ACCEXP 0.855 0.342 0.013** 0.514 1.946 + 0.841 0.474 0.076* 2.318 0.562 1.779
TRAIN 0.494 0.420 0.240 0.429 2.329 + 0.165 0.670 0.805 1.180 0.433 2.311
ITQUAL 0.626 0.342 0.067 *
0.560 1.787 + 1.569 0.759 0.039 **
4.800 0.553 1.808
CONFLICTF 0.155 0.316 0.624 0.748 1.337 + 0.172 0.502 0.732 1.187 0.725 1.380
ORGSUP 0.665 0.343 0.053 *
0.530 1.885 + 0.320 0.641 0.617 1.377 0.526 1.900
SATCASH -0.357 0.330 0.280 0.608 1.645 - -0.569 0.480 0.236 0.566 0.606 1.650
POLSUP 0.167 0.381 0.661 0.501 1.994 + 0.338 0.626 0.590 1.402 0.471 2.125
CONSSUP 0.891 0.383 0.020** 0.425 2.351 + 1.244 0.623 0.046** 3.470 0.418 2.395
BEDSIZE -0.098 0.259 0.704 0.909 1.100 + -0.253 0.415 0.543 0.777 0.842 1.187

Chi-square model 91.394 77.157
(0.000) *** (0.000) ***
Hosmer–Lemeshow goodness of fit 0.611

*,**,***, significant at respectively 10, 5, 1% levels.
a
Dependent: Y = 1 (minimum stage = hospitals that do not consider adopting CAS even as a future prospect); Y = 2 (Intermediate stage = hospitals that are currently in the process
of implementing or intending to implement CAS in the next two years); Y = 3 (advanced stage= hospitals that have adopted CAS)
b
Dependent: Y = 0 (minimum stage); Y = 1 (intermediate and advanced stage).

23

Durbin Watson 1.517 1.668
2
Cox and Snell pseudo R 0.622 0.560
2
Nagelkerke pseudo R 0.705 0.751
Percent correctly classified 89,4%

Test of parallel lines :
9.731
Chi-square
(0.555)

24

Appendix B: Description of the Cost System functionality prescribed in the P.D. 146
(group 9 accounts)

The costing system prescribed in the reform works in the following manner.
1. Cost classification (90 & 94 GL accounts): costs are classified by economic
categories (e.g. salaries, supplies, rents, energy, travel allowances, taxes and
insurance costs, maintenance, pharmaceuticals, amortization, etc).

2. Cost accumulation (91 & 92 GL accounts): Costs are accumulated and
assigned in departments in a direct or indirect way. Direct department is
considered to be revenue producing (e.g., cardiology, rehabilitation,
emergencies, Intensive Care Units (ICUs), etc), which creates services
traceable to a specific patient. Indirect departments are non-revenue producing
(e.g., laundry, cleaning, housekeeping, administration, admission, etc)

3. Cost allocation (or secondary cost allocation, 92 & 93 GL accounts): All
indirect department costs are allocated to the direct departments using the
step-down method. More specifically, the step-down cost allocation procedure
described by the P.D. 146/03 works as follows. First, cost centres that provide
support to the whole organization (e.g. laundry, administration, housekeeping,
maintenance, etc) and yielding overhead costs are allocated to both to
intermediate and final cost centers. Second, costs from intermediate cost
centres (e.g. radio diagnostic, laboratory tests, etc) are allocated to final cost
or revenue centres (e.g. care units such as: acute care, surgery, emergencies,
intensive care, etc) based on a ratio-of-costs-to-charges (RCC) approach, in
such a way that the summation of costs attributed to final cost centres
represents the whole cost of hospital. Finally, the actual unit cost of the final
product is determined by dividing the total cost of the final product by the
actual volume of the final product (i.e. functions, services) in terms of days of
hospitalization.

The aim of the legislator was to arrive at the full cost per service; cost per function -
cost centre; cost per intermediate product; and cost per final product mainly for
external financial reporting and inventory valuation purposes.

25

The costing process approach of the reform is graphically presented below:

General Ledger Accounts
(90 & 91 & 94 GL accounts)

Direct Departments Indirect Departments
(92 GL accounts) (92 GL accounts)

Intermediate Products
(functions, services)
(92 GL accounts)

End product (patient)
(93 GL accounts)

Financial reporting
(Gross economic result, net result-
96 & 98 GL accounts)

26

The introduction of cost accounting systems in the Greek National Health System

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