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Journal of the Academy of Hospital Administration

A COST ANALYSIS STUDY OF OPHTHALMIC PROCEDURES IN A TERTIARY CARE OPHTHALMIC HOSPITAL FOR DEVELOPMENT OF USER CHARGES

Author(s): S. Singh, S.K. Arya, R.K. Sarma, S. Bedi

Vol. 18, No. 1 (2006-01 - 2006-12)

S. Singh(1), S.K. Arya(2), R.K. Sarma(3), S. Bedi(4)

Key Words: Ophthalmic procedure, phacoemulsification, Intraocular Lens Kits, primary cost, overhead cost, cost analysis, activity based costing

ABSTRACT

Ten cases of cataract surgery with Intraocular Lens (IOL) implant were studied to find actual cost incurred on patient care, so as to workout the modalities to develop package system for cataract surgery with IOL implants. The cost analysis for the package had been divided into ‘primary cost’ in which cost of manpower, cost of consumable, cost of linen and laundering, cost of CSSD and manifold was included. In “overhead cost”, building cost, cost of other fixed assets, electricity and water consumption, sanitation and air conditioning was included to find total cost for deriving the package cost.

INTRODUCTION

The rising cost of the health and hospital care is due to application of newer technology in medical sciences and increased requirement to import technology, equipment and drugs for providing state of art treatment has become a matter of great concern all over the world. It has become mandatory to be cost conscious and to be assertive of the cost benefits. Cost reduction is needed to be effected without affecting the quality and effectiveness of the service.

In the recent years there has been great liberalization in economic and trade practices. The impact of such liberalization and globalization has permeated into the health and medical care delivery system resulting in import of high tech equipment and advanced medical practices, leading to further escalation in the cost of medical care.

The health care financing administration (HCFA) has published and laid down specific user charges, be it diagnostic/therapeutic purpose or for hospitalization. As per the National Health Policy; 2002, to meet the objective of reducing various types of inequities and imbalances – inter regional, rural – urban and between economic classes – NHP-2002 sets out on increased allocation of 55% of the total public health investment for the primary health sector; the secondary and tertiary health sectors being alloted for 35% and 10% respectively3. This, therefore, further reduces the availability of funds in governmental tertiary health care organizations, thus necessitating the application of other fiscal measures including introduction of user charges of tertiary health care organizations as a mean to sustain themselves.

Dr. Rajendra Prasad Centre for Ophthalmology is one of the centres at A.I.I.M.S New Delhi. It is an apex tertiary care referral hospital of India and is pursuing its mission of achieving excellence in Post Graduate Education, Research, Training and patient care. Since its establishment on 1967, when the workload was 1309 surgeries/year4, workload has constantly increased and is presently performing 32,437 surgeries/ year4. Over the years, there has been an increase in medical cost due to various reasons, and dirfferent approaches to meet these costs have been under consideration by relevant authorities.

METHODOLOGY

The following study has been conducted with the method of Activity Based Costing. ABC is an essential part of the functional process improvement and reengineering effort, as it allows managers to create shareholder value through cost structure improvement. It captures quantified cost and time data and translates this into decision information. ABC measures process and activity performance, determines the cost of business process outputs and identifies opportunities to improve process efficiency and effectiveness5.

Activity Based Costing (ABC) is an accounting technique that allows an organization to determine the actual cost associated with each produce and service produced by the organization without regard to the organizational structure. ABC methods enable managers to cost out measurements to business simplification and process improvement6.

ABC is a management tool as well as a financial tool. This method is suited to costing in hospital7 because by design, ABC provides not only relatively accurate cost data, but also information about the origin of the cost8.

1. Identification of common ophthalmologic procedures: From review of medical records from January 2001 to December 2003 it was seen that out of total 61200 surgeries performed, cataract surgeries constituted 33% of the total with average growth rate of 20%9. Thus this surgical procedure was chosen for the study.

2. Cost of consumable used in cataract surgeries: In order to identify the quantum of different consumable required for this procedure, a test study was conducted covering this procedure. The details of different consumable used in the procedure were ascertained from the scrub nurse and this was corroborated by actual observance of this procedure in the OT and use of consumables by different surgeons. Detailed discussions were held with the concerned resident doctors and operation theater nurses and the consultants so as to establish the quantum of the items used in this process. Then the weighted average cost of different consumables used for all these surgical procedures was ascertained from records of stores and wholesale prices list of different authorized distributors of these items.

3. Costing of OT per procedure: This was calculated by apportionment. This included the following:

(a) Fixed assets: (i) Building Cost
(ii) Maintenance cost
(b) Machinery Equipment cost
(c) Manpower cost
(d) Electricity cost
(e) Air Conditioning cost
(f) Lines & Laundry Services cost
(g) CSSD & ETO sterilization cost
(h) Water cost
(i) Cost of Medical Gases

4. Time for selected procedure: Average operation theatre table time spent for this procedure was ascertained by observing this procedure at different times by different surgeons and then average time required for this procedure by an average surgeon was ascertained. The OT table time for this procedure was taken from the moment OT table is assigned for that procedure, to the moment when this table is ready for the next procedure.

Total cost per procedure:

Cost of OT time per hour × Time for selected procedure + consumables for that procedure.

OBSERVATION:

The costing of identified ophthalmic procedure was done as under:

Step-I: Cost of conducting IOL surgery in OT: Most common ophthalmologic procedure was identified from the records of last three years (i.e. January 2001 to December 2003). The procedure was chosen on the basis of total number of procedures per month. The 5 most frequent surgeries procedures being performed at Dr. R.P. Centre are as below10.

S. No. Procedure No. of
procedure
per Annum
1. Glaucoma Surgery 362
2. Retina Detachment Surgery 582
3. Squint Surgery 700
4. Vitero-Retinal Surgery 1790
5. Phaco Emulsification & IOL Implantation 6782

In this study, costing of cataract surgery by Phacoemulsification technique with Intraocular Lens implant has been done. In this surgery specific consumables include Intraocular Lens kit and its cost varies depending on type of Intraocular Lens chosen. With this in view, cost of most commonly used Intraocular Lens kits has been computed separately and total cost of this surgery using different kits has been calculated.

Ten cases in each of these identified procedures were followed for the purpose of this study. Calculation of the cost has been done as:

Step II (A): Cost of Kit: (The price of IOL kits are wholesale price) and shown in Table 1 below:
Table 1: Cost of Various Types of Kits for IOL Surgery10

S. No. Kit No. Content Unit Price (Rs.)
1. Kit No. 1 Acrysoft IOL
Healong GV (0.85ml)
MVR Knife
A-OK Short cut 3.5 knife
7100.00
2. Kit No. 2 Allergan IOL
Healon GV (0.85ml)
4200.00
3. Kit No-3 Allergan IOL
Hyvisc Plus (0.85ml)
3800.00
4. Kit No-4 Allergan IOL
HPMC PFS
(0.85ml)
2200.00
5. Kit No-5 Ceeon IOL
Healon GV (0.85ml)
3000.00
6. Kit No-6 Ceeon IOL
Hyvisc Plus (0.85ml)
2500.00
7. Kit No-7 Ceeon IOL
HPMC PFS (0.85ml)
900.00
8. Kit No-8 APPA IOL
HPMC PFS (0.85ml)
500.00

Step II (B): Cost of other consumables/Case: This has been shown in Table 2 below:
Table 2: Cost of Special Consumables for IOL Surgery

S.No. Item Qty. Unit Cost/Unit Total Cost
Medical Items
1. Inj Adrenaline
1:2 Lakh
1 21.00 21.00
Inj Pilocarpine 1 12.00 12.00
Surgical Items
2. Syringe (G/MI) 2 1.67 3.34
3. Needle (23/26G)1/2” 2 0.37 0.74
4. Gloves 3 5.36 16.08
5. Minor Drape 1 28.50 28.50
6. Suture 1 120.00 120.00
7. Trepan Blue Dye 1 38.00 38.00
  Total     240.00

Step II©: Cost of other Consumables / case:

To calculate this cost, the cost of all general, surgical and stationary and other materials used in OT which are not specific for any for any procedure was calculated and apportioned by dividing the same by total number of procedure done over the same period.

Table 3: The Cost of other Consumables Per Patient

Cost of consumables in Dr. R.P.C. OT Rs. 2,853,292.82
Cost of consumable per patient Rs. 147.46

Step III: Cost of OT time/hr

To calculate this cost it was decided that as the common denominator is OT time, so all costs which are incurred on running and maintaining OT will be calculated and divided by total available OT table time to calculate cost of OT table time/hr. The observations are as below:

(a) Capital cost of the building:

Table 4: Cost of Dr. RPC OT Building Apportioned Per Patient

Depreciation @ 1% of capital cost (assuming the life of the building as 100 years) & area 2438 sq. meters, as per CPWD rates; April 2003 (i) Rs. 2,11,210.57
Per annum cost of building maintenance @ Rs. 127.80/- sq. mt. (CPWD rates April 2003) (ii) Rs. 3,11,576.40
*Rental value of building @ Rs. 538/- sq. mt. (inflation adjusted rates of 2003) (iii) Rs. 13,11,644.00
Capital cost of building per year (i)(ii)(iii) Rs. 18,34,430.97
Total patients getting operated in RPC OT / year (average of last 3 years) 19349
Capital cost of building per patient 1834430.97/19349 = Rs. 94.80
*Rental value of building is taken into consideration to factor in the opportunity cost.

(b) Cost of Fixed Assets:

All the assets i.e. furniture, fixtures and equipment, whose costs are to be apportioned, are classified into following category for assessment:

  1. Furniture and Fixtures (Office equipment).
  2. Plant and machinery (Medical diagnostic equipment).

Table 5: Cost of Fixed Assets in Dr. R.P.C. OT

Depreciated cost of Office Equipment @ 10% (i) = Rs. 3,86,470.24
Depreciated cost of Patient Trolley @ 33.33% (ii) = Rs. 45,309.86
Depreciated cost of medical diagnostic equipment @ 33.33% (iii) = Rs. 1,14,59,837.24
Cost of maintenance @ 5% of plant and machinery (iv) = Rs. 17,19,147.50
Total cost of fixed assets in RPC OT per annum (Total of (i), (ii), (iii) & (iv) = Rs. 1,36,10,764.84
Total patients attending RPC OT per year (average of last 3 years fig.2) 19349
Cost of fixed assets in Dr. R.P.C. OT per patient = 703.44

(c) Cost of Electricity Consumption: (Table 6)

Dr. R.P. Centre OT does not have separate electrical meter. Hence, the calculation of electrical consumption was based on the number of electrical points and the average quantum of electricity consumed/hr/day. Electrical consumption was charged as per the latest NDMC tariff (of Rs. 6.37 unit + 10% for the maintenance charges of 11 KV substation, the supply to the hospital being from low tension feeder).

Table 6: Cost of Electricity for Dr. R.P. Centre OT (Excluding Air Conditioning)

The cost of total electrical consumption per annum in Dr. R.P.C. OT Rs. 13470 × 300 days = Rs. 4041000
Cost of electrical consumption per Patient/Case (Rs. 4041000/19349) = Rs. 208.84

(d) Cost of Air Conditioning at Dr. R.P. Centre OT Operation Cost, Maintenance Cost and overheads.

(1) Operation cost:

This includes cost of electricity and cost of maintaining the systems. Details are as below:

(i) Cost of electricity = Rs. 7.00 × 225 = Rs. 1575 /Hour.

(The capacity of the system is 3× 80 TR/unit, which is consuming 225 KW/Hour)

Total cost / day = Rs. 1575 / Hr. × 8 = Rs. 12600 / day

(ii) Annual maintenance cost of A/C = Rs. 425000/- per annum

Cost of maintenance of A/C / day = Rs. 1416.66

(iii) Cost of Manpower @ Rs. 150 per shift in 3 shifts = Rs. 450/d Operation cost = i + ii + iii = Rs.12600+1416.66+ 450 = Rs. 14230.55 / day

(2) Overheads:

  • Dt of installation – 1996
  • Cost of equipment = Rs. 6830000.
  • Depreciation @ 10% = Rs. 683000
  • Cost of equipment / day = Rs. 2276.66

[This includes HEPA filters, micro filters, prefilters, controls, piping manpower, sundrying items]. Cost of Air Conditioning/day = Rs. 14230.55 + Rs. 2276.66

Cost of A/C per patient per day = Rs. 257.92

(e) Cost of linen items and laundry: There is a centralized laundry in the A.I.I.M.S. and its services are utilized by the main hospital and as well as by all the centrers11.

The Cost of lines items and laundry has been calculated as follows:

(a) Cost of laundering – The cost for laundering per piece of linen was found to be Rs. 7.40/- piece in the year 2003.

Accordingly the total cost of linen and laundering in Dr. R.P.C. OT is as shown below:

Table 7: The Cost of Linen and Laundering in Dr. R.P.C. OT9

Cost of linen utilized in Dr. R.P.C. OT per case Rs. 2644.86 / 30 = 88.016
Cost of laundering the linen every year Rs. 7.40 per piece of cloth Rs. 259
Cost of linen and laundering per patient Rs. 347.16

(f) Cost of Water Consumption: (Table 8)

The cost of water consumption was calculated as latest Delhi Jal Board tariff, applicable for non domestic connection.

Table 8: Cost of Water Consumption in Dr. R.P.C. OT

Total water consumption of Dr. R.P. Centre OT/per year 23.80 × 300 = 5555.33 KL
Cost of water consumption of Dr. R.P. Centre OT/ per year (as per Delhi Jal Board tariff) Rs. 82961.11
Cost of water consumption per patient per year Rs. 4.28

(g) Cost of Manpower:

To calculate this cost, average number of faculty and residents working on any table was ascertained. The salaries of one day were calculated to work out cost of manpower per 8 hour.

(a) Faculty and resident are speding full 8 hours per day in the operation theatre and hence 100% of salary of the average number of faculty members and residents working on any day on a OT table was calculated and apportioned towards the procedure on the basis of actual time taken for selected procedure.

(b) Similarly the average number of Nursing, Group-D and other OT Staff working on any day on any OT table was ascertained. Since they spend full 8 hours in the OT, the 100% of their salary was calculated and apportioned towards the procedure on the basis of actual time of the surgery.

Table 9: The Manpower Cost in Dr. R.P. Centre Operation Theatre

Cost of manpower per hour = Rs. 955.08

(h) Cost of Steam Sterilization and ETO installation

(i) Steam Sterilization

The services of Central Sterile Supply Department are used not only by Dr. R.P. Centre but also by main hospital and other centers. CSSD performs two major functions i.e. sterilization and packing. The final products are quantified as trays, packets or drums. The CSSD costs are to be apportioned amongst the user wards, OPD and operation theatres.

Table 10: Cost of Sterilization (Steam)

No. of packs sterilized per year 648000
Cost of sterilization per pack (Steam) Rs. 28.20 per pack.
The Total number of packs being sterilized per patient. = 1.2
Cost of sterilization per patient in selected cases = 28.20 × 1.24
Cost of sterilization (Steam) per patient. = Rs. 34.96

Ethylene oxide (ETO)

(ii) Sterilization

No centralized ETO facility exists in A.I.I.M.S. The ETO sterilizers have been installed in a single sterilization side room located on the 5th floor in the OT complex. Table top installation with no special infrastructure is required. The machines are operated by an OT technician specially designated for the purpose. The supervision and documentation is done by a nursing staff.

Table 11: Cost of Ethylene Oxide Sterilization

Total cost of ethylene sterilization per annum. (This includes annual depreciated building cost, maintenance, rental cost, manpower, electricity, equipment, material, water & supplies) Rs. 278875.00
No. of packs sterilized per year 19500
Cost of sterilization per pack per pack Rs. 14.30
  • The total number of packs being sterilized per patient = 1
    Cost of Ethylene sterilization per patient in selected cases. = Rs. 14.30
  • Total cost of Instrument & Linen sterilization per patient = (i) + (ii)
    = Rs. 34.96 + Rs. 14.30

(h) Costing of Medical Gases.

To calculate this cost, only the cost of medical gases consumed in Dr. R.P. Centre OT was calculated

Table 12: Show the Consumption of Oxygen and Nitrous Cylinder Per Patient in Dr. R.P. Centre OT

Cost of Oxygen & Nitrous Cylinders Rs. 1439451.16
Cost of medical gases per patient Rs. 74.39

Step IV: Time for selected procedure:

Average time consumed for one surgery is 55 minutes, while the average time taken after each procedure, to prepare the OT table to make it ready for the next procedure is ten minutes.

Step V: Total Costs of Cataract Surgery (Phacoemulsification) Using Different Types of Kits

The cost of specialized equipment and instruments, consumables, lines used and manpower utilized have been calculated separately. Costs like cost of sterilization of OT, linen, instruments, and cost of equipment have been apportioned.

The expected life of instruments has been taken to be 3-5 years. Hence the depreciation can be calculated @ 20% to 33% depending on the expected life.

Table 13: Costs Constituting the Total Cost of IOL Procedure

S. No. Cost Head Cost Head (Rs.)
A. Uniform Costs per procedure in OT
1. Cost of OT Building 94.80
2. Cost of machine, equipment & fixtures 703.44
3. Cost of Electrical Consumption 208.84
4. Cost of Water Consumption 4.28
5. Cost of A/C 257.92
6. Cost of CSSD & ETO Sterilization 49.26
7. Cost of Medical gases 74.39
B. Special Costs in Phacoemilsification with 10L implant per case
8. Cost of consumables & special consumables 387.46
9. Cost of Special Surgical Instruments per case 64.86
10. Cost of Linen & Laundering per case 347.16
11. Cost of Manpower 955.08
  Total 3147.49

Table-14: Total Costs of Cataract Surgery (Phacomemulsification) using Different Types of Kits

Cost of Cataract Surgery (Phaco) with Kit No.1 Rs. 10247.49
Cost of Cataract Surgery (Phaco) with Kit No.2 Rs. 7347.49
Cost of Cataract Surgery (Phaco) with Kit No.3 Rs. 6947.49
Cost of Cataract Surgery (Phaco) with Kit No.4 Rs. 5347.49
Cost of Cataract Surgery (Phaco) with Kit No.5 Rs. 6147.49
Cost of Cataract Surgery (Phaco) with Kit No.6 Rs. 5647.49
Cost of Cataract Surgery (Phaco) with Kit No.7 Rs. 4047.49
Cost of Cataract Surgery (Phaco) with Kit No.8 Rs. 3647.49

This cost has been computed in totaling the cost of Intraocular Lens procedure as in table number – 13 and cost of different type of Intraocular Lens kits as in table number – 01.

LIMITATIONS:

  1. As there is no established cost accounting system in place so it is difficult to allocate cost for different cost centre.
  2. The OPD and inpatient costs have not been included in this particular study.

DISCUSSION:

In absence of Mercantile Accounting System at AIIMS, staff is not aware of the cost of different hospital services and in a study conducted to know cost awareness on the consumables used for the patient treatment, amongst medical personal at AIIMS hospital it was observed that only 53-66% of item were aware about the cost of drugs and material supplied12. This study also revealed that where the information about the cost of a treatment procedure is made available, there is increased awareness amongst personal directly engaged in patient care activities. This awareness leads to rational use of facility and better utilization of resources. Cost accounting system provides information, which is required for need based scientific budgeting and for performance budgeting too.

There has been shift in government policy, whereby organizations are encouraged to generate resources from the affluent section of the society in the form of user charges to subsidize cost for the under privileged. One such strategy is the introduction of Package System for various procedures in the hospital. The success of package system in the CN Centre at AIIMS has encouraged the hospital administrators to consider the application of this in other areas of the hospital13.

It was found that the cost per case is less in tertiary care ophthalmic hospital than in other major private hospitals of Delhi. If we make bulk purchase and give the patients a package, the cost of consumables to be used for surgery and the drugs to be taken after operation would comes out to be cheaper as compared against the private hospital, where charges are higher. For example, the estimated cost per procedure of IOL with kit number-1 in A.I.I.M.S after adding manpower cost, cost of consumables, along with the overhead charges of OT comes is Rs. 10248/-, where as it is Rs. 14000/- (excluding the cost of Bed Occupancy) in a multi-specialty Corporate Hospital.

The comparisons reveal that, if tertiary care ophthalmic hospital charges are revised taking into account, the actual cost incurred and packages are offered for different surgical procedures, A.I.I.M.S can start generating additional revenue. Patients who are well to do will be ready to pay, as quality of clinical care at Dr. R.P. Centre is perceived to be better.

CONCLUSION

The study shows that certain cost centres are at present contributing quite substantially to the total costs. There is need for generating cost awareness and initiate measures to reduce costs wherever feasible by adopting modern management technique.

This will help in optimizing use of budgetary allocation. In the present set up, the component of overheads is quite high. By increasing utilization of OT timings, cost of these overheads can be reduced leading to overall decrease in cost of surgeries. This can be done by increasing OT timing by augmenting manpower.

At present there is lack of awareness amongst the hospital staff regarding cost involved in providing patient care. The cost awareness programme should be started in the hospital to make hospital staff aware of the cost involved for providing patient care so that they take proper care to reduce the wastage and make optimum use of the resources available.

This study highlights that there is need to develop cost accounting and hospital management information so that decision making can be based on the basis of costs leading to better utilization of resources.

REFERENCES

  1. WHO; World Development Report 1998-2002
  2. Planning commission, Government of India. Five Year Plans 1980-85 & 1992-97:
  3. Ministry of Health, Government of India National Health Policy 2002
  4. All India Institute of Medial Sciences, Annual Report 1992-2002
  5. ABC Guide Book: ABC methodology and application. Department of Defence, USA, Ch(1), 1995: 1-9.
  6. Chan YC: Improving hospital cost accounting with Activity Based Costing; Health Care Management Review 1993: Winter; 18 (1): 71-7.
  7. Kulkarni GR. Hospital Management accounting, Planning and Control, National Health Management Institute, Sai Printing Press; Bombay. (1995): 69.
  8. Cooper R and Kaplan R.S.: Measure Cost Right: Make the right Decisions, Havard Business Review, September-October 1998: 38-49.
  9. All India Institute of Medical Sciences Dr. Rejendra Prasad Centre for Ophthalmic sciences, Souvenier: 1997-2003.
  10. All India Institute of Medical Sciences New Delhi, Dr. R.P. Centre, Memorandum/Dated 1/8/2001/ Hosp. Admn.
  11. Tata Consultancy Services, Cost Accounting System, All India Institute of Medical Sciences, New Delhi: 1987.
  12. Roy A. A study to asses cost consciousness amongst hospital personnel at AIIMS Hospital, New Delhi. Thesis for award of MHA: 1995.(Unpublished work)
  13. Nagarajan SS. Costing of common otologic surgical procedures so as to develop standard approach for introduction of a package system of charging the patients at AIIMS Hospital, New Delhi. Thesis for award of MHA: 2000.(Unpublished work)

(1) S. Singh is Senior Resident, Deptt. of Hospital Administration, AIIMS, New Delhi
(2) S.K. Arya is Associate Professor, Deptt. of Hospital Administration, AIIMS, New Delhi
(3) R.K. Sarma is Director, NEIGRIHMS, Shillong, Meghalaya
(4) S. Bedi - CMO, ESIC, NOIDA

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