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Journal of the Academy of Hospital Administration

Hospital Accounting Based Cost Studies: Indian Experience

Author(s): Syed Amin Tabish*, Ajaz Mustafa**, Rangrez RA***

Vol. 13, No. 1 (2001-01 - 2001-06)

Abstract : Hospitals in developing countries absorb more resources than any other kind of recurrent government spending on health. Hospital operating expenses are at the core of the growing gap between required and available resources. Much health expenditure is wasted through misallocation and by technical and managerial inefficiency within hospitals. There is a need for using a combination of hospital cost data with service statistics to highlight areas in which waste can be reduced. Hospital costs and efficiency should be examined through accounting based studies. Knowledge of unit cost is needed to assist planning for recurrent budgets, as an indicator of efficiency, and to inform pricing of services. Costs are not known with an accuracy for most hospitals in India. Some recent studies have demonstrated the feasibility, however, of restructuring hospital expenditures to obtain estimates of unit costs. This information can be used to suggest means of increasing hospital efficiency. Collection and analysis of data required to calculate average costs can be made a routine hospital activity with the objective of improved planning, management and budgeting. The estimated average costs demonstrate that teaching hospitals have substantially higher costs than do general hospitals. The study reveals that some public hospitals spend 61.48% on salary and wages, 12.81 percent drugs and chemicals, 5.46% surgical items, 1.55% cleaning and general store items and 18.70% on other activities of total budget.


All organizations exist for the achievement of certain goals and objectives, which are formulated within the frame work of their overall mission. Managerial decisions and actions are taken on the basis of their contributions towards the achievement of their formulated goals and objectives. In order to provide a formal frame-work for managerial decision making the organizations have to develop within themselves, a culture for planning at all levels of management.

Management control system helps the management to decide on the optimum allocation of resources. It is governed by the principles of economics. With the rare exception, management control system is built around a financial structure i.e., resources are expressed in monetary units. The cost studies can be used to develop performance standard, assist with projections of future resources requirements as demand for hospital services increases, and identify hospitals that require special management attention to improve efficiency. Cost analysis has become a resource tool for financial management in hospitals1. Under this process the cost of operating different services is generally allocated to different cost centers. The uses of cost analysis include:

  • To arrive at the cost of production of every unit, job, process, department operation by close analysis of the expenditure.
  • To indicate to the management any uneconomic use or waste which is thereby revealed.
  • To aid in pricing or working out quotations.
  • To act as a base for value analysis.
  • To furnish data for decisions like "make or buy" continue use or replace and product mix.


To review the accounting based cost studies conducted in various Indian health care institutions.


The published and unpublished work on cost accounting/cost analysis conducted in Indian hospitals was reviewed, analyzed and conclusions drawn.

Observations and Discussion

Many Indian hospitals are today facing a severe financial crunch as there is lack of financial discipline and absence of a culture of cost effectiveness. This is particularly true of government hospitals, as the hospital budget form part of health plan of the government.

Technical development like the use of mathematical tools and computers in recent years have greatly increased our capacity to design planning and control devices in modern hospitals. If standard for average cost per patient per day, per laboratory test, per operation, per meal, per x-ray investigation etc., can be determined from a study and analysis of previous data, which can serve as some sort of norm against which, performance can be measured.

Most of the hospitals in India have their own rate structure. These rates are revised from time to time on adhoc basis to offset price hike.In India cost accounting had been introduced in some hospitals run by missionaries. Efforts had been made to follow U.K. pattern. According to Mudaliar Committee (1962), the average cost per inpatient per day was Rs. 8.00 in hospitals in Delhi. A study conducted on the costing of inpatients at Apex Medical Institute of India revealed following conclusions2:

Average in-patient cost: Rs.21.46

Percentage expenditure under different heads

Salary & wages 61.48%
Drugs & chemicals 12.18%
Surgical items 5.46%
Cleaning material & general store items 1.55%
Linen 0.42%
Laundry 0.84%
Others 17.44%

A study reveals that the total expenses for maintaining a general ward bed is rupees 90 per day3. However, cost may increase depending upon medical specialities, better facilities and size of accommodation to the patients. Therefore, looking at the costs for modern hospitals in metropolitan cities the cost may be upto rupees 200. Costs of replacement or acquisition of medical technology (equipment) is about 20% of the cost of running a hospital, which works out to rupees 18 per bed per day. Ojha's study reveals that considering expenses for two months of a 300 bedded hospital and calculating at a rate of rupees 90 per bed, the average operating cost works out rupees 16,200,000.

Another study of cost accounting has been conducted by the Tata Consultancy (1987) at a premier hospital of India4. The observations are:

The Cost of Treating a Patient per Day

In a general ward Rs.177.02
In a paying ward Rs.555.00
In intensive care unit Rs.740.00
In operation theater (per hour) Rs.367.00
In outpatient treatment Rs.10.44
The cost of treating a outpatient in emergency Rs. 24.90
Average cost of meals  
- General ward Rs.13.31
- Paying Ward Rs.76.00
Cost of laundry per Kg linen Rs.7.30
Cost of laboratory test Rs.5.50 to Rs.27.70
Maintenance cost Rs.7.77/Sq.ft
Estimated monthly unit cost of staff nurse Rs.41.00

A study of costing laundry operation conducted at tertiary care hospital in 1989 computed the average cost of laundering rupees 1.55 per piece of linen and rupees 6.28 per Kg5.

A study estimated the unit cost of radiodiagnosis and imaging as6:

Routine investigations Rs.33.59
Angiography Rs.2628.00
E.R.C.P Rs.440.00
C.T scan head Rs.660.00
C.T scan body Rs.1340.00

Dietary services incur an expenditure of 3 to 5 percent of the total cost of hospital care. A study conducted at a tertiary care teaching hospital shows that in spends rupees 33.80 on per patient per day1.

Cost analysis of CSSD at a tertiary care hospital estimates cost of sterilization per item as7.

Glass syringes Rs. 1.08
Dressing sets Rs. 10.80
Special set Rs. 18.82
Dressing drum Rs. 73.65
Gloves (pair) Rs. 1.88

Cost evaluation of medical gas facility at a large teaching hospital estimated the average cost as rupees 0.598.

A study of neonatal services at a teaching hospital estimated the average neonatal intensive care unit bed cost of rupees 1408 per day.

Another study of costing of house-keeping services at a premier hospital estimated following unit costs

Total cost of housekeeping Rs. 73.73
Sanitation services Rs. 51.48
Nursing related services Rs. 5.58
Linen & Laundry Rs. 16.77

A study of cost analysis for inpatient services conducted at a premier teaching hospital of India estimated2 (Fig. 2):

Average cost of inpatient services

Total cost of drugs per patient per day Rs.110 .58
Cost of disposables per patient per day supplies by hospital Rs. 18.41
Cost of I.V fluids supplied by hospital per patient per day Rs. 3.88
Cost of radiological investigation Rs. 64.98
Cost of laboratory investigation Rs. 82.18
Cost of laundry services Rs. 7.40

The cost of drugs constitutes one of the major component of expenditure and forms about 10.55% of total expenditure2 A study conducted during 1980 estimated the expenditure2 on drugs and chemicals at two premier hospitals of Delhi as 12.81% of total budget2.

The percentage of cost of drugs borne by the patient is 9% and the cost borne by the hospital is about 91%

The expenditure on account of laboratory and radiodiagnostic investigations is approximately rupees 155 per patient per day.

Expenditure on the manpower has been estimated rupees 418.78 to rupees 662.58 per patient per day, which is 40% of the total cost.

In a comparative cost analysis of patient services in two large hospitals another worked out the cost of human resources as 61-62% of the total budget in those hospitals.

Cost activity-wise

In-house support and utility services

CSSD Rs. 17.40
Blood Bank Rs. 38.25
Central Admissions & Enquiry Office Rs. 3.90
Medical Records Rs. 7.00
Hospital Security Rs. 14.60
Medical Gas Supply Services (Manifold) Rs. 18.16
Dietary Services Rs. 28.34
Housekeeping Rs. 73.83
Waste Disposal Rs. 5.59
Hospital Administration & Stores Rs. 33.75
Linen & Laundry Rs. 11.57
Out-patient Department for each Admission Rs. 24.30
Capital Expenditure per patient care per day Rs. 40.66

The total expenditure on inpatient care ranges from rupees 932.79 to 1,048.92 per patient per day.

The studies by Sinha, Sadananda, Kannaraj and others show that the cost of inpatient care (after neutralizing it with present inflation rate of consumer price index) is rupees 878.54, which is very low as compared to developed economies like USA (1,040 dollars). The health care cost in United States accounts for 14.1% of gross domestic product in 1996 as compared to India where it is 1.6% of GDP at present.

The major cost centres of inpatient care include human resources (40%), readiodignosis and laboratory investigations (15%), drugs (10.5%), housekeeping (7%), depreciation on account of building, equipment and furniture (3.8%) and blood transfusion facilities (3.5%) of the total cot. Dietary services incur an expenditure of 3 to 5%.


Cost accounting and cost analysis mechanisms need to be introduced in all the hospitals in developing countries for financial discipline, cost control pricing, and waste management. Various studies conducted in some of the Indian hospitals are informative though it is imperative to invest in health services research in developing counties akin to developed economies which is essential for the competition, survival and improvisation in functioning of health care institutions in the new mellinium.


  1. Amin Tabish, Qadiri GJ, Bukhari IA: Costing of dietary services as part of an operational management, budgeting system. Health & Population 16(1&2): 31-36, 1993.
  2. Sharma Y: A study of cost analysis for inpatient services at AIIMS hospital, New Delhi 1998 (unpublished).
  3. Ojha KC. Costing, financial reports, auditing and taxation for hospitals. Bombay Management Association 1984.
  4. Tata Consultancy services. Cost account system. All India Institute of Medical sciences, New Delhi, 1987.
  5. Qadiri GJ, Bhat GM. Costing laundry operations in a teaching hospital. JAHA 2(2): 90. 19-22.
  6. Gupta R: A cost evaluation, study of radiodiagnosis department at a teaching hospital. JAHA 2(2):1190.
  7. Amin Tabish, Qadiri GJ: Cost analysis of CSSD at a tertiary care hospital. JAHA 6(1): 41-44, 1994.
  8. Amin Tabish, Qadiri GJ: Costing evaluation of medical gas facility at a large teaching hospital. J Health & Population 17(3&4): 219-229, 1994.
  9. Kannaraj V: A study of neonatal care services at AIIMS hospital. JAHA Jan., 1996.
  10. Brett J Cassens: Preventive medicine and public health 2nd edition,1992 Harwal Publishing London.
  11. Amin Tabish, Alexander Macara, Qadiri GJ, Philipp R. Health Care in India. Journal of Medicine Sciences, 1(2); 1998: 5-9.

* Additional Professor, ** Additional Professor, *** Post GraduateStudents

Department of Hospital Administration Sher-i-Kashmir Institute of Medical Sciences
P.O. Box 826, GPO, Srinagar - 190001.

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