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Journal of the Academy of Hospital Administration

Use of Hospital Accounting-Based Cost

Author(s): V.P. Bhaskaran*, Satyashankar P**, Sandeep Desmond D'Souza***

Vol. 14, No. 2 (2002-07 - 2002-12)


Much hospital expenditure is wasted through misallocation and by technical and managerial inefficiency. The purpose of the study was to get an informative and detailed picture of the resource utilization of the CSSD in order to support its pricing and management, and accelerate cost reduction. The study was conducted in the CSSD of Kasturba Hospital, Manipal. The materials consisted of 29,984 cu.ft. autoclaving capacity and 52,933 sets processed through the CSSD during the first quarter of 2001, when the requirement of an extra boiler operator was projected by the incharge. Detailed cost-data was obtained from the hospital finance, billing and departmental-record system. The workload on the autoclaves in terms of volume for the same period was also recorded. Detailed work-study and other strategic decisions resulted in the reduction of the boiler operation time by 3 hours and 20 minutes. Savings were made on the salary of one boiler operator, electricity and diesel. Water consumption was reduced. The total cost of operating the CSSD was reduced by 17.6%. Reduction of wastage, leading to increased productivity, through better utilization of man and machine was the bottom-line.

Keywords: Hospital cost accounting, CSSD, Cost centre, Finance Management

Key Messages:

* The Central Sterile Supply deptt. is one of the important cost centres in the hospital.
* After a pilot study, work study methods were applied resulting in reduction of boiler operator time.
* Savings were made on salaries, by decreasing running time and effective/scheduling.


Hospital administrators today recognize the CSSD as one of the most important services departments in the hospital1. It aims at centralizing the activities of receipt, cleaning, assembly, sterilization, storage and distribution of reliably sterilized material from a central department, were bacteriologically safe sterilization practice is conducted under controlled conditions, adequate managerial and technical supervision and minimum cost2. The CSSD is an important cost centre in the hospital.

The design and administration of the CSSD must allow for a high level of flexibility, must anticipate continued change and improvement3. As the ailing heart makes a man falter poor central service make a hospital sick. The disease may be congenital, as when the department is badly planned, or functional when it is inadequately staffed or badly managed. In either case the result can be critical4.

The process of cost-analysis has become a resource tool for finance management in hospitals. Costing also helps to assess the efficiency and effectiveness of functions and their cost implications with a view to contain cost. The exercise of unit costing involves the determination of the cost of a single unit of any product or service. The approaches to unit costing are:

1. Standard Costs
2. Average Costs5

The average costing technique has been adopted in this cost study.

The studies can be used to develop performance standards, assist with projections of future resource requirements as demand for hospital services increases, the identify hospitals that require special management attention to improve efficiency6.

The CSSD at Kasturba Hospital, Manipal was started in the year 1990. Today the hospital has 1473 beds, spread over 60 wards, houses 17 operating rooms and does about 50 operations daily. The CSSD is fully equipped and staffed to handle this large quantum of work. There has been a reduction in the number of cases visiting the hospital for surgical services. This was observed from the monthly OT statistics over the past 5 years. These facts were once again reviewed when the request for another CSSD boiler operator (besides the two already on appointment) was projected. It seemed that the CSSD had turned in ill, and needed appropriate and timely treatment. A study was conducted to get an informative and detailed picture of the resource utilization of the CSSD in order to reduce running costs and support its pricing and management.

Aims and Objectives

1. To determine the various cost involved in the operation of a CSSD in a large tertiary-care teaching hospital.
2. To calculate the cost of production per unit volume of autoclaving.
3. To develop a feasible strategy for accelerated cost-reduction.

Materials and Methods

A pilot study of the CSSD was conducted for a period of 30 days with a view to understand the physical facilities, staffing pattern, policies and procedures, layout and workflow.

A retrospective study of the resource utilization of the CSSD for a period of 3 months from 1st January to 31st March 2001 was done with a view to find out the various cost-factors involved in the operation of a CSSD facility. This was achieved by getting a detailed consumption report from the stores, linen and laundry, discussions with the mechanical, electrical and central air-conditioning division and the finance department. Cost-Accounting principles were kept in mind while compiling the entire database of information. Cost per unit volume of autoclaving was calculated.

With the database in hand, the high-cost areas came into light. Keeping these in mind various strategies were thought about on how to re-schedule the autoclaving process, so as to achieve cost-reduction and higher productivity.

It was then that a database of the workload on the individual autoclaves was studied and compiled, so as to know the effective usage of each individual autoclave. The total load of autoclaving of the first quarter of 2001 (1st January - 31st March) was acquired from the records maintained in the department. The average running time of each machine for those three months of 2001 was taken for the calculations.

A work-study was done with the objective of most effective use of plant and human effort. This was done in two steps.

  1. Method Study: Various steps involved in the autoclaving process of the material were studied. Each activity was critically analysed to combine, rearrange, eliminate and simplify the operations.
  2. Time Study: Standard time required for doing the above-improved operation was determined by doing a time study. This was done separately for the large and small autoclaves.

Taking into account the findings of the above study few cost-saving methods were devised and discussions were held with the nursing incharge of the CSSD with a view to augment the entire process of autoclaving to achieve better stewardship of resources, ramp-up operational efficiency through reduction of wastage and finally accelerate cost-reductions.

The new schedule was implemented in August 2001 after discussions with the technical staff of the CSSD and motivating them through the entire process of change. To test for feasibility and actual savings of the new schedule, a follow up study for first three months of 2002 was done. The information collected was compiled and discussions were held on them.

Observations and Discussion

Results of the pilot study

The Zoning concept is applied to the layout of the CSSD, thus allowing the work to flow unidirectionaly from the unsterile to the sterile zones. The sets move through various counters and rooms, manned by 22 well-trained and experienced technicians and staff. There was no flaw in the design, which would explain any inefficiency in operations.

The CSSD has a 24-hour service capability and is ideally located. It is close to, easily accessible and caters to the needs of all its user departments, the OR's, ICU's, OPD's and wards. It has a plinth area of 5,920 sq. ft., which meets international recommendations of 4 sq.ft. per bed7. There are three autoclaves in the department with a total autoclaving capacity of 64.4 cu.ft. per cycle running on steam, produced by a boiler. Boiler and autoclaves function between 12:00 noon and 10:00 p.m. Statistics made available from the operative procedures over the last five years. But, the corresponding costs of operations of the CSSD did not mirror the trend.

Results of the retrospective study

The resource utilization of the CSSD for the months of January, February and March 2001 as a consolidated monthly average is given in Table-1. The data was easily made available from the Management Information System (MIS) operating in the hospital. The cost-heads were further clubbed together to simplify the readings, and are listed below.

The table shows that Salaries, Diesel and Electricity consumption are the main cost drivers of the CSSD; amounting to a total of 63% of the total costs.

Table-1 Showing the average monthly cost of CSSD, classified under various cost heads.

Sr.No. Cost-Heads Amount (Rs.) % of Grand Total
1 Depreciation* 44,580.30 9.3
2 Salaries 1,15,817.33 24.1
3 Stores Consumption** 70,325.13 14.6
4 Laundry Consumption 8,706.00 1.8
5 Electricity Consumption *** 90,585.00 18.8
6 Water Consumption 1,116.00 0.2
7 Diesel Consumption 95,109.16 19.8
8 Maintenance**** 11,190.14 2.3
9 Administrative Charges***** 43,742.91 9.1
Grand Total 4,81,171.97 100.0

* Depreciation of equipment (10%) and building (5%),
** General items and linen,
*** Electrical items and Central Air-conditioning,
**** 5% of Equipment cost,
***** 10% of the Total.

The volume of production (Cu.ft.) was obtained from the departmental records. It was possible to calculate the unit cost of autoclaving per cu.ft. and is shown in Tabel-2.

Table 2 : Showing the production volume, production cost and the unit cost per Cu.ft. of autoclaving.

Month Production Volume
(Number of Cu.ft.)
Jan. 2001 10,342 477914.80 46.00
Feb. 2001 9,314 472634.87 50.00
Mar. 2001 10,328 492965.95 48.00
?Average 9,995 481171.97 48.00

The cost of processing one cubic foot came to Rs. 48.00 on an average for the year 2001. The unit-cost of CSSD in another large teaching hospital was Rs. 753 for 25 cu.ft. which comes to Rs. 30.00 per Cu.ft.5. As compared to this the above findings were higher.

Results of the Prospective Study

It was now clear that the main focal points for the new strategy should be to reduce expenditure on salaries, diesel consumption and electricity consumption. Discussions held with the staff revealed that the autoclaves were not being utilized to their fullest and the time taken to load the trolley for the next cycle was the main cause of diesel wastage, since the boiler was operational for ten hours continuously. So the core of the new strategy had to aim at preventing this time wastage.

For this the workload on the individual machines was studied, so as to know the effective usage of each individual autoclave. The total load of autoclaving for the first quarter of 2001 was acquired from the records maintained within the department. This is shown in Table-3.

Table 3 Showing the number of autoclaving cycles done per month in each autoclave.

Autoclave A Autoclave B Autoclave C Total
Jan. 2001 044 173 179 396
Feb. 2001 043 154 162 356
Mar. 2001 049 172 178 399

As evident from table-3 autoclave 'A' was being poorly utilized as compared to autoclaves 'B' and 'C'.

The average running time of each machine was taken to calculate the total volume of autoclaving per machine, as shown in table-4.

A method study was done to identify the entire operations of the autoclaving process with a view to simplify it. It confirmed the observations of the staff and concluded that the main waste of time came after every autoclaving cycle, since the loading frame had to be unloaded and then brought to the unsterile side for a fresh load. To avoid this, an additional loading frame was manufactured at a cost of Rs. 20,000/.

Table 4 Showing the aveage number of trips and the total volume of autoclavingof eachautoclave per day.

Autoclave Average trips
per day
Capacity per
trip (Cu.ft.)
Total volume of
autoclaving. (Cu.ft.)
'A' 1.5 8.4 12.6
'B' 5.4 28 151.2
'C' 6.2 28 173.6

It was also found that the unsterile load was often inadequate to start the cycle compounding the delay. To overcome this, the starting time of the boiler and autoclaves was postponed from 12:00 p.m. to 1:30 p.m.. Unsterile sets could now be accumulated leading to a continuous use of autoclaving facilities.

Effort was also made to reduce the quantity of autoclaving sets. Even though the consumption of sets had declined, the cycle of sterilization and supply remained, with the CSSD often having to re-sterilize unused sets which had exceeded their expiry date. Such items were identified and stocks were reduced to minimise duplication. Sets, which were not frequently utilised, were ETO (Ethylene Oxide) sterilized to give them a longer shelf life.

All these efforts resulted in the collective reduction of the autoclaving volume from 337.4 cu.ft. to 313.6 cu.ft. per day, a reduction of approximately 7 percent. A revision in boiler operations, from 1:30 p.m. to 8:10 p.m. shaved off 35 percent of autoclave and boiler operation time.

Table 5 Showing the revised schedule of autoclaving trips and the total volume of autoclaving of each autoclave per day.

Autoclave No. of Trips Total Working Time (Minutes) Capacity
per Trip (Cu.ft.)
Total volume of autoclaving (Cu.ft.)
'A' 4 400 8.4 33.6
'B' 5 400 28.0 140.0
'C' 5 400 28.0 140.0

The new schedule is shown in table-5.

After four months of successful implementation of the new strategies and autoclaving schedule with effect from 1st August 2001, the average monthly costs of production from Jan-Mar. 2002 was calculated, and is shown in Table-6.

Table 6 Showing the average monthly cost of CSSD, under various cost heads.

Sr. No. Cost Heads Amount (Rs.) % of Grand Total
1 Depreciation 44,580.30 11.2
2 Salaries 1,19,810.66 30.2
3 Stores Consumption 71,483.64 18.0
4 Laundry Consumption 8,217.00 2.1
5 Electricity Consumption 48,526.50 12.5
6 Water Consumption 276.00 0
7 Diesel Consumption 56,545.17 14.3
8 Maintenance 11,190.14 2.8
9 Administrative Charges 36,062.94 9.1
Grand Total 3,96,692.35 100

With the plan successfully running, the overall actual savings amounted to Rs. 84,479.62/- per month for the same period in 2002, that is 17.6% reduction in the cost.

Due to the annual increment in the salary structure of the staff, the savings made by the reduction of one boiler operator and over time is not apparent in the financial statement.

Cost Heads under which savings were done

Salary (1 boiler operator) = Rs. 4,138.00
Overtime (boiler operator) = Rs. 1,000.00
Laundry Services = Rs. 489.00
Electricity = Rs. 42,058.50
Water = Rs. 396.00
Diesel = Rs. 38,563.99
Administrative Charges = Rs. 7,679.97

The CSSD now remains closed on Sundays and only fulfils requests for sterile sets.

2,10,000 liters of water per month were saved by making changes to the piping layouts and recycling the water. This was economically achieved with minimal investment by making use of a sump that was already in existence and a pump that was available in the stores. Even though this did not contribute much to the financial savings, the quantity saved was significant.

The total production volume was reduced to 9,537 cu.ft. during Jan.-Mar 2002 from 9,995 cu.ft. during the same period in 2001, and the unit cost per cu.ft. is reduced to Rs. 41.50 from Rs. 48.00 Unit costing of CSSD services per cubic feet of sterilization was very useful and practically applicable for the pricing of the product depending on its size.


The success of the cost cutting measures was made possible because of the active participation and involvement of the technicians and staff working in the CSSD. With the use of cost accounting and cost analysis mechanisms it was possible to reduce the operating costs of the CSSD without compromising on its service quality. Similar cost accounting principles when applied to other areas of the hospital will significantly aid the administration in better when applied to other areas of the hospital will significantly aid the administration in better management, utilization of resources, financial discipline, cost control and pricing.


  1. McGibony Jr, Masie ML, Ella HD. Summary. In: A Study of Hospital Central Medical and Surgical Supply Services; US Department of Health, Education and Welfare. Public Health Services, 1965; 1.
  2. Nagpal AK, Shrinivas. Planning and Organisation of the CSSD. In: NIHAE Bulletin, Journal of Health Administration. 1977; Vol.X, No.4:259-269.
  3. J.K.Owen, R.K.Eisleben. Central Medical and Surgical Supplies. In: Modern Concepts of Hospital Administration.1962.
  4. Special Report-Planning Central Service [Reprint]. Modern Hospital. Inc. Chicago: The Modern Hospital Publishing Co., Mar 1961;79.
  5. Syed Amin Tabish, G.J. Qadiri, Ghulam Hassan; Cost analysis of central sterilization services at a tertiary care medical institute. JAHA, Vol. 6, No.1, 1994.
  6. Syed Amin Tabish, Ajaz Mustafa, Rangrez RA; Hospital Accounting Based Cost Studies: Indian Experience. JAHA, Vol.13, No.1, 2001.
  7. Perkins JJ.; Principles and methods of sterilization in Health Sciences, 3rd Charles C. Thomas, Illinois, USA-1980.

* Professor and Head of the Department of Hospital Administration,
** Medical Supreintendent, Additional Dean (Hospital Affairs), Kasturba Medical College Hospital, Manipal 576119, Karnataka,
*** Post-Graduate, Department of Hospital Administration, E-mail: [email protected]

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