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Journal of the Academy of Hospital Administration

Cost of Services in a Sub-district level Hospital in Northern India

Author(s): K. Anand*, C.S. Pandav**, S.K. Kapoor***

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

Abstract:

Background Information on cost of health services is needed for planning and resource allocation and for assessing efficiency in services. Economic evaluations, however, have not been an inherent part of the thinking in public health planning, maybe because health has been considered as a part of social sector. It is also widely perceived that cost data are difficult to generate and require laborious calculations. Or objective was to estimate the cost of services provided at a 50 bedded secondary level Hospital at Ballabgarh Block of District Faridabad in the State of Haryana for the year 2000, using a key informant approach for costing. Methods The costing methodology followed was as per the WHO guidelines. However, instead of using registers and records for calculating the inputs, we used a key informant approach to get the estimates of cost. For the output, however, registers were used. Six cost centres were identified in the hospital where direct patient contact was present: Outpatient, in-patient, Emergency, Laboratory, X-ray, Operation Theatre. The cost of ancillary centres were estimated and allocated to the above six centres.Results The total annual cost incurred on the hospital for the year 2000 was estimated to be Rs. 15.4 million rupees. The salaries constituted 78% of the total cost. Doctors" salary constituted almost a quarter of the total costs. The cost per outpatient consultation was Rs. 20.50 and the cost per occupied bed day in the hospital was about Rs. 400. For providing an emergency consultation at the hospital, the cost was about Rs. 250 per patient. The costs of the two departments concerned with investigations were Rs. 17.60 per laboratory test and Rs. 134 per X-ray. The cost of each surgical procedure was estimated to be Rs. 1541. A total of Rs. 566,248 (3.6%) was being recovered from the patients.Conclusion Our estimates of the cost of secondary level hospital using key informant are similar to available information. The cost recovery is very poor. These estimates could also provide a basis for finalization of health insurance packages and their premiums. More data is required so that an economic thinking becomes an integral part of health planning process in the country.

Keywords: Costing, Health Services, key informant approach, cost centres, user fees.

Key Messages:

  • Salaries constituted about 78% of total cost of running the hospital.
  • The cost per outpatient consultation in OPD was about Rs. 20.50 p;and the same in the emergency was Rs. 250/- per day
  • Cost of hospitals active came to about Rs. 400/- per day; surgery costed Rs. 1541/- of which only 3.6% was being recovered through user charges.

Introduction

Information on cost of health services is needed for planning and resource allocation and for assessing efficiency in services. These have assumed greater significance due to the advent of health sector reforms in the country. The information on cost of health services will also be useful for prescribing guidelines for user fees and premium of health insurance packages. Both these are an important component of the health sector reforms.

However, it is also a fact that not much information is available on cost of public health services in the country. This is primarily because, till not, the planning was not based on cost factor. Health has been traditionally considered as a social sector and therefore an area, where cost and efficiency issues need not be addressed. Also economic evaluations so far, have never been an inherent part of the thinking in public health planning. It is also widely perceived that cost data are difficult to generate and require laborious calculations. There have been attempts to simplify the estimations of cost. Our objective was to estimate the cost of services provided at a 50 bedded secondary level Hospital at ballabgarh block of district Faridabad in the State of Haryana for the year 2000, using a key informant approach for costing. We also determined the proportion of cost that is being recovered from the users in the hospital.

Methods

This hospital is run as a part of the Comprehensive Rural Health Services Project, a collaborative venture between All Indian Institute of Medical Sciences (AIIMS), New Delhi and the State Government of Haryana. This project includes the 50 bedded hospital at Ballabgarh and two primary Health centres located at Chhainsa and Dayalpur respectively. The costing of one of the PHCs has been published earlier.1,2 The Hospital provides general medical, pediatric, surgical, gynecological, obstetric and ophthalmologic services. These include ambulatory as well as in-patient services. No blood bank and microbiological services are available. A senior faculty member for AIIMS is the chief administrator and is supported by both Haryana state staff as well as AIIMS staff.

Cost Methodology

The costing methodology followed was as per the WHO guidelines3. It calls for a six step method.

1. Define final product: This means deciding the unit costs to be measured based on generation of a meaningful information which can be used for managerial purposes and on the availability of cost data. The unit costs of interest are given in table - I.

2. Define cost centres: Six cost centres and six services which were shared by these cost centres were identified. These are shown in Table 1. The cost centres were the departments responsible for direct patient care.

Table1: Cost centres and ancillary services identified in the hospital:

Cost centres (unit of costing) Ancillary services
Outpatient Department
(per patient visit)
Administration
In-patient department
(per occupied bed day)
Engineering
Emergency department
(per patient visit)
Sanitation
Laboratory (per test) Laundry
Radiological (per X-ray) Store
Operation Theatre
(per surgical procedure)
Transport

3. Identify Full Cost for Each Input:

We used the key informant approach rather than going through registers and accounts. The head of each department or division was interviewed to gather data related to that particular department/division rather than going through the registers. The costs identified were divided into capital and recurrent costs.

Capital cost were of buildings, equipments and furniture etc. For buildings, the replacement cost was estimated based on size of the building and the construction costs as available from engineering department at AIIMS for this type of building (Rs. 350 per Sq.ft.). Buildings meant for residences and hostels were excluded from analysis. The major equipments being used in the hospital were Incinerator, ultrasound, Autoanalyzer, Operation theatre lights, microscope and laproscope. A discount rate of 3% was applied to the estimated life of each capital item to derive equivalent annual costs as recommended by WHO3.

Recurrent costs were mainly salaries. While the information on salaries was derived from salary slips, it was not done for all the employees. Instead, only one middle level functionary"s (be it nurses, hospital attendants etc.) salary was used and approximated to the others. For consumable including drugs and maintenance, we used the budgetary allocation. The actual consumption and allocation was used for the purposes of costing.

4. Assigning inputs to cost centres:

The method used for this was again by key informant interviews. For staff who were posted in the cost centres, their full time was allocated to the cost centre concerned. However for others who worked across cost centres, the cost (salary) was allocated based on the estimation of time spent in each cost centres. For example a surgeon, would spend time in Out-patient, inpatient as well as Operation theatre. His salary cost was allocated to all the three cost centres based on the average time spent in each department as decided by interviewing his. For the faculty posted at Ballabgarh, the teaching and research time were excluded.

5. Allocating all costs to final centres:

In this step, all the indirect (ancillary) costs are also allocated to the final cost centres. The allocation basis and the proportion of these ancillary services used by the cost centres are given in Table-2. The "Others" column in this table included the costs not included in the analysis as that of PHCs or hostels/residential facilities etc.

6. Compute unit costs:

By the steps listed above one would have estimated the total cost incurred by each cost centre. This needs to be related to the output of each centre as identified in step 1. The source for this information was the registers being maintained by each cost centre.

We had earlier gained experience in using the key informant approach while testing the World Health Organization"s protocol on determination of cost of treatment of vaccine preventable diseases.4

Information on Cost Recovery:

The cost was being recovered through nominal collections for outpatient (Rs.1 per new card) and in-patient (Rs.2.50 per admission). Except for routine laboratory investigations (hemogram, routine urine/stool/semen analysis) all other serological/biochemical investigations are charged. The radiological services are also charged. The user charges for these services have been fixed so as to cover only the cost of consumables. As the money collected is deposited in bank/authorities, its account was easily available.

Table 2 - Allocation basis and proportion of costs of ancillary services allocated to cost centres

Ancillary
services
Unit Out-patient In-patient Operations
Theatre
Laboratory X-ray Emergency Others* Total
Office Person
Time
20 20 10 5 5 15 25 100
Store Person
Time
25 25 15 2.5 2.5 10 20 100
Engi-
neering
Person
Time
20 20 10 2.5 2.5 15 30 100
Sanita-
tion
Person
Time
20 25 10 2.5 2.5 15 25 100
Laundry Number
of Linen
15 30 30 - - 20 5 100
Transport Kilometre 15 30 20 5 5 25 0 100

* others includes PHCs/hostels etc.

Results

The total annual cost incurred on the hospital for the year 2000 is shown in table 3. A total of Rs. 15.4 million rupees was being incurred in the hospital. The salaries constituted 58.2% of the total costs in these cost centres. However, salary was also a major share of the ancillary services. Including this in the salary component increased it to 78%. Doctors" salary constituted almost a quarter of the total costs.

The unit cost of different cost centres is shown in table 3. The cost per outpatient consultation was Rs. 20.50 and the cost per occupied bed day in the hospital was about Rs. 400. For providing an emergency consultation at the hospital, the cost was about Rs. 250 per patient. The costs of the two departments concerned with investigative procedures were Rs. 17.60 per laboratory test and Rs. 134 per X-ray. The capital costs were higher in these as these departments have major equipments as listed above. This was true for operation theatre as well, where the cost of each surgical procedure was estimated to be Rs. 1541. This mean estimate includes minor surgeries as well and therefore does not reflect the cost of major surgeries.

A total of Rs. 566,248 was being recovered from the patients. This meant that a total of 3.6% of the total cost was being recovered. This was almost entirely through the investigations were the cost recovery was about 28%.

Table 3
Total annual Cost of the hospital for the year 2002

Cost heads (Rs. millions) %
Capital 1.11 7.2
Overhead 4.35 28.0
Doctors salary 3.50 22.5
Support staff salaries 5.55 35.7
Consumables 0.90 5.8
Maintenance 0.13 0.8
Total 15.54 100.0

 Table 4. Estimated Unit Cost of different Cost centres in the hospital

Cost head OPD IPD Emergency Laboratory X-ray Operation
Theatre
Total cost (Rs., 000) 3485.7 4083 3580.8 1162.8 870.4 2377.8
Capital (%) 1.7 5.4 2.6 15.5 14.6 18.5
Overhead (%) 32.1 30.8 24.3 17.9 23.9 28.9
Salary (%) 61.0 58.8 69.8 49.4 37.9 47.3
Others (%) 5.3 4.9 3.2 17.2 23.5 5.3
Number of
units/clients
170,0000 10275 14533 66085 6495 1543
Unit cost* (Rs.) 20.5 397.4 246.4  17.60 134.0 1540.9

* See table 1 for description of the unit for each cost centre

Discussion

We tried to estimate the cost of a sub-district hospital being run by AIIMS using a key informant approach. This approach seems possible. We compared our estimate from other studies available. Goldar et al from India estimated the cost of a 400 bedded general hospital using mainly budgetary sources (financial year 1992-93)5. Thus capital costs were excluded from analysis. The allocation to cost centres was done a very detailed manner based on work studies etc. They arrived at the costs of Rs. 171.6 per inpatient per day, Rs. 14.21 per outpatient consultation, Rs. 155.12 per emergency consultation and Rs. 20 per laboratory investigation. Keeping in mind that differences in year of study, non-inclusion of capital costs and a relatively higher level of care, the estimates appear to be similar.

The unit cost depends upon the extent of the capacity which is utilized. For example, in this hospital the bed occupancy was about 56%. Higher utilization would bring down the per patient day costs significantly. Also, the actual cost of an X-ray in the hospital was higher than that is charged in private sector. This again points to the fact that X-ray services are being under-utilised.

The data generated shows the cost incurred by the government in running a secondary level hospital. Often these services are taken for granted and the investments in health care not appreciated by the community. Government should encourage calculation of cost data by public health facilities. These would serve to inform the public about the investment the State, makes in the hospitals and encourage its better utilization by community. Also, the data would help identify the inefficient facilities, so that appropriate corrective actions can be taken.

This study also clearly highlights the poor cost recovery in the health system. Recently, as a part of the health sector reforms the State Government of Haryana increased user fees in these hospitals. These have now been fixed at Rs. 5.00 per outpatient and emergency consultation and Rs. 10 per day of admission. If we apply these current user charges the total cost recovery increases to 6.1%. However, this recovery rate is much higher than that of state governments in India as reported by Dholakia et al based on discussion paper from ministry of finance in 1997 which varied between 07% to 2.9%.6

Conclusion

In conclusion, our estimates of the cost of secondary level hospital using a key informant approach seems to be reasonably sound. The analysis also helped in identifying inefficient cost centres. Another gain was calculation of the cost recovery and subsidy involved in running the hospital. These estimates could also provide a basis for finalization of health insurance packages and their premiums. More such data is required so that an economic thinking becomes an integral part of health planning process in the country.

References

  1. Anand K, Kapoor SK, Pandav CS. Cost analysis of a primary health centre in northern India. Natl Med J India. 1993 Jul-Aug.6(4):160-3.
  2. Anand K, Pandav CS, Kapoor SK, Kumar G, Nath LM. Cost of health services provided at a primary health centre. Natl Med J India. 1995 Jul-Aug;8(4): 156-61.
  3. Shepard DS, Hodgkin D, Anthony Ye. Analysis of hospital costs: a manual for managers. World Health Organization, Geneva 2000.
  4. World Health Organization. Review of treatment cost protocol studies. Geneva WHO, 2001, WHO/ V and B/01.22.
  5. Goldar K., Agarwal AK. Unit costing of important cost centres in a general hospital in Delhi. Health and population-perspectives and issues. 18(3):120-125, 1995.
  6. Dholakia AR., Dholakia RH. Budgetary subsidies in the health sector - A case of Gujarat State. Presented at Capacity Strengthening in Health Policy and Research in the context of changing macro-economic environment, March 2000. Indian Institute of Management, Ahmedabad.

* Assistant Professor
** Additional Professor
*** Professor, Address for Corespondence:
Dr. K. Anand, Assistant Professor, CRHSP,
Ballabgarh, Faridabad, Haryana - 121004,
E-mail: [email protected]

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