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Journal of the Academy of Hospital Administration

A Study on Costing of Selected Biochemistry Investigations in a Teaching Hospital

Author(s): Libert Anil Gomes, Sybil Fernades, Priya M. D’Souza

Vol. 16, No. 1 (2004-01 - 2004-06)

Key words: cost accounting, biochemistry investigations, direct costs, indirect costs, pricing


A hospital laboratory service is an economic asset to the hospital since it is an income generating service. Cost accounting is a financial management tool, which helps to assess the efficiency and effectiveness of the services provided. The study was focused on analyzing the different categories of costs involved in conducting biochemistry investigations and also on assessing the adequacy of prices charged. Five investigations among 40 different types wee selected for the study. The total costs obtained and the prices charged shoed that the hospital has adopted market-based pricing policy and also that the costs are covered.


A hospital is a cost intensive organization and the cost of hospital based medical care all over the world is rising out of all proportions1. Managing hospitals being a complex task and providing medical care being its primary responsibility, it has become very important to look at the financial viability and upkeep of the hospital. As administrators, the two most important resources one has to look after are finance and human resources2. Management requires adequate, systemic and useful cost data and reports to manage a business or a service oriented industry and achieve its objectives. Cost data assists management in determining and analyzing the costs of departments, processes, jobs, products, controlling costs, making revenue decisions, making special cost studies and investigations vital in formulating policies.

Conducting cost analysis help hospitals understand how much it costs them to provide healthcare services. The information obtained from a cost analysis also help the organizations operate more cost effectively3. Cost analysis of various health services and institutions is a developing area. Certain studies have been done on the cost analysis of hospitals, nursing home attached to a large hospital and different departments of a hospital. However there is a paucity of such studies in the field of medical education as well as cost analysis of services provided by a teaching hospital4.

The clinical laboratories are a group of interrelated subsystems and form a vital component of patient care. Hence in planning and management of hospitals, attention should be focused on the design, organization, costing and maintenance of quality of laboratory services5.

Aim And Objectives of the Study

  1. To find the cost of the most frequently conducted clinical biochemistry investigations at a selected tertiary care teaching hospital.
  2. To assess the adequacy of the rate structure.

Matierials and Methods

The data was collected by personal observation in the biochemistry laboratory, studying the relevant records of biochemistry laboratory, general stores, hospital accounts, billing and personnel departments and also by informal interviews with the staff working in the above mentioned departments of the selected hospital. The charges for the selected biochemical tests in other hospitals in the neighborhood were obtained by the author.

Results and Discussions

The data obtained has been analysed and summarized in the form of Table 1 & 2. the statistical records for the months of September, October, November and December, 2002 maintained in the biochemistry laboratory were studied. The mean percentages of all the test were calculated and Blood Glucose, Serum Urea, Serum Creatinine, Serum Sodium and Serum Potassium were found to be the most commonly conducted investigations.

Calculation of the costs involved in conducting the selected tests:-

The costs involved can be classified into direct and indirect costs. In this study direct costs include direct material and labour costs. The indirect costs include indirect labour, depreciation, repairs & maintenance, housekeeping, stationery, glassware, electricity, water, administrative and general expenses which are not specific to any test considered.

The direct labour cost is calculated on the basis of the salary of the six laboratory technicians & assuming that each test utilizes the labour hours equally. While finding out the indirect labour costs, half the monthly salaries of the teaching staff in biochemistry department, laboratory in charge, typist, attendants who are common to all the clinical laboratories wee considered and are equally distributed among all the tests conducted in a month. The direct materials are the reagents used which are specific to each kind of test. The reagents used in conducting blood glucose, serum urea and serum creatinine investigations are available in the form of kits, whereas for serum electrolytes it is available in the form of Cal Pak solution. The cost of the reagent per test is calculated based on the price of the reagent and the number of tests can be conducted with a kit.

The equipment used for conducting routine analysis including blood glucose, serum urea and serum creatinine investigations are the Express Plus and for serum electrolytes is the Cal Pak (electrolyte analyzer). Both are fully automated. Aprt from these the centrifuge is used for all tests conducted in the biochemistry laboratory. Depreciation on the equipment is calculated at 25% p.a., on the building at 5% p.a. and on furniture and fixtures at 20% p.a. of the total cost of the acquisition. Depreciation on equipment per month is calculated and distributed among the tests based on the total number of tests conducted using each equipment. Depreciation on building, furniture and fixtures is calculated per month and distributed among 9,151 tests conducted in a month.

Table No.1 showing the classification and percentage of costs

Particulars Blood Glucose Serum Urea Serum Creatine Serum Electrolytes
  Costs Costs Costs Costs
  Rps % Rps % Rps % Rps %
Labor 6.34 38.68 6.34 26.98 6.34 34.34 6.34 36.97
Material 1.14 6.95 8.24 35.06 3.20 17.34 3.72 21.69
Depreciation 4.72 28.78 4.72 20.09 4.72 25.57 3.56 20.76
Repairs, Maintainence & Electric Exp. 2.12 12.93 2.12 9.02 2.12 11.48 1.45 8.45
Admin & Genereal Exp 0.84 5.12 0.84 3.57 0.84 4.55 0.84 4.90
.Misc. 1.24 7.56 1.24 5.28 1.24 6.72 1.24 7.23
Total 16.4 100 23.5 100 18.46 100 17.15 100

Repairs and maintenance expenses on equipment are taken at 8% of the cost of the equipment which include servicing, repairing, replacing the spare parts, etc. These expenses on laboratory building, furniture and fixtures are taken at 2% of the cost of acquisition.

As there is no sub meter in the laboratory to measure the electricity consumption, it is assessed by technical calculation or in other words on wattage basis. According to this, if equipment with IKW power consumption runs for 1 hour, it consumes 1 unit of electricity. The routine analyzer and other electrical fixtures run for 24 hours a day. Based on the number of tests conducted in a day, the electricity consumption per test is found out. Power consumption in Cal Pak is calculated based on time taken per analysis as per manufacturers’ specifications, which is 35 seconds. Centrifuge is used for all the tests and time taken to centrifuge is 3 minutes and 16 tubes can be centrifuged at a time. Based on these criteria power consumption per test is calculated. The electricity expenses are calculated at the rate per unit of Rs. 4.50.

The administrative and general expenses are taken from the books of accounts of the hospital for the financial year 2001-2002 and 5% is added to it as the cost of inflation. The apportionment of these expenses to the biochemistry laboratory is done in proportion to the staff working in the institution and in the biochemistry laboratory.

To the total housekeeping expenses fro the year 2001-2002, 5% is added as the cost of inflation. The allocation of the housekeeping expenses is done based on the number of hours of services received by the biochemistry laboratory. To these expenses, the glassware, water, printing and stationery expenses were added based on the annual figure for the year 2001-2002 plus 5% as the cost of inflation. This total figure is considered as the miscellaneous expenses, which is Rs. 1.24 per test.

When the various categories of costs were compared direct labour cost and direct material costs seems to be higher than the other costs in general.

Assessing the adequacy of the rate structure

Table 2

Investigation Total Costs General ward/OPD Rates Changes in the Market
Blood Glucose 16.4 25 30
Serum Urea 23.5 35 30
Serum Creatine 18.46 25 25
Serum Sodium 17.15 25 25
Sodium Potassium 17.15 25 25

A number of factors influence the way in which prices are established. Pricing may be cost oriented, demand oriented, market oriented, cost plus pricing, etc. The researchers have taken the general ward and the OPD charges into account, which are one and the same. These charges were compared with the costs and also with rates charged in the neighbourhood hospitals. It was observed that the rates covered the expenses and were in comparison with that of the teaching hospitals in the locality. And hence it is clear that the selected tertiary care teaching hospital sets the prices for the biochemistry investigations considering the price structure in the market.


Today hospitals are operating in a competitive and market driven scenario. The hospitals have to deliver quality services at reasonable cost. Cost accounting is a financial management tool, which will assist the hospital managers. The selected tertiary care teaching hospital sets the prices for the biochemistry investigations considering the price structure in the market.


  1. Roy Ashok Kumar, Cost containment in hospitals, Hospital Adminstration, 1985:377-387
  2. Karkera Narendra, Cost analysis of hospital services, clipboard article, Christian Medical Association of India, 2002, 23:2-3
  3. Sides W. Rhonda, Cost analysis helps evaluate contract profitability, Healthcare financial management, 1996:63-66
  4. Jual P.K., Y.P. Gupta, Cost analysis of services provided by a medical college and associated hospital and healthcare, in Ashok Sahni ed, Bangalore: Indian Society of Health Administrators, 1986:62-73
  5. Prabhu K.M., S.K. Sood, Hospital laboratory services: organization and management, Journal of Academy of Hospital Adminsitration, 1990, 12:71-77

Address for Communications:

Department of Hospital Administration
Father Muller Medical College Hospital, Mangalore- 575002
E-mail: [email protected]

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