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Journal of the Academy of Hospital Administration

A Cost Analysis Study of the Operative Services Provided at the Operation Theater Complex at a Tertiary Care Service Hospital

Author(s): SS Bhatia*, KK Sharma**, M Dayanada***

Vol. 16, No. 2 (2004-07 - 2004-12)

Key Words:

Cost center; Apportioning; Case time; Surgical Time; Resource time; Fixed cost; Variable cost; Resource hours utilization (RHU); Adjusted percent resource hour utilization (APRHU).

Key Messages:

Cost of surgery varies from discipline to discipline with Oncosurgery being most expensive.

Medical equipments contribute to significant capital costs in OT.

ABSTRACT

The cost of medical care has risen dramatically in the last decade, due to various factors. It is important for us to know regarding the actual cost of providing medical care especially the core services in hospitals. Armed Forces Medical Services hospitals have not addressed the issue of cost as a factor in providing a service at any forum. With a burgeoning clientele in the services hospitals this issue will need to be addressed sooner or later. This study was undertaken to carry out a cost analysis of operative services at a tertiary care hospital.

INTRODUCTION

Cost accounting has become an essential part of health care management in the last decade. The increasing healthcare costs have forced the healthcare mangers to know the costs of different alternatives approaches to providing care. These costs can only be known if the organization has the knowledge and capability to measure costs.1 All health care managers, and not just accountants are becoming more aware of the importance of understanding as much as they possibly can about costs. Though cost awareness has been a sine qua non in the corporate health care, the same is not given its due importance, if not completely disregarded, in the government health care organizations or the Armed Forces Hospitals.

Why awareness is not required and considered as a desired input?

This is reasoned to be due to an absence of control on the costs by managers at the level of the hospital and cost centers, and therefore pervades a sense of inevitability and fait accompli about the input resources in the health care. Deficiencies in the services are only due to the lack of resources (Equipment, supplies, and infrastructure) to him.2

What appears to be true is that it is due to lack of awareness that controlling costs becomes more difficult. It must be endeavored by the health care administrative authorities to measure the costs and as a first step create awareness amongst the clinicians. In due course the ability of the cost awareness and cost accounting to control costs and hold people accountable for controlling it will be a necessity.

METHODOLOGY

The study was carried out at the upper one of the OT complex in the hospital and after a preliminary study the year for which the unit cost would be calculated was chosen as 2001. The method for arriving at the cost of operative services was based on the records of stores held on charge, consumables and drugs indented, and utilization records maintained in the theater and also by interviews with the staff and supplemented by observational study. The functional relationships between the OT and the other departments were also studied, so that relevant cost related data could be gathered from those departments. The study was divided into distinct phases the phases were divided as under:

(i) Valuation of the OT as a cost center

During this phase all the input resources into the OT were collected, to valuate the OT as a cost center.

(ii) Valuation of the specialty services in the OT by apportioning

Once the total valuation, for a particular function/input resource, for the OT (cost center) was determined, the next step was to logically apportion the costs to the various specialty services. The costs that were directly traceable to the specialty centre were attributed to that particular specialty service. Where the service/function/input resource which are shared by the specialty services the same was required to be allocated on some logical and rational basis. The rational base opted was based on the function, service, or resource to be allocated, the cost driver identified like the number of patients, the surgical time, or on the basis of time that the specialty shared from the total block time.

(iii) Study of the utilization of resources

Once the valuation of the cost center was accomplished, and the apportioning and attribution of the costs to the specialty service was concluded, the next objective was to measure the utilization of the resources, to determine a suitable measure of the utilization, which matches the services rendered. This measure would then act as a denominator to the specialty resource consumed, or the resource input into the cost center to calculate the unit cost of the service.

(iv) Compute unit cost for service rendered and analysis

The total input of resources was divided by the utilization time to arrive at the cost per unit time for the service. Each of the utilization time mentioned here in under was determined

  • Case Tie
  • Surgical Time
  • Resource Time

The analysis of the cost of services was also done on other parameters to arrive at logical conclusions and make meaningful recommendations3.

RESULTS

The results of the cost data generated were revealing but not surprising and as expected the cost of the surgery varies from one specialty to the other. The cost of the surgery was directly linked to the utilization of the operation theater by the specialty, and the cost varied inversely with the utilization of the block times utilized by the specialty. The detailed cost analysis is given in the tables 1 to 9.

Table 1: Staff Costs (Salaries) in the Upper OT

Anesthesia staff 2,258,880 (35%)
Surgical Staff 2,106,564 (22%)
Nursing and Paramedical Staff for OT 1,935,950 (30%)
Nursing and Paramedical Staff For surgical specialties 111,468 (2%)
Total OT Staff Salaries 6,412,862 (100%)

Table 2: Capital Costs in the Operation Theatre

Land 204,894 (0.60%)
Building 2,408,537 (7.10%)
Furniture and Fixture 1,137,358 (3.35%)
Voltage Stabilizer 111,351 (0.33%)
OT Lights 425,949 (1.26%)
Air-conditioning equipment 1,350,000 (3.98%)
Generator 975,684 (2.88%)
Medical equipment and gas cylinders 26,758,323 (78.87%)
Hospital clothing and Miscellaneous stores 172,527 (0.52%)
Vehicle 381,380 (1.12%)
Total capital cost 33,926,005 (100%)

 

Table 3: Running expenses in the operation theater (In Rupees)

Expendable Medical Stores 7,070,495 (44.51%)
Expendable Non Med Stores 5,236 (00.03%)
Salaries 6,538,862 (41.17%)
Electricity/Supply & Captive 375,408 (2.36%)
TSSU Electricity 65,847 (0.41%)
Air-conditioning 1,046,356 (6.59%)
Bldg Engg Services 129,077 (0.81%)
Telephone 54,463 (0.34%)
Laundry 243,308 (1.53%)
Office Expenses 71,184 (0.45%)
Transportation 283,500 (1.78%)
Total operational cost 15,883,740 (100%)

Table 4: Break Down of Expendable Medical Stores

Oxygen and Anesthetic medical gases 139,540 (2%)
GA and Regional anesthetic agents, ETT 1,137,989 (16%)
Catheters, tubes, drains etc. 461,214 (7%)
Suture material, needles 2,120,556 (30%)
Bandage, gauze and swabs 344,892 (5%)
Other medicines, drugs 2,217,206 (30%)
Medical Carbon dioxide 3,246 (2%)
Specialized Consumables 645,670 (9%)

Table 5: Fixed and Variable Cost in Operating Expenses in Rupees.

Fixed Costs
Fixed Costs Buildings amortised expenses 48,171
Civil Engg Service charges 34,120
Civil Engg Annual repairs charges 28,619
Civil Engg Special repairs 28,062
MES Furniture and stores 110,952
Electric repairs and general maintenance 26,321
Local Purchase stores/I&M 62,144
Ordnance stores 8,212
Hospital Clothing 53,703
Medical staff (Anaesthesia) salaries 2,258,880
Medical Staff (Surgical teams) salaries 2,106,564
Nursing paramed staff in OT salaries 1,811,700
Addl. Nursing paramed in OT salaries
01 Jun-14 Sep
124,250
Nursing paramed staff salaries(specialized) 111,468
Non Expendable Medical equipment amortised Spl. Eqpt 2,257,578
Anaes stores and Gen instruments 846,144
Laundry 146,816
Transportation 126,461
Generator 141,966
Air conditioning 297,000
subTotal 10,629,140
Variable Costs
Electric maintenance (Replacement) 11,955
Electric Power 117,948
Telephone services 54,463
TSSU Charges 65,847
Stationery Expense 9,040
Expendable Non medical stores 5,236
Laundry 108,628
Transportation 283,500
Generator 115,494
Air Conditioning 938,356
Expendable Medical Stores Oxygen and Anaes Medical Gases 139,540
GA and Reg Anaesth agents, ETT 1,137,989
Catheters, Tubes, Drains etc. 461,214
Sutures and needles 2,120,556
Bandage, gauze and swab 344,892
Other drugs 2,217,206
Medical Carbon dioxide 3,426
Specialised expendable stores 645,670
subTotal 8,780,965

Table 6: Cost of Operative Services by Cost in Rupees per hour

Obstetrics and Gynecology Unit I 4,158
Obstetrics and Gynecology Unit II 3,841
DTC Oncosurgery 7,707
M ENT surgery Unit I 2,637
ENT surgery Unit II 3,525
Ophthalmology Unit I 2,674
General Surgery Unit I 4,839
General Surgery Unit III 5,304
General Surgery Unit IV 5,329
Plastic Surgery 5,222
Orthopedic surgery 7,347

 

Table 7: Average Cost of Surgeries in the specialty unit in Rupees per surgery

Obstetrics and Gynecology Unit I 3,518
Obstetrics and Gynecology Unit II 3,847
MDTC Oncosurgery 9,672
ENT surgery Unit I 4,131
ENT surgery Unit II 5,744
Opthalmology Unit I 2,918
General Surgery Unit I 4,355
General Surgery Unit II 5,183
General Surgery Unit IV 4,501
Plastic Surgery 6,187
Orthopedic Surgery 6,893

 

Table 8: Fixed and Variable Cost in Operating Expenses of Operation Theater Compared with cost of a hospital bed per day5

  Fixed
Cost
Variable
Cost
Total
Cost
Cost of a Hospital Bed (Per Day) 182.86 rps 565.50 rps 748.36 rps
Cost of a operative procedure (Per Procedure) 2,371.52 rps 1,959.15 rps 4,330.67 rps
Ratio 121.96 : 1 3.46 : 1 5.78 : 1
Relative value of Bed Vs Operative Procedure 748.36 : 43,330.67 1 : 5.78

Table 9: Utilization of the Operation Theater

Month Total Days Sunday used Holidays used Resource days Resource Time* Total Time Raw Adjusted Time RHU APRHU
Jan. 25 1 0 24 25920 13482 17142 0.521 0.661
Feb. 18 0 0 18 19440 13330 16220 0.685 0.834
Mar. 24 0 0 24 28920 13339 17004 0.514 0.656
Apr. 21 0 0 21 22680 11315 14405 0.498 0.635
May. 26 1 0 25 27000 15521 20246 0.574 0.749
Jun. 30 4 1 25 27000 18512 23907 0.685 0.885
Jul. 28 2 0 26 28080 19532 25587 0.685 0.911
Aug. 30 3 1 26 28080 22019 28244 0.784 1.005
Sep. 28 3 0 25 27000 17345 22850 0.642 0.846
Oct. 26 1 0 25 27000 14733 18303 0.545 0.677
Nov. 24 1 0 23 24840 13133 16388 0.528 0.659
Dec. 24 0 0 24 25920 12975 16005 0.501 0.617
  304 16 2 286 308880 185236 236301 0.599 0.765

DISCUSSION

The cost of operative services ranges from Rs. 2,637.00 per hour (for ENT Surgery) to Rs. 7,707.29 per hour (for Onco surgery) and is directly proportional to the resource hour utilization. It is therefore felt that the utilization of the facility be increased to bring down the cost of operative services. This may be done by extending the hours of the service provided by increasing the shifts, or by increasing the through put.

The cost of onco surgery was extremely high and the utilization pattern low. When the block time is not utilized the OT is released during the working hours for other scheduled cased for the day, but since the release is not brought into effect the previous working day, the utilization is not enhanced. It is recommended that the block time release be effected on the previous day or as soon as possible during the day.

The high utilization of Obstetrics and Gynecology block times consistently indicate that there are overruns in their daily schedule, and it is recommended that the specialty units of Obs-gynecology be considered towards a higher block time allotment.

Medical Equipment has a very high capital cost, Rs. 26,758,323.50 in this case for the Upper OT, and constitutes approximately 79% of the capital investment and efforts to increase the utilization of the equipment must be made to bring down the cost of operative services. There is duplication of expensive medical equipment of the two units of ENT, Ophthalmology, Gynecology and Obstetric which are both operating in the upper OT.

This also highlights the problems of splitting of theater complexes to different locations, where optimal utilization of high cost equipment and facilities become an operational problem. The cost in terms of building costs which only account for 7% of the total cost is neutralized by investing a much higher amount in terms of equipment.

To streamline scheduling and facilitate utilization of theater time and to improve patient care it is recommended to have an operating room scheduling and information systems (ORSIS)4, which are available as off the shelf software's, or can be customized to the departments requirements' or as part of the larger Hospital Information System.

Expendable medical stores with high yearly cost utilization be scrutinized by the OT Matrons and kept under strict control. Medical stores with a high Procurement Index be further scrutinized and procurement be reviewed in terms of their Case Use Index and Loss Index.4

It is also recommended that awareness of the cost incurred for these services and their functional heads be informed to the staff working in the OT so as to sensitize them to the issue.

Cost reduction can also be achieved per case of surgery by reducing the average case time. This can be achieved by having surgeons who can operate faster on the case. This factor may not be so important in peripheral hospitals where the overheads are not very high as these hospitals do not have very expensive equipment, however in tertiary care centers OTs are equipment intensive and therefore the surgeons must have skills not only in terms of the vocabulary of procedures but also skill of operating faster becomes an important cost saving measure.

CONCLUSION

Cost accounting of activities undertaken in a hospital form one of the key objective control standards that can be undertaken by any organization. It is more important for cash strapped government organizations to take the lead to conserve the resource. The dream of 'Health For All' can only be realized if this first step in establishing a data base for identifying cost effective interventions can be undertaken. The private and corporate healthcare organizations can afford to overcharge a patient but not providers for subsidized and free healthcare providers.

REFERENCES

  1. Steven A Finkler, Essentials of Cost Accounting for Health Care Organisations (1994), An Aspen Publication.
  2. Robert Kaplan and Anthony A Atkinson, Advanced Management Accounting 3rd Edition (2001), Pearson Education Asia.
  3. William O Cleverly, Essentials of Health Care Finance, 4th Edition 1997), An Aspen Publication
  4. Andrew P Harris, William G Zitzmann, Jr, Operating Room Management, Structures, Strategies and Management (1998), Mosby.

* Resident, Hospital Administration, AFMC, Pune-40,
** CPO, HQ Southern Comd., Pune-01,
*** Prof. & HOD, Dept. of Hospital Administration, AFMC Pune-40.

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