presentation on costing for hospital

Costing for Hospitals. : 

8/12/2010 Perfecting your process 1 Costing for Hospitals. Presented by Parama HealthCare P Ltd

The objectives. : 

8/12/2010 Perfecting your process 2 The objectives. Assessment and Development of Hospital Tariff. Identify the degree of Usage of materials/Consumables. Monitoring of Performance and Service Delivery.

The objectives. : 

8/12/2010 Perfecting your process 3 The objectives. Capacity Utilization of wards and medical service departments. Development and pricing of packages/specific products. Frame a long term strategy and decision making.

Objectives expanded : 

8/12/2010 Perfecting your process 4 Objectives expanded Assessment and Development of Hospital Tariff. Feasibility of Tariff- comparison with competition. Package setting.

Objectives expanded : 

8/12/2010 Perfecting your process 5 Objectives expanded Monitoring of Performance and Service Delivery. Department Performance and incentive system. Availability of manpower and additional requirements. Nurse Days to patient days, under utilization of nursing staff/shortage of nursing staff.

Objectives expanded : 

8/12/2010 Perfecting your process 6 Objectives expanded Degree of Usage of Materials/ consumables. Comparing Material consumption with no of procedures / patient inflow with earlier year comparisons. Reconciliation process to ensure recovery of all material costs. Control of abnormal loss and control of materials not billable to the patients.

Objectives expanded : 

8/12/2010 Perfecting your process 7 Objectives expanded Capacity Utilization of wards and medical service department. Occupancy of IP Services/Departments. Analysis of LOS, std.LOS and excess bed days available. Capacity utilization of medical services departments- std. no of tests vs the actual Capacity utilization of revenue generating equipments.

Objectives expanded : 

8/12/2010 Perfecting your process 8 Objectives expanded Long Term Strategy and decision making. Decision of outsourcing of certain departments. Setting up or starting new services/departments. Arrangements with local medical community for better utilization of existing facilities.

Objectives expanded : 

8/12/2010 Perfecting your process 9 Objectives expanded Long Term Strategy and decision making. Capacity utilization of revenue generating equipments. Costing to create Budgeting tools Evaluation of various financial parameters

Costing for PPP : 

8/12/2010 Perfecting your process 10 Costing for PPP Arriving at appropriate tariff Evaluation of cost of different types of facilities Building a cost inflation index for medical services so that the rates are genuinely tied to increases in costs if any. Arriving at cost with appropriate technology

Approach and Technique : 

8/12/2010 Perfecting your process 11 Approach and Technique Top Down Method/ Case Mix approach Bottom Up approach or Micro Costing The technique. Absorption costing Marginal Costing Activity based costing. Mixed Approach

Absorption Costing: certain principles and observations. : 

8/12/2010 Perfecting your process 12 Absorption Costing: certain principles and observations. The classification of departments especially the medical department should be based on good clinical sense The number of departments should be kept to a manageable level.

Absorption Costing: certain principles and observations. : 

8/12/2010 Perfecting your process 13 Absorption Costing: certain principles and observations. They had to be based on routinely collected data probably over a period of 9 to 12 months. The ALOS within the departments have to be as far as possible homogeneous.

Absorption Costing: the process- the steps involved : 

8/12/2010 The Ultimate Healthcare People 14 Absorption Costing: the process- the steps involved Identify the total number of departments. The total costs at the organization level are allocated to various departments. Here some of the departments act the primary cost centers. These are the depts. Which are direct revenue centers Classify the departments in to medical, medical support and service departments.

Absorption Costing: the process- the steps involved : 

8/12/2010 Perfecting your process 15 Absorption Costing: the process- the steps involved The costs within department are allocated to sub-cost centers and cost drivers are identified to accumulate the costs- to the various units of services or products. Ex: while OT will be considered as a cost center or a department, the OT hour is a cost driver.

Absorption Costing: the process- the steps involved : 

8/12/2010 Perfecting your process 16 Absorption Costing: the process- the steps involved Identifying the costs of various departments in to direct costs and indirect cost. Part of medical support dept. and whole of service dept. serve the other departments The portion of such costs are indirect and are to be allocated or apportioned.

The classification of departments : 

8/12/2010 Perfecting your process 17 The classification of departments Medical Departments. Medical Support. Service Departments,

classification of departments…. : 

8/12/2010 Perfecting your process 18 classification of departments…. Medical Departments- These are classified in to OP and IP. Of course, day care procedures are considered as separate departments. Generally these generate income directly as well contribute to the revenue of other departments under packages. Casualty and Emergency departments are considered as separate cost centers.

classification of departments….. : 

8/12/2010 Perfecting your process 19 classification of departments….. Medical Support Departments- Generating revenue Lab, O.T., Radiology, Blood Bank, Physiotherapy: These generate direct income as well contribute to the revenue of other departments under packages. Not Generating Revenue. Some departments like CSSD, Front Office comprising A/D/T are support departments not generating direct revenue.

classification of departments….. : 

8/12/2010 Perfecting your process 20 classification of departments….. Service Departments- These are indirect cost centers Stores, Engineering Dept., Bio-Medical, House Keeping, ITD, Laundry, Kitchen, Telephone and Transport. The costs of these departments have to be absorbed among the medical service and medical departments based on certain criterion.

Absorption Costing: the process-unit of costing. Which one to recommend? : 

8/12/2010 Perfecting your process 21 Absorption Costing: the process-unit of costing. Which one to recommend? The units of service or the unit of cost decided by the management. Broadly a combination of the following are followed. Cost per patient. Cost per bed. Cost per treatment/intervention/package

Absorption Costing: the process-unit of costing. : 

8/12/2010 Perfecting your process 22 Absorption Costing: the process-unit of costing. Specialty wise OPD cost is arrived at on per patient basis. Generally OPDs are more of referral centers and incur cost. The cost per patient will also depend upon the extent of free revisits and chargeable re visits Consultation packages are now being developed.

Absorption Costing: the process-unit of costing. : 

8/12/2010 Perfecting your process 23 Absorption Costing: the process-unit of costing. The In Patient Cost is arrived at for each specialty in respect of the direct cost like manpower and material where ever possible.. The costs of medical services departments like OT, wards and diagnostics are accumulated and allocated or apportioned to departments/specialties suitably.

Absorption Costing: the process-unit of costing. : 

8/12/2010 Perfecting your process 24 Absorption Costing: the process-unit of costing. The costs of service departments are apportioned based on various parameters depending upon the expenditure. Different Units of Health Services are suggested

Certain Key issues involved. : 

8/12/2010 Perfecting your process 25 Certain Key issues involved. Arriving at the cost per patient. Is it practicable the medical service departments have different units of cost deriving the cost per patient depends on the availability of Data and data integrity.

Certain Key issues involved. : 

8/12/2010 Perfecting your process 26 Certain Key issues involved. Resource Intensity involved where the costs are not directly allocable. For Ex: The patient service days allocates common costs based on number of days spent. This may ignore cases where the costs are more due to complexity involved. This calls for RIW to be built on the lines of Canadian Institute of Health Information

Certain Key issues involved. : 

8/12/2010 Perfecting your process 27 Certain Key issues involved. When the total costs accumulated over various services under a department are allocated to all the patients in equal measure it ignores the cost difference due to the intensity of the treatment. Hence it is viable to group all the costs under various case mix or products we may call and provide further insight in to costing and pricing

Certain Key issues involved. : 

8/12/2010 Perfecting your process 28 Certain Key issues involved. This also has issues when multiple procedures are done for a patient but the case would be recognized by the major procedure. A sample list of case mix groups can be seen

Certain Key issues involved. : 

8/12/2010 Perfecting your process 29 Certain Key issues involved. Identification of case mix groups specialty wise Each in patient case is classified under respective case mix group. Under each Case Mix Group accumulate all the direct costs. Allocate the costs based on patient service days to each and every In Patient. Here patient Service Days act as Weights for consumption of resources

Certain Key issues involved. : 

8/12/2010 Perfecting your process 30 Certain Key issues involved. The In Patient Cost of Medical Service is arrived at for each specialty/Case Mix Group. This is done by estimating the costs in medical service departments like wards, OTs, Diagnostics.

Certain Key issues involved. : 

8/12/2010 Perfecting your process 31 Certain Key issues involved. And allocating to specialties based on patient service days, number of surgeries, no of tests/interventions etc. Identification of drivers of cost especially for medical service departments. This calls for considerable time and energy in converting the cost per procedure or intervention or cost per hour as the case may be to per patient cost.

Certain Key issues involved. : 

8/12/2010 Perfecting your process 32 Certain Key issues involved. The total inpatient cost under each case in a department/specialty is divided by the patient service days. This gives the cost per patient day. The standard cost per case mix group is reached for in patient cost by taking the ALOS.

Certain Key issues involved. : 

8/12/2010 Perfecting your process 33 Certain Key issues involved. The additional cost per day of stay has to be calculated once you arrive at the cost per patient day. The excess bed days will be the cost per day over and above the ALOS and to be trimmed.

Application of Marginal Costing and capacity utilization : 

8/12/2010 Perfecting your process 34 Application of Marginal Costing and capacity utilization Costing of OTs. Apart from allocating the cost, OT by itself is reviewed as profit center. Costing of Wards. The implications of wards when not earmarked for a specialty. Costing of a diagnostic Service. This study helped in understanding utilisation.

Micro Costing – Key aspects and issues : 

8/12/2010 Perfecting your process 35 Micro Costing – Key aspects and issues Micro costing is defined as capturing costs of individual patient/individual procedure/treatment/surgery. Accordingly unit of cost is defined. The resources used by the cost unit have to be identified. Costing of resources used by the unit of cost is the next step.

Micro Costing – Key aspects and issues : 

8/12/2010 Perfecting your process 36 Micro Costing – Key aspects and issues The challenges are: (mostly in In Patients) Direct costs which are patient specific can be captured. Materials- which are billable Pharmacy- except those issued to wards, OTs & ICUs as common stock Diagnostic services where requisitions can be captured. However these services have to be costed and per unit or investigation or intervention cost should have been arrived at already.

Micro Costing – Key aspects and issues : 

8/12/2010 Perfecting your process 37 Micro Costing – Key aspects and issues The cost of service departments which are common and indirect costs cannot be easily allocated. Ex: House Keeping, laundry, blood bank, front office, nursing cost This means we need to arrive at cost per patient/unit of cost for all these departments or allocate the cost to various departments on patient service days and within each such department arrive at the per patient cost.

Micro Costing – Key aspects and issues : 

8/12/2010 Perfecting your process 38 Micro Costing – Key aspects and issues The cost of service departments which are common and indirect cannot be easily allocated. Ex: House Keeping, laundry, blood bank, front office, nursing cost Apportion the cost between OP and IP For IP, this means we need to arrive at cost per patient/unit for all these departments or allocate the cost to various departments on the basis of patient service days/other means of appropriation and within each such department arrive at the per patient cost.

Micro Costing – Key aspects and issues : 

8/12/2010 Perfecting your process 39 Micro Costing – Key aspects and issues So how do we go about? Divide services in to OP and IP Under each service ( which may be a treatment or procedure) determine the unit of service. Example Physio-therapy- minutes per patient Patient specific consumption of such units of service to be traced. Patient specific directly identifiable cost to be traced.

Micro Costing – Key aspects and issues : 

8/12/2010 Perfecting your process 40 Micro Costing – Key aspects and issues This is highly useful in designing packages. However has several limitations in costing patient specific services since huge indirect cost is involved. Time consuming since the units of service under each service/department has to be identified. Hence data collection and collating the data takes lot of time.

Micro Costing – Key aspects and issues : 

8/12/2010 Perfecting your process 41 Micro Costing – Key aspects and issues Accurate in capturing patient specific This is highly useful in designing packages. However does not capture the behavior of the cost – fixed costs and variable cost or controllable costs and uncontrollable costs. Example of surgeries – laparoscopic under gastroenterology costed based on this method is shown here.

What is the right approach? : 

8/12/2010 Perfecting your process 42 What is the right approach? Mixed Approach will be ideal under any conditions. Use top down approach or absorption costing with case mix groups when you want to ascertain the profitability of the services and arrive at the cost each procedure under a specialty Use marginal costing on strategy to increase patient load or outsourcing.

What is the right approach? : 

8/12/2010 Perfecting your process 43 What is the right approach? Use micro costing when designing the packages. The combination of top down approach and the micro costing will help us in establishment of cost per patient when the patient is consuming multiple services. Micro costing is also useful in establishment of cost of day care procedures.

Observations on costing for PPP : 

8/12/2010 Perfecting your process 44 Observations on costing for PPP Defining medical/clinical protocol/pathway Cost Plus method Standardizing the cost across different hospitals Classification of hospital in to different grades

Observations on costing for PPP : 

8/12/2010 Perfecting your process 45 Observations on costing for PPP Specifying minimum standards in patient support while defining costs and packages Grading of facilities for the patients depending on their ranks while in service Consideration of volumes depending upon the location and nature of most occurring diseases Capital cost per bed or patient (in case of a diagnostic OPD center)

Check list on quality of method and selection of approach? : 

8/12/2010 Perfecting your process 46 Check list on quality of method and selection of approach? Quality of costing method.

Certain use full observations in costing exercise: Outpatient Departments. : 

8/12/2010 Perfecting your process 47 Certain use full observations in costing exercise: Outpatient Departments. Many non surgical specialties When consultants are on fee sharing basis for super specialties. Patient Load-New patients and Revisits. Other support manpower costs Consumables Cost especially stationery cost Turn over of OPD Consultants on pay roll- Other consultants. Patient Load

Operation Theaters. : 

8/12/2010 Perfecting your process 48 Operation Theaters. Utilization of OT-Key factor scheduling of surgeries and Idle time. Manpower Cost. OT Materials. Directly Billable Not Billable. Power consumption.

Labs : 

8/12/2010 Perfecting your process 49 Labs Material consumption. Control over lab materials: over stocking and spoilages Utilization of Kits where ever applicable Retests done due to various reasons leading to higher consumption of material & energy. Equipment Utilization and Maintenance Maintenance including reagents and power consumption.

Wards. : 

8/12/2010 Perfecting your process 50 Wards. Ward Stock. Medicines Consumables. Ward Staff Cost. This depends on combination of different bed categories in the same floor. Bed Side Procedures. Equipment and materials.

Maintenance Department : 

8/12/2010 Perfecting your process 51 Maintenance Department Over Stocking of spares Control over outsourced jobs Stocking of insurance spares Diesel consumption. Manpower Cost.

Ambulance & other vehicle arrangements : 

8/12/2010 Perfecting your process 52 Ambulance & other vehicle arrangements Cost of maintaining ambulances and other transportation are always not cost effective. The better alternative will be to outsource them.

Other Activities for cost control : 

8/12/2010 Perfecting your process 53 Other Activities for cost control Consultation packages similar to diabetic packages. Planned discharges for avoiding delay in discharges This helps in higher utilization of beds-Patients waiting for admission does not arise Impact on room rent and food cost

Activities to be avoided for cost control and better margins : 

8/12/2010 Perfecting your process 54 Activities to be avoided for cost control and better margins Patients awaiting bed assignments In Patients waiting in Emergency departments. Patients awaiting discharge summary Doctors waiting for lab results Lab results waiting to be distributed

Activities to be avoided for cost control and better margins : 

8/12/2010 Perfecting your process 55 Activities to be avoided for cost control and better margins More travel required for samples and analysis Dictation ready for transcription. Discharge summary waiting for doctors’ approval and signature.

Activities to be avoided for cost control and better margins : 

8/12/2010 Perfecting your process 56 Activities to be avoided for cost control and better margins Patients awaiting discharge summary Sharing of equipments if feasible Retesting to be avoided

Costing Done So far : 

8/12/2010 Perfecting your process 57 Costing Done So far Cardiology OT Gastro Dialysis Endoscopy IVF Blood Bank

Summary : 

8/12/2010 Perfecting your process 58 Summary Long Term Strategy Develop Department wise costing Use of Marginal Costing Definition of Parameters both medical and non medical Development of packages including day care Build cost inflation index Costs for different classes of patients

Summary : 

8/12/2010 Perfecting your process 59 Summary Short Term Strategy Costing for important procedures Look at immediate capacity utilisation

S.Manivannan,smvchary@gmail.com+919840976340 : 

8/12/2010 Perfecting your process 60 S.Manivannan,smvchary@gmail.com+919840976340 Thank you