costing medical procedures


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Parama health care knowledge partners to Institute of cost accountants of india. we are sharing our years of hard work. Costing hospital operations need both knowledge of operations and costing. Need to work with doctors closely.

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costing medical procedures

  1. 1. Presented by Parama HealthCare P Ltd 08/31/13Defining Standards 1
  2. 2. 08/31/13Defining Standards 2
  3. 3. 08/31/13Defining Standards 3
  4. 4.  Absorption Costing  Marginal Costing  Activity Based Costing 08/31/13Perfecting your process 4
  5. 5. 08/31/13Perfecting your process 5
  6. 6.  Job Order or Batch Costing  Process Costing 08/31/13Perfecting your process 6
  7. 7. Marginal Costing Marginal Costing differentiates costs in to fixed and variable costs. Decisions are made based on the variable costs. It is used in analysis of cost of additional unit of service. It is useful in deciding outsourcing of an activity. 08/31/13Perfecting your process 7
  8. 8. 08/31/13Perfecting your process 8
  9. 9.  Activity Based Costing Activity based costing is a method by which cost of each activity is allocated according to the consumption of resources by the activity. 08/31/13Perfecting your process 9
  10. 10. 08/31/13Perfecting your process 10
  11. 11.  Assessment and Development of Hospital Tariff.  Monitoring of Performance and Service Delivery.  Identify the degree of Usage of materials/Consumables. 08/31/13Perfecting your process 11
  12. 12.  Capacity Utilization of wards and medical service departments.  Development and pricing of packages/specific products.  Frame a long term strategy and decision making. 08/31/13Defining standards 12
  13. 13.  Assessment and Development of Hospital Tariff.  Feasibility of Tariff- comparison with competition.  Package setting. 08/31/13Defining Standards 13
  14. 14.  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. 08/31/13Defining Standards 14
  15. 15.  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. 08/31/13 15 Defining Standards
  16. 16.  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. 08/31/13Defining Standards 16
  17. 17.  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.  Capacity utilization of revenue generating equipments. 08/31/13Perfecting your process 17
  20. 20.  Top Down Method/ Case Mix approach  Bottom Up approach or Micro Costing  The technique.  Absorption costing  Marginal Costing  Activity based costing.  Mixed Approach 08/31/13Defining Standards 20
  21. 21.  This is much closer to Case Mix Group developed by the American DRG and Canadian institute of Health Information  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. 08/31/13Defining Standards 21
  22. 22.  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. 08/31/13Defining Standards 22
  23. 23.  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. 08/31/13Defining Standards 23
  24. 24.  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. 08/31/13Defining Standards 24
  25. 25.  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. 08/31/13Defining Standards 25
  26. 26.  Medical Departments.  Medical Support.  Service Departments, 08/31/13Defining Standards 26
  27. 27.  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. 08/31/13Defining Standards 27
  28. 28.  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. 08/31/13Defining Standards 28
  29. 29.  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. 08/31/13Defining Standards 29
  30. 30.  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 08/31/13Defining Standards 30
  31. 31.  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. 08/31/13Defining Standards 31
  32. 32.  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. 08/31/13Defining Standards 32
  33. 33.  The costs of service departments are apportioned based on various parameters depending upon the expenditure.  Different Units of Health Services are suggested 08/31/13Defining standards 33
  34. 34.  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. 08/31/13Defining Standards 34
  35. 35.  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 08/31/13 35
  36. 36.  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 08/31/13 36
  37. 37.  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 08/31/13 37
  38. 38.  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. 08/31/13 38 Here patient Service Days act as Weights for consumption of resources
  39. 39.  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. 08/31/13 39
  40. 40.  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. 08/31/13 40
  41. 41.  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. 08/31/13 41
  42. 42.  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. 08/31/13 42
  43. 43.  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. 08/31/13 43
  44. 44.  Micro costing is defined as capturing costs of individual patient.  Patient is taken as the unit of cost.  The resources used by a patient have to be identified.  Costing of resources used by the patient is the next step. 08/31/13 44
  45. 45.  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. 08/31/13 45
  46. 46.  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 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. 08/31/13 46
  47. 47.  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 for all these departments  or allocate the cost to various departments on the basis of patient service days  and within each such department arrive at the per patient cost. 08/31/13 47
  48. 48.  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. 08/31/13 48
  49. 49.  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. 08/31/13 49
  50. 50.  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. 08/31/13 50
  51. 51.  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. 08/31/13 51
  52. 52.  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. 08/31/13 52
  53. 53.  Quality of costing method. 08/31/13 53
  54. 54.  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 08/31/13 54
  55. 55.  Utilization of OT-Key factor scheduling of surgeries and Idle time.  Manpower Cost.  OT Materials.  Directly Billable  Not Billable.  Power consumption. 08/31/13 55
  56. 56.  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. 08/31/13 56
  57. 57.  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. 08/31/13 57
  58. 58.  Over Stocking of spares  Control over outsourced jobs  Stocking of insurance spares  Diesel consumption.  Manpower Cost. 08/31/13 58
  59. 59.  Cost of maintaining ambulances and other transportation are always not cost effective.  The better alternative will be to outsource them. 08/31/13 59
  60. 60.  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 08/31/13 60
  61. 61.  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 08/31/13 61
  62. 62.  More travel required for samples and analysis  Dictation ready for transcription.  Discharge summary waiting for doctors’ approval and signature. 08/31/13 62
  63. 63.  Patients awaiting discharge summary  Sharing of equipments if feasible  Retesting to be avoided 08/31/13 63
  64. 64. 08/31/13 64 Thank you