The company in question is one of India’s largest healthcare organizations, listed on NSE and BSE. They offer treatment across all 29 health specialties and operate in homecare and pathology businesses.
A hospital renders services that are both tangible and intangible and hence gauging accurate cost against such services becomes a daunting challenge. In addition, the major portion of the cost chunk in a hospital is indirect (approximately more than 40%); therefore, accurate assignment of costs to various procedures, specialities, patients, etc. becomes furthermore cumbersome.
To develop a structured costing decision support system that seamlessly integrates its Administrative, Technical and Financial Information Systems, thereby enabling the creation of timely and effective operational/ financial insights. To this end, following accurate cost/profitability reports should be generated on a real-time basis:
2. Diagnosis Related Group (DRG)-wise/ Speciality-wise (Neurology, Cardiology, Nephrology, etc.)
6. Key Infrastructures - Intensive Care Unit (ICU), Operation Theatres (OT), Ward-wise (OPD, IPD, etc.)
7. Lab Testing Services-wise (Radiology, Pathology, Blood Bank, etc.), etc.
After rigorous deliberations and continuous collaboration with the client for over a period of six months, our team at Chandra Wadhwa & Co. implemented a detailed oriented costing decision support system that integrated and generated data from 6 systems. This helped us not only to derive profitability for the above-mentioned key metrics, but also assisted in achieving excellent results in the following domains:
1. Pricing Decisions - DRG-wise contribution analysis facilitate efficiency in determining the recoverability of direct clinical costs and also deciding the price points for various specialities.
2. Strategic Planning/ Management – In general, price capping by regulatory authorities plays a major role in healthcare industry; for example, price fixation under CGHS treatment, COVID 19 RTPCR testing, etc. The support system-generated enabled management to effectively plan cross-subsidization of services based on various factors including profitability, market, geography, demography, industry factors. (Refer Exhibit 1)
In addition, the management could also consciously ensure proper deployment of the right resources/ infrastructure at the right location; for example, the pneumatic tube system (used for transferring samples, medicines, reports, etc.) was not installed in a small bedded capacity hospital.
3. Cost Control - The costs of medical and non-medical support functions could be effectively capped after analysing and eliminating redundant activities existing in those functions. Savings to the tune of 67% and 20% percentage points were observed in the washing and marketing functions, respectively.
4. Unabsorbed Costing - In the healthcare industry, approximately 30% of the total cost is incurred towards direct employees which is time-driven, like nursing staff, surgeon’s fixed pay out, physician’s pay out, other employee's pay out, etc. Due to this system, the management could effortlessly identify discrepancies in actual/ standard hours and pinpoint the medical teams where resources are deployed in excess.
5. True Cost Determination – Out of the total costs, 82% were assigned based on the cause and-effect principle whereas 18% were allocated on reasonable and scientific basis. This facilitated judicial decision-making for the company backed by accurate and frequent data.
6. Inter-Healthcare Facility Comparisons - Costs amongst different hospitals of the same company were compared thereby facilitating efficacious decision making. Examples of some of these parameters are:
Comparison of profitability/ costs procedure-wise, speciality-wise, patientwise, etc.
Comparison of Non-Medical Support function costs like Washing, Marketing, Front Office, House Keeping, Security, etc.
Comparison of Medical Support function costs like Anaesthesia, Path Lab, Radiology, etc.
7. Assets Capacity Utilisation/ Efficiency Analysis - Better insights on the utilization of organization’s assets/ equipments (CT-Scan, X-Ray, MRI, etc.) enabled prioritizing investment in specific assets to drive revenues.
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Partner, Chandra Wadhwa & Co. (Cost Accountants) | B.Com, FCMA, ACA, DISA | Certified SAP-CO Consultant | Executive Program on Management and Finance (IIM, Ahmedabad)
Address: 1305 & 1306, Vijaya Building, 17, Barakhamba Road, New Delhi - 110001, India Mail: email@example.com
Tel: +91-8800018190, +91-7503703599.