A Study on Costing of Selected Biochemistry

Investigations in a Teaching Hospital

Journal of the Academy of Hospital Administration
Vol. 16, No. 1 (2004-01 - 2004-06)

By……
Mr. EKNATH P. JADHAV
M.H.A. FIRST YEAR
J.N.M.C. BELGAUM
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 INTRODUCTION

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 resources.

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 effectively

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 INTRODUCTION …….Cntd

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 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 services

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 AIMS & OBJECTIVES
•To find the cost of the most frequently conducted clinical
biochemistry investigations at a selected tertiary care teaching
hospital.

•To assess the adequacy of the rate structure.

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 Materials 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.

The statistical records for the months of September, October, November

and December, 2002 maintained in the biochemistry laboratory were
studied.

Blood Glucose, Serum Urea, Serum Creatinine, Serum Sodium and

Serum Potassium were found to be the most commonly conducted
investigations.

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 CALCULATION OF COSTS

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.

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 FINDING THE DIRECT COST
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.

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.

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 FINDING INDIRECT COST
The indirect labour costsis calculated by, half the monthly salaries of
the teaching staff in biochemistry department, laboratory in charge,
typist, attendants who are common to all the clinical laboratories were
considered and are equally distributed among all the tests conducted
in a month.

Cost of the equipments used for the test are also considered.

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.

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Table No.1 showing the classification and percentage of costs

Blood Serum Serum

Particulars Serum Urea
Glucose Creatinine Electrolytes
Costs Costs Costs Costs

Rs % Rs % Rs % Rs %

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, Maintainance &
2.12 12.93 2.12 9.02 2.12 11.48 1.45 8.45
Electric Exp.
Admin & General 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

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 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. 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.
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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.
To the total housekeeping expenses fro the year 2001-2002, 5% is added
as the cost of inflation.

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.

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Assessing the adequacy of the rate structure

Table 2

General ward/OPD Charges in the

Investigation Total Costs
Rates 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
17.15 25 25
Potassium

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 CONCLUSION

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.

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 REFERENCES

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Adminstration, 1985:377-387
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Christian Medical Association of India, 2002, 23:2-3
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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
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