Analysis of Hospital Costs: A Manual for Managers

A practical guide to the principles and methods of cost analysis as a managerial tool for improving the efficiency of hospitals.

Addressed to managers and administrators, the manual aims to equip its readers with the knowledge and skills needed to calculate the costs of different activities or departments, analyze their significance, and use this information to manage resources wisely. Throughout, recommendations and advice are specific to the different purposes of cost analysis and the different types of decisions commonly facing managers.
The manual, which is intended for use as a training tool, was finalized following extensive field- testing in workshops in Bangladesh, Egypt, and Zimbabwe.

Methods of cost-finding and cost analysis are thoroughly explained and illustrated with practical examples and model step-by-step procedures for performing calculations. Since hospital accounting systems in developing countries may have gaps or inaccuracies, the manual gives particular attention to reliable methods for estimating costs when existing data are problematic.
The manual opens with an explanation of the many advantages of using cost-finding and cost analysis as managerial tools. These include the provision of data needed for informed decisions on operations and infrastructure, investment, the planning of future budgets, the establishment of charges for patient services, and the development of mechanisms for ensuring that costs do not exceed available revenues and subsidies.

Against this background, the core of the manual is presented in three chapters. The first, and most extensive, chapter explains how to allocate costs to cost centers and how to compute unit costs. Information and examples are presented according to seven steps. Each is discussed in terms of the types of data needed, how component cost items should be treated, and how costs can be computed in particular situations or cases. Practical examples are used to illustrate the types of questions addressed in cost analysis and the value of this information in guiding decisions.

Chapter two explains how cost data can be used to improve the management of an individual hospital. Information is intended to guide decisions at both the cost center, or department, level and the hospital level. Managerial tasks covered include: budgeting; profitability; efficiency improvements; contracting outside services or producing in-house; and assessing fiscal solvency.

Chapter three considers the use of cost data in managing national and regional hospital systems. Specific applications include improvements in the referral system, the appropriate use of different providers of services, and the comparison of similar hospitals to identify inefficiencies or sources of waste. The manual concludes with a series of practical exercises, followed by explanations of their answers.