Submitted by:

WMP 11011 Bhawna ShrivastavaWMP 11003 Alok Goel

WMP 11002 Aditya Kumar

Note – This document is highly confidential and is not meant to be circulated without prior written permission from the above authors.

Cost Analysis of CT scan and MRI at Excel Super-Specialty Hospital,

GhaziabadManagement Accounting Project

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COST ANALYSIS OF CT SCAN AND MRI AT EXCEL SUPER-SPECIALTY HOSPITAL,

GHAZIABADManagement Accounting Project

1.ABSTRACTEconomic constraints are one of the major limitations on the quality of health care even in India’s urbanized cities. Quality improvement demands optimizing the existing facilities within available resources. In addition, the cost of medical services has risen dramatically in the past decade. This has laid a lot of importance to understand the actual cost of providing medical services.

Radiology, which is an integral component of diagnostic modalities in a tertiary setting. With more patients availing these services at tertiary care hospitals, thus with this study, we strive to assess the cost analysis of MRI and CT scan radiology services at a tertiary care hospital.

The Department of Radiology at Excel Super Specialty Hospital offers a comprehensive range of highly sophisticated imaging tests that are conducted in a welcoming environment that focuses on quality and patient comfort. The hospital administrators are seeking newer methods and tools to control costs without affecting the quality of patient care.

A prospective study for a period of one month was carried out for calculation of unit cost of radiological investigations - CT scan and MRI. Unit costs were computed under direct and indirect costs. The actual cost incurred by the hospital on CT scan was Rs.2339.52 and MRI Rs.3924.40. However, in the hospital patients are charged Rs.4500 for a CT scan and Rs.7000 for MRI. There is a profit of Rs.2160.48 on CT scan and Rs.3075.60 on each unit of MRI which contributes towards hospital development, expansion and stockholders equity.

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2. INTRODUCTIONCost control is a series of steps that a business uses to maintain proper control over its costs. Implementing this level of control can have a profound positive impact on profits over the long term. It is well known that there has been a dramatic increase in cost of medical technology over the past decade which has led to an overall increase in healthcare cost. This cost control analysis is not aimed to trim the quality or quantity of services provided to a patient, rather it is aimed at increasing the performance efficiency of the entire radiology department. Cost analysis also helps in assessing the efficiency and effectiveness of each component (functionary) in the production process (in this case radiology tests – CT scan and MRI) and their cost implication with a vision to contain cost.

Administrators in the healthcare sector are looking for newer tools to control costs without affecting the quality of patient care. The knowledge of unit cost is required to assist planning for recurrent budget as an indicator of efficiency and to enforce pricing of services. With advancing technology, the imaging equipment is very complex now than ever and the available choice is extensive. The newer imaging technologies, CT scan and MRI are replacing older ones in the evaluation of patients. Since the CT scan and MRI are costly investigations and an important component of patient care, hence attention should be focused on cost control and quality of these investigations.

2.1 SALIENT FEATURES OF THE ORGANIZATION

Excel Super-Specialty Hospitals, Ghaziabad has been a name synonymous with advanced and world class patient care in the NCR region of Delhi. The hospital had a humble beginning around 20 years ago at Nehru Nagar, Ghaziabad. The institution has now grown to become a major tertiary care healthcare provider to all walks of life in the region. At present, Excel Super-Specialty Hospitals operates from two locations, Nehru Nagar with 300 beds and Kaushambi with 100 beds in Ghaziabad which are easily accessible by road and rail.

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Excel Super-Specialty Hospitals has laid a lot of emphasis on offering and delivering world-class patient care services In addition to all general specialties, it has varied range of Super-Specialty services like Cardiology, Endocrinology, Gastroenterology, Nephrology, Neurology, Pulmonology, Urology, Neurosurgery, Plastic and Reconstructive Surgery. The center at Nehru Nagar has in addition fully operational Nuclear Medicine department and a state of the art Cardiac Cath Lab for Interventional Cardiology and Cardiothoracic and Vascular Surgeries. It also has state of the art world class seamless operation theatre complex with HEPA filters and laminar flow. Both the institutions have constant support from well qualified and professional Consultants, Residents, Nurses, Technicians, Administrative and Support staff. The hospitals have well equipped critical care units and hemodialysis facility. The hospitals have its own fleet of ambulances including ICU ambulances for transportation of critically ill patients.

Both institutions have advanced diagnostic facilities including CT scan, Ultrasonography, Mammography, Routine Radiology, ECG, EEG, NCV & EMG, TMT, ECHO, Color Doppler, Holter Monitoring, PFT, and Diagnostic Endoscopy. Fully Automated pathology, Microbiology, Cyto & Histopathology. In addition, Nehru Nagar center has MRI and Nuclear Medicine facility. Both institutions have Blood Banks and Component services. Nehru Nagar, in addition has Apheresis Unit.

Excel Super-Specialty Hospital, Kaushambi became operational in the year 2006 with 100 beds to cater for the healthcare needs of the population residing in the area adjoining Delhi. The facility was created to provide comprehensive medical care under one roof while maintaining the highest standards of medical excellence.

Excel Super-Specialty Hospitals have designed comprehensive preventive healthcare packages covering the varied requirements of all age groups. The Health check-up packages are flexible enough to accommodate the specific requirements and can be tailor made to suit particular organization. It also provides pre-employment health checks at affordable costs.

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Excel Super-Specialty Hospitals are an ISO 9001: 2008 certified organizations and Kaushambi has been accredited with the highest recognition for hospitals in India from NABH. The institution has carved a niche in short span of time and is rendering yeomen services to the community.

3. OBJECTIVETo find out and analyze the Unit Cost of CT scan and MRI investigations at Excel Super-Specialty Hospital, Ghaziabad. Unit cost is an important tool for Hospital Administrators in planning of services and pricing to fix the user charges.

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4. FLOW CHART OF OPERATIONS AT RADIOLOGY DEPARTMENTThe flow of operations for a patient who requires radiology services at Excel Super-Specialty hospitals is shown below -

Physician prescribes scan on consultation slip / physician order form

Physician Order Form

If Inpatien

t

Ward Nurse raises order in the system to the radiology department

Patient / Relative goes for billing at billing

desk

Radiology receptionist / coordinator checks the schedule and gives time to

the patient

Radiology Schedule

Patient wheeled in by the transportation staff

Scan is performed

Patient leaves after scanning

Reports are prepared (analyzed & typed) and handed over to the patient

and treating doctor is informed

Next step of care is advised by the doctor

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5. MATERIALS AND METHODOLOGY

5.1 SOURCES OF DATA

5.1.1 PRIMARY DATA

Interviews with the staff and supplemented by observational study conducted over four weeks’ time in the month of October & November 2015 carried out in radiology department of Excel Hospital, Ghaziabad.

5.1.2 SECONDARY DATA

Sample records of radiology department, accounts department, and maintenance department, stores, and purchase department provided by the hospital.

5.2 METHODOLOGY

We have followed the activity based costing (ABC) methodology. To start off, we found out input resources cost and resources drivers. Next, we found out the activities involved in each radiology procedure and identified the cost drivers. We then calculated the overhead rates and allocated these overheads to procedure/job based on number of scans performed. Since activities consume resources and their costs while products consume different level of activities. So costs are traced to activities to job, based on the demand for these activities during the job process.

The required inputs for the costing analysis were obtained through direct observation, interviews with staff of radiology department and inspection of documents maintained. Cost inputs were initially divided into direct and indirect costs and further divided into fixed and variable cost. Total cost for functioning of the each procedure was divided by the total number of procedures performed to arrive at the cost per unit procedure.

Subsequently, break even analysis was performed to determine the breakeven volume i.e the number of procedures to be performed beyond

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which all marginal contributions (Revenue-Variable cost) will represent income for the hospital.

5.2.1 UNIT COST OF CT SCAN (ABDOMEN) Direct labor cost includes salary of actual staff working in CT section of

Radio diagnosis department. The staff includes 2 nos. of CT technicians. The total direct labor costs for CT abdomen for the study period was Rs.6,00,000 which was 6.72% of total cost.

Indirect labor cost or wages and salary for common staff includes 1 HOD, 1 radiologist, 1 staff nurse, 2 ward boys, 1 receptionist with total wages of Rs.4,23,6000 of which Rs.19,42,827.07 was apportioned to CT scan which was 21.77% of total cost.

Material cost which includes cost of CT film, film processing chemicals, film covers and other stationary items was Rs.149 per scan which was 6.11% of total cost.

Machine depreciation & maintenance cost: The purchase cost of CT scan machine commissioned in 2010 was Rupees 1,50,00,000. The equipment would depreciate at the rate of 10% per year with a straight line method. The annual AMC cost was 11,25,000. Thus, the total annual cost of machine maintenance and depreciation came out to be Rs.26,25,000 which was 31.87% of total cost.

Electricity cost includes cost of electricity consumption of machine and developer during exposure time was Rs.259250 and during standby was Rs.150000 which was 4.58% of total cost.

The total overhead cost which includes total telephone charges (Rs.36,000), total internet charges (Rs.14,400), total fuel for generator (Rs.2,08,000), total printing and other stationary (Rs.12,000), total linen and laundry supplies (Rs.6,000), total overhead electricity (Rs.4,50,000) was Rs.7,26,400, of which Rs.3,33,160.90 was apportioned to CT scan which was 3.73% of total cost.

Facility cost: The rental value and housekeeping cost for the one year was Rs.44,20,000. Of this, Rs.13,26,000 was directly allocated to CT scan on the basis of sq.feet area used. Also, Rs.9,21,778 for facility and maintenance were allocated to CT scan from the common area cost. Total facility cost for CT scan is Rs.26,89,778 which was 14.86% of total cost.

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Direct Material; 6.11Electricity for Ex-posure; 2.9

Direct Labor; 6.72

Depreciation, Machine Maintenance & Insur-

ance/Scan; 31.87

Electricity for standby; 1.68Common Area cost; 10.33

Rent, Building & Main-tenance; 14.86

Wages & Salary; 21.77

Other Overheads; 3.73Cost Analysis - CT Scan

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5.2.2 UNIT COST OF MRI

Direct labor cost includes salary of actual staff working in MRI section of Radio diagnosis department. The staff includes 2 nos. of MRI technicians. The total direct labor costs for MRI for the study period was Rs.7,20,000 which was 5% of total cost.

Indirect labor cost or wages and salary for common staff includes 1 HOD, 1 radiologist, 1 staff nurse, 2 ward boys, 1 receptionist with total wages of Rs.4,23,6000 of which Rs.22,93,172.93 was apportioned to MRI which is 16% of the total cost.

Material cost which includes cost of CT film, film processing chemicals, film covers and other stationary items was Rs.214.29 per scan or 5% of total cost.

Machine depreciation & maintenance cost: The purchase cost of MRI machine commissioned in 2010 was Rupees 450,00,000. The equipment would depreciate at the rate of 10% per year with a straight line method. Thus, the total annual cost of machine maintenance and depreciation came out to be Rs.51,20,000 or 44% of the total cost.

Electricity cost includes cost of electricity consumption of machine and developer during exposure time was Rs.1092000 and during standby was Rs.1425600 which was 12% of total cost.

The total overhead cost was same as CT scan at Rs.7,26,400, of which Rs.3,93,239.10 was apportioned to MRI which is 3% of the total cost.

Facility cost: The rental value and housekeeping cost for the one year was Rs.44,20,000. Of this, Rs.13,26,000 was directly allocated to MRI on the basis of sq.feet area used. Also, Rs.8,46,222 for facility and maintenance were allocated to CT scan from the common area cost. Total facility cost for MRI scan is Rs.21,72,222 or 9% of the total cost.

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Direct Material5% Electricity for Exposure

2%Direct Labor

Depreciation, Machine Maintenance & Insurance/Scan

44%

Electricity for standby10%

Common Area cost6%

Rent, Building & Main-tenance

9%

Wages & Salary16%

Other Overheads3%

Cost Analysis - MRI

6. UNIT COST ANALYSIS

6.1 BASIC INFORMATION OF MRI & CT SCAN (all cost in Rs.)

MRI CT Scan

Yearly Volume 3360 3660Volumes/month 280 305Avg. time/procedure (minutes) 45 35Total machine hours/month 210 178Total machine hours/year 2520 2135

Machine hours available/year 25 days @ 10 hours/day = 3000

25 days @ 10 hours/day = 3000

Idle Time/year 480 865Capacity Utilization 84% 71%Avg. per unit revenue 7000 4500Revenue/month 1960000 1372500

AREA USED BY EACH PROCEDUREScan Room (21.6*13.4 ft.) 286.595Equipment room (11*11.6ft) 126.5Console Room (12*08 ft.) 96Changing room (06*08 ft.) 48Total 557.095

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6.2 ELETCRIC POWER USAGE ANALYSIS (all cost in Rs.)

MRI CT Scan

Load detailsExposure Load @65 KWH and machine standby load @ 45 KWH

Exposure Load @90 KWH and machine standby load @ 05 KWH

Machine Hours

Capacity 3000 3000Actual use 2520 2135Idle time 480 865

Procedure time

Exposure time (mins) 30 5Machine Standby time (hours) 840 1830Total standby and idle time 1320 2695

Electricity bill for exposure time 1092000 274500Electricity bill for Non-exposure time & Standby time 594000 134750Machine standby time for other then use 75600 NA

Variable electricity cost 336000 259250Fixed electricity cost 1425600 150000Total Electricity bill 1761600 409250Total electricity cost/scan 524.29 111.82

6.3 COST BREAK-UP

6.3.1 DIRECT COST

6.3.1.1 Variable Cost

Direct Material per scan (all cost in Rs.)

Total per unit cost (MRI)

Total per unit cost

(CT Scan)Film processing chemicals (3 nos. @ Rs.12/film) 36.00 NA

MRI/CT Scan films (3 nos. films @ Rs.60/film) 180.00 NA

Film processing chemicals NA 24.00

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(2 films @ Rs.12/film)CT films (2 nos. @ Rs.60/film) NA 120.00Report Envelopes (@ Rs.5/film) 5.00 5.00Direct Material per Scan 221.00 149.00

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Electricity cost per scan (all cost in Rs.) MRI CT Scan

Electricity consumption during exposure 336000.00 259250.00

Variable electricity cost/Scan 100.00 70.83

6.3.1.2 Fixed CostSince in radiology labs, we have to hire technicians on permanent basis, so we have taken this cost as fixed.

Direct Labor per scan (all cost in Rs.) MRI CT Scan

MRI Technician Annual Cost (2 nos. @ 30,000/month) 720000 NA

CT Technician Annual Cost (2 nos. @ 25,000/month) NA 600000

Total Direct Labor 720000 600000Labor Cost/Scan 720000.00/3360 600000.00/3660Labor Cost/Scan(allocated on no. of scans) 214.29 163.93

Depreciation & machine maintenance and insurance (all cost in Rs.)

 MRI CT Scan

Cost of the machine 32500000.00 15000000.00Yearly AMC cost @7.5% of machine book cost 2437500.00 1125000.00

Maintenance cost of non-medical Equipment 20000.00 20000.00

Insurance cost of the scan Dept. 600000.00 199500.00Depreciation SLM (Life of 10 Years) 3250000.00 1500000.00

Total 6307500.00 2844500.00Depreciation & Machine Maintenance Cost/machine hour (Actual use)

2502.98 1332.32

Cost/Scan 1877.23 777.19

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Fixed Electricity cost per scan (all cost in Rs.) MRI CT Scan

Electricity consumption during standby 1425600.00 150000.00

Fixed electricity cost/Scan 424.29 40.98

6.3.2 INDIRECT FIXED COST

Since in these radiological procedures all indirect cost will have to be borne whether or not there are any units of scans performed, so we have categorized all indirect costs as fixed costs.

6.3.2.1 Facility Cost

FACILITY COST (all cost in Rs.)Total facility area (sq. ft.) 2000Annual allocated rent of ready building (@180/sq. ft.) 4320000.00Annual cleaning cost (housekeeping) inside departments 100000.00Total Annual Cost 4420000.00Cost of Rent & maintenance per sq. ft. allocated on total area 2210.00

Facility Cost Apportionment MRI CT Scan Common Area

Area for facilities 600.00 600.00 800.00Cost allocated to departments 1326000.00 1326000.00 1768000.00Total Facility Cost/Scan 394.64 362.30  -

Allocation of common area costCommon area cost per scan MRI CT ScanCost allocated to each department 846222 921778

Common area cost allocated/Scan 252 252Total facility cost/scan 646 614

6.3.2.2 Wages and Salary

Wages and salary cost per MRI CT SCAN

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scan (all cost in Rs.)Head of the Department 1 nos. @ 200,000/Month 2400000.00

Radiologist (1 nos. @ 120,000/Month) 1440000.00

Staff Nurses (1 nos. @ 13,000/Month) 156000.00

Ward Boys (2 nos. @ 5,000/month) 120000.00

Receptionist (1 nos. @ 10,000/month) 120000.00

Total Wages 4236000.00Total Wages & Salary Department wise allocation (based on machine hours)

2293172.93 1942827.07

Wages & Salary cost/Machine Hour 909.99 909.99

Cost/Scan 682.49 530.83

6.3.2.3 Other OverheadsOther overhead cost per scan (all cost in Rs.)  MRI CT SCAN

Annual Telephone (2 nos. @ Rs.1500/month) 36000.00

Annual Internet (@ Rs.1200/month) 14400.00

Annual Fuel for generator 208000.00Annual Printing and Stationary (@ Rs.5/scan) 12000.00

Annual Linen and Laundry Supplies 6000.00

Annual Electricity 45000.00Annual Total 726400.00Other overhead cost (based on machine hours) 393239.10 333160.90

Overhead cost/scan 117.04 91.03

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6.3 COST SUMMARY PER UNIT SCAN (all cost in Rs.)

  MRI Scan

% of total cost CT Scan % of total

costDirect Cost Per Scan

Variable Cost

Direct Material 221 5.16 149 6.11

Electricity for Exposure 100 2.33 70.83 2.90

Total Direct Variable Cost 321 7.5 219.83 9.02

Fixed Cost

Direct Labor 214.29 5 163.93 6.72Depreciation, Machine Maintenance & Insurance/Scan

1877.23 43.83 777.19 31.87

Electricity for standby 424.29 9.91 40.98 1.68

Total Direct Fixed Cost 2515.81 58.74 982.1 40.28

Indirect Cost Per Scan

Fixed Cost

Common Area cost 251.85 5.88 251.85 10.33Rent, Building & Maintenance 394.64 9.21 362.3 14.86

Wages & Salary 682.49 15.94 530.83 21.77

Other Overheads 117.04 2.73 91.03 3.73

TOTAL INDIRECT COST 1446.02 33.76 1236.01 50.7Total Cost/Scan (Total Direct + Total Indirect Cost) 4282.83 - 2437.94 -

Total Revenue/Scan 7000 - 4500 -

Net Profit (Total Revenue – Total Cost) 2717.17 - 2062.06 -

Net Profit % 38.8% - 45.82% -

Total Fixed Cost for MRI = Rs. 13311748.8Total Fixed Cost for CT scan = Rs. 8118282.6

Total Variable Cost for MRI per unit = Rs. 321

Total Variable Cost for CT Scan per unit = Rs. 219.83

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6.4 BREAKEVEN ANALYSISThe break-even point of a business is the level of output or sales at which the revenue received by the business is exactly equal to the cost of making (or selling) that output. The calculation is given as: (Sales Revenue – Variable Cost = Contribution Margin). This contribution margin contributes towards the incurred fixed cost.For MRI, Fixed cost = Rs. 13311748.8Sales revenue = Rs.7000; Total Variable Cost = 321Thus, contribution margin = 6679Breakeven point = Fixed cost/contribution margin = 1993.07 or 1993 MRI scans per year.

For CT scan,Fixed cost = Rs. 8118282.6Sales revenue = Rs.4500; Total Variable Cost = 219.83Thus, contribution margin = 4239.18Breakeven point = Fixed cost/contribution margin = 1915.05 or 1915 CT scans per year.

Thus, the radiology department at Excel hospital will have to perform at least 1993 MRI and 1915 CT scans annually in order to achieve breakeven.

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7. RESULTS

7.1 DIRECT COST PER SCAN

7. 2 INDIRECT COST PER SCAN

Common

Area

cost

Rent,

Building

& Mainten

ance

Wages

& Salary

Other Over

head

s

TOTA

L INDIREC

T COST

0400800

12001600

MRI

Common

Area co

st

Rent,

Building

& Mainten

ance

Wages

& Salary

Other Over

head

s

TOTA

L INDIREC

T COST

0

400

800

1200

CT SCAN

0

1000

2000

3000MRI

0

400

800

1200CT Scan

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7.3 COST BREAKUP & PROFIT ANALYSIS

In

case of MRI, the direct and indirect cost are almost equally contributing to the total cost. In case of CT scan direct cost accounts for 58% of the toal cost, while indirect cost contributes 42% of the total cost.

49%51%

CT Scan

Total Direct CostTOTAL INDIRECT COST

Total Cost/Scan (Total Direct + Total Indirect Cost)

Total Revenue/Scan

Net Profit (Total Revenue – Total Cost)

0 1000 2000 3000 4000 5000 6000 7000 8000

4282.83

7000

2717.17

MRI

66%

34%

MRI

Total Direct CostTOTAL INDIRECT COST

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Total Cost/Scan (Total Direct + Total Indirect Cost)

Total Revenue/Scan

Net Profit (Total Revenue – Total Cost)

0 1000 2000 3000 4000 5000

2437.94

4500

2062.06

CT Scan

8. CONCLUSIONThe actual cost incurred by the hospital to provide CT scan services was Rs.2437.94. The direct cost accounts for 51% and indirect cost 49% of the total cost. The actual cost incurred by the hospital to provide MRI was Rs.4282.83. The direct cost accounts for 34% and indirect cost 66% of the total cost. The hospital charges Rs.4500 for CT scan and Rs.7000 for MRI thereby resulting in profit for unit of CT scan performed to Rs.2062.06 and a profit on per unit of MRI to Rs.2717.17.

Also, as per the breakeven analysis, the radiology department at Excel hospital will have to perform at least 1993 MRI and 1915 CT scans annually in order to achieve breakeven.Hospitals these days, are becoming technology intensive organizations and technology acquisition is a major challenge for hospital administrators. Cost saving is an essential factor, but it should not be made at the expense of the patient lives. Physicians and healthcare providers are increasingly pressured to contain the cost of Medicare. Such pressures are driven by competition in the market. Thus, it is incumbent upon radiologists to have a basic understanding of the costs of radiology procedures and the factors that determine those costs.

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9. REFERENCES