OUM BUSINESS SCHOOL

MASTER OF BUSINESS ADMINISTRATION

SEMESTER SEPTEMBER/2016
HEALTH ECONOMICS
NPHE7103

NAME

MUHAMMAD ALIMIN BIN MAT REFFIEN

MATRICULATION NO.

CGS01065501

IDENTITY CARD NO.

850822-11-5773

TELEPHONE NO.

019-2028156

E-MAIL

aliminjan@yahoo.com

LEARNING CENTRE

KUALA LUMPUR

Question 1A
Table A3

Cost Centre
Overhead
Administration and others
Intermediate
Ambulance
X-ray
Pharmacy
Laboratorium
Theatre
Patient care
IP medical wards
IP surgical ward
OP medical
OP Surgical
Total

Direct expense
(US$)
24,560.00

Allocation
Statistic
Direct cost

Allocation (%)
0.00

Allocated
expense (US$)
0.00

Total expense
(US$)
0.00

12,804.00
5,100.00
10,330.00
8,150.00
13,933.00

9%
3%
7%
6%
10%

2,152.65
857.43
1,736.72
1,370.12
2,342.47

14, 956.65
5,957.43
12,066.72
9,520.12
16,275.47

30,350.00
40,440.00
10,084.00
14,892.00
146,083.00
170,643.00

21%
28%
7%
10%

5,102.55
6,798.92
1,695.36
2,503.70

35,452.55
47,238.91
11,779.36
17,396.70

100%

24560.00

170,642.91

Intermediate
Cost Centre

Ambulance

X-ray
OP
40%

Pharma
cy
IP
70%

OP
30%

Laborato
rium
IP
65%

OP
35%

IP
100%

OP
0%

3,332.04

16,275.47

IP
35%

OP
65%

IP
60%

5,234.83

9,721.00

3,574.46

2,382.97 8,446.70 3,620.01

6,188.08

2,216.17
1,358.29

5,236.95
3,209.75

3,836.01
2,351.47

Theatre

Patient care
IP medical
IP surgical
OP medical
OP surgical

3,245.59
1,989.24
5,541.44
4,180.38

1,358.29
1,024.68

2,063.41
1,556.60

16,275.47
1,899.26
1,432.78

Question 1B
Table A4
Cost Centre
Final Cost center
IP medical wards
IP surgical wards
OP medical
OP surgical

Total expense (US$)

Volume

Units

Unit cost (US$)

49,987.27
72,423.13
22,641.76
25,590.14

12,400
7,504
11,570
8,620

Patient days
Patient days
Visits
Visits

4.03
9.65
1.96
2.97

Question 1C

The case study uses the step-down technique for allocating overhead and intermediate service departments cost to final service
departments. Operating costs of this hospital are allocated to the individual cost centers which are classified as overhead, intermediate
services and final service departments. The overhead departments such as personnel, finance and maintenance, provide support for
intermediate and final service departments. The intermediate service departments such as laboratorium and theatres, provide
procedures and services to patients in final service departments in the inpatient wards and outpatient clinics.
The largest direct expenditure goes to the inpatient wards which account for nearly 50% of the total direct expenses. This is
mainly because of personnel costs which include physicians and nurses salaries as well as other staff categories. The hospital also
allocated substantially to the surgical department particularly on the theatre, OP surgical and IP surgical wards. All in all, surgical
department constitutes 48% of the direct expense and that does not include expenses involving other intermediate services. This is the
case even though the number of patients in medical wards as well as numbers of visits to medical OP is much more than that of
surgical. Moreover, the ALOS in medical ward is also exceeding than that of surgical ward.
The average length of stay (ALOS) is an important indicator of the efficiency of hospital resource utilization. Differences in
ALOS among comparable type of departments imply differences in prevailing treatment practices across the hospital. For example, in
this case the ALOS of medical wards are about 2 days more than that of surgical wards showing inefficiency in medical wards.
However, without information about case mix and severity, it is difficult to use length of stay as direct indicator of efficiency.
Nonetheless, stays that are unusually long raise many questions regarding efficiency and prompt a closer look as the possible cause.
In terms of intermediate cost centers, most of them are used more in medical department as compared to surgical. For example,
ambulance, x-ray, pharmacy and laboratorium expenses are more for IP medical as compared to IP surgical. Similarly, OP medical is
also using more of the intermediate services as compared to OP surgical. This is understandable because the work load in terms of
number of patients, number of visits and ALOS are more in medical department.
As per unit cost, the cost per unit of surgical services are higher than medical services because of the greater direct expenses as
well as the theatre cost. As a result of these factors, unit cost for IP surgical wards is US$ 9.65 while unit cost for IP medical wards is
US$ 4.03. Correspondingly, unit cost for OP surgical is US$ 2.97 whereas OP medical is US$ 1.96. The higher unit costs can be due to

the high cost of operating rooms which absorb 10% of total expenditure or maybe, the department is overstaffed that explained the
higher direct expense.
Average costs are customarily used to provide data needed to rate hospital performance. Nevertheless, without understanding
of the differences in quality and the case mix across the different departments such as medical and surgical, the efficiency implication
of variation in average cost cannot be properly interpreted. High costs may reflect, high quality - expensive equipment, more staffs and
medical supplies. Low costs may be a result of inadequate staff and thus, would represent poor quality.
From my opinion, there are several steps that the hospital can take to reduce the average costs especially in the surgical
department and to reduce the ALOS in both the surgical and medical department to increase efficiency.
1. Reducing the ALOS by increasing occupancy rate would increase the turnover rate and would extend hospital benefits to a greater
number of people. The extended lengths of stay may be due to the following factors:
- Most of the cases admitted to inpatient care for diagnostic tests are confined until results are received and then, proceed for
medical and surgical treatments.
- Absence of standard treatment practices and treatment protocols for the same cause of admission vary among the physicians
of the same department.
2. Ambulatory surgery
In industrialized nations, the hospital admission rate per capita has steadily declined in recent years. This phenomenon is as a
result of increasing transfer of inpatient services to outpatient care. The development of new techniques, instruments, better diagnostic
tests and improved anesthesia with fewer side effects have resulted in short non-traumatic operations, rapid patient recovery and
improved patient outcomes despite dramatically shorter hospitalizations. In this hospital, the cost for 200 operations are US$16,275.47
for theatre alone. Additionally, all the procedures are done as inpatient. By increasing the capacity of the hospital to perform
ambulatory surgery and other treatments would potentially assist in increasing efficiency in terms of cost per admission and numbers
of operation done while performing the demand for improved hospital care.

Receipt No : 937046
Assignment Submission Receipt
Student ID

850822115773

Course

NPHE7103

Title

SEPTEMBER 2016 : ASSIGNMENT

Due Date

06 November 2016

Submission Date

04 November 2016

Submission Time

18:00:18