Costing of clinical services in rural district hospitals in northern vietnam

Costing of clinical services in rural district hospitals in northern Vietnam Hoang Van Minh1*, Kim Bao Giang2 , Dao Lan Huong3, Le Thi Huong4, Nguyen Thuy Huong5, Pham Ngan Giang6, Luu N

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Costing of clinical services in rural district hospitals in northern Vietnam

Hoang Van Minh1*, Kim Bao Giang2

, Dao Lan Huong3,

Le Thi Huong4, Nguyen Thuy Huong5, Pham Ngan Giang6,

Luu Ngoc Hoat7 and Pamela Wright8

1

Department of Health Economics, Hanoi Medical University, Hanoi, Vietnam

2

Department of Health Management, Hanoi Medical University, Hanoi, Vietnam

3

Institute of Health Strategy and Policy, Ministry of Health, Hanoi, Vietnam

4

Centre of Excellence in Research, Hanoi Medical University, Hanoi, Vietnam

5

The Netherlands–Vietnam Medial Committee, Hanoi, Vietnam

6

Department of Science, Ministry of Health, Hanoi, Vietnam

7

Department of Biostatistics, Hanoi Medical University, Hanoi, Vietnam

8

Medical Committee Netherlands–Vietnam, Hanoi, Vietnam

SUMMARY

Objectives: This study aimed to estimate and analyse the ‘‘actual’’ unit cost of providing key clinical services in selected rural district hospitals in the North of Vietnam It also examined the relationship between actual costs and the levels of cost covered by the corresponding user fees paid by patients

Methods: This was a facility-based costing study which estimates the costs of health care services from the perspective of the service providers Three rural district hospitals from three provinces in the North of Vietnam were purposively selected for this study The ‘‘step-down’’ approach was applied

Results: There was little difference in the costs of an outpatient visit across the hospitals, but the costs of an operation and an inpatient day varied considerably In terms of cost structure, personnel costs accounted for the highest share of total cost of the clinical services The shares

of operating cost were considerable while depreciation of buildings/equipments made up a small ‘‘proportion’’ The study results revealed that the user fee levels were much lower than the actual costs of providing the corresponding services The present study highlights the importance of costing data for hospital planning and management Copyright # 2009 John Wiley & Sons, Ltd

key words: costing; district hospitals; planning and management; Vietnam

INTRODUCTION

Hospitals play a key role in the health care system as referral institutions for higher level curative care, as training facilities for health care workers and as organizational

Int J Health Plann Mgmt2010; 25: 63–73

Published online 22 January 2009 in Wiley InterScience

(www.interscience.wiley.com) DOI: 10.1002/hpm.970

* Correspondence to: H V Minh, Department of Health Economics, Hanoi Medical University, No 1, Ton That Tung, Dong Da, Hanoi, Vietnam E-mail: hvminh71@yahoo.com

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platforms for primary care activities, including preventive services However, this positive effect of hospitals is paid for by high costs: hospitals are the largest and most costly health care institutions and require more human and financial resources than

any other institution or programme in this sector (Newbrander et al., 1992).

Hospital costs are determined by many factors, including the input resources used

to run hospitals, the quantity and qualifications of hospital staff and the infrastructure and equipment Hospital costs are strongly related to the hospital’s scale and scope The question about scale is whether larger hospitals are more or less efficient than smaller ones On the one hand, hospitals require large investments in capital such as buildings, equipment and specialized staff, which may make it more efficient to have one large hospital rather than two small ones On the other hand, hospitals are complex organizations to manage, and a smaller hospital may run more smoothly than a larger one The question about scope is whether or not it is efficient to combine outpatient and inpatient care at the same facility In some cases, it may be more effi-cient for physicians to provide both types of care from a single office at the hospital

In other cases, it may be more efficient to reduce the daily flow of a large volume of outpatients at the hospital by having separate facilities (Weaver and Deolalikar, 2004) Factors such as ALOS, bed occupancy and patient throughput contribute significantly to the differences in unit costs

During the period of the centrally planned economy (the eighties), all health services in Vietnam were provided free of charge to the whole population During the process of development according to a market economy, financial resources for health care in hospitals were increased when, in 1989, hospitals in Vietnam started collecting fees for the services provided to patients, following the Government’s Decision 45 (The Government of Vietnam, 1989) However, hospital fees presently only levy charges for services such as hospital bed use, nursing, drugs, blood, tests and X-ray films A large part of the costs is still subsidized by the Government During the decentralization process, the Government of Vietnam passed Decree

10 (The Government of Vietnam, 2002) in 2002 and Decree 43 (The Government of Vietnam, 2006) in 2006, which put in place a financial regime to be applied in all government revenue-raising agencies, including hospitals According to these policies, the Government would allocate a pre-determined amount from the state budget to hospitals The hospital managers would be in charge of using this source of funds to ensure the continuity of technical activities As a result, hospital managers in Vietnam nowadays have both more power and more responsibility in using the state budget as well as in mobilizing additional resources from the society They face significant pressure to contain the rate of cost increase, while at the same time ensuring the quality of health care services Hospital managers may also need to top

up revenues from user fees to cover the cost of services

In order for hospitals in Vietnam provide the population with effective and effi-cient, high-quality health care services, hospital managers urgently need information

on the actual costs of the services they provide Cost information on different aspects

is extremely useful to health planners and decision makers, especially hospital managers, to make more evidence-based decisions in planning and management The knowledge of actual costs incurred in producing health services is also essential in assessing the effectiveness and efficiency of their institution

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In Vietnam, district hospitals have a crucial role in the primary health care network, both supporting the commune health centres and acting as a gateway to more specialist care Although good financial management of district hospitals has high priority for the Government, data on ‘‘real’’ costs of providing health services at this type of health facility have been very scarce

This study, therefore aimed to estimate and analyse the unit costs of providing key clinical services in selected rural district hospitals in the North of Vietnam It also aimed to establish the relationship between the real cost of providing services and the user fees paid by patients for the corresponding services The findings from this costing exercise can provide basic financial management evidence for the routine work of hospital managers The ultimate goal of this work is to contribute to improved financial planning and management in district hospitals in Vietnam

METHODS

Study design

This was a facility-based costing study which estimated the costs of health care services from the perspective of the service providers.Study setting and sample size Three rural district hospitals in three provinces in the North of Vietnam were purposively selected for this study The hospitals were: (1) Dan Phuong District Hospital in Ha Tay province, located 35 km east of the capital city of Hanoi; (2) Yen Dung District Hospital in Bac Giang province, 60 km north of Hanoi and (3) Dai Tu District Hospital in Thai Nguyen province, 85 km north of Hanoi These hospitals were selected because: (1) they were considered typical for rural district hospitals in the North of Vietnam in terms of size, staffing and infrastructure; (2) they provided most of the services included in the district hospital package and (3) they had a reasonably good accounting system

Selection of clinical services

In this study, the costs of providing key clinical services of district hospitals in Vietnam were estimated, namely (1) cost per out-patient visit; (2) cost per inpatient bed-day in four key departments of a district hospital, namely Surgery, Internal Medicine, Obstetrics and Gynecology and Pediatrics and (3) cost per operation level

A (The official statistics of the Ministry of Health distinguish between operations of complexity A, B and C) In this costing exercise, as suggested by a previous study in Vietnam, operations level A were weighted by a factor of 1, level B by 0.75 and level

C by 0.5 (Lieu et al., 2005).

Costing approach

In this study, the ‘‘step-down’’ approach was applied This is the process of allocating, step-by-step, the administration costs to supporting cost centres then to service-delivery cost centres The purpose of the method is to allocate all costs to

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departments delivering services (Drummond et al., 2005) The allocation key was

floor space (e.g cleaning materials), direct costs of final cost centres (e.g general administration), costs of staff (e.g personnel administration) and number of bed-days (e.g laundry) The method was previously applied and described in detail in a

previous cost study in Vietnam (Vander Plaetse et al., 2005).

Firstly, the costs of each department were collected Secondly, the costs were allocated step-by-step to the departments The costs of the first service cost centre were allocated to the other cost centre and then to the final cost centre The hospital departments were identified based on the organizational structure of each hospital, then separated into direct and indirect cost centres Direct cost centres render services directly to patients (all clinical departments, X-ray and laboratories), indirect cost centres support other indirect cost centres or final cost centres (e.g kitchen, administration) Afterwards, the accumulated costs of the next service cost centre were apportioned in the same way This procedure was repeated step-by-step until all service cost centres were allocated to the final cost centres Lastly, unit costs were calculated by dividing the total cost of each final cost centre (service department) by an appropriate measure of its output (e.g number of outpatient visits, number of inpatient days)

Cost components

All the inputs (cost components) used in each cost centre were listed, quantified and valued Both direct and indirect costs of producing services were captured The cost components that were included in the costing are described in Table 1 Personnel costs included salaries, allowances, insurance fees, professional hazard/risk payments and incentive bonuses For each clinical department, the labour cost was calculated by taking the total annual payroll for each clinical department, converting it to a daily amount and dividing it by the total number of beds in the department Then for each patient, the total length of stay in days was multiplied by the labour cost per day for the department where they were treated to get the total clinical labour cost Capital costs included straight-line depreciations of buildings, vehicles, equipment and other assets The original total purchase price of fixed assets was obtained from the Finance and Accounting Department at each hospital The Fixed Assets Report separately lists each fixed asset at the hospital, and is updated annually with new capital expenditures and renovations Fixed assets were listed by Table 1 Cost components included in the costing exercise

Type of cost Administration Supporting

cost centres

Service-delivery cost centres

Buildings, equipment Operating costs Indirect Personnel costs Personnel costs

Buildings, equipment Buildings, equipment

Operating costs Operating costs

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the department The value of the buildings at the time of their construction was collected and the value of any major renovations was added The depreciation costs were calculated separately for each clinical and para-clinical department and for the general assets of the hospital Operating costs included electricity, water, fuel, office supplies, telecommunications, transport of materials, maintenance and repair of fixed assets, travel, meetings and conferences, study tours, training and scientific research, etc Due to the lack of available data, we were not able to capture certain costs such as the cost of land for building or the cost of long-term staff training

Data collection

Data were collected by four researchers together with two staff members in each selected hospital (a person with access to data, information on finance, equipment, staff and hospital activities and with capacity to make calculations and use a computer) The main sources of data were activity and accounting reports of the hospitals under study

Data processing and analysis

The data were processed and analysed using Excel spreadsheets In calculating straight-line depreciations, the useful life of buildings and equipment was assumed to

be 33 and 10 years, respectively (Ministry of Finance of Vietnam, 2000) Local currency values were converted into US dollars using the 2006 exchange rate of US$

1 ¼ VND 16 000

RESULTS

Table 2 shows the basic characteristics and activity statistics for the three hospitals in

2006 The hospitals were quite similar in terms of number of departments, staff and planned beds The bed occupancy rates were very high in all the hospitals, especially Dai Tu District Hospital (109%) and Yen Dung District Hospital (125%) However, there was variation in the outputs produced by the three hospitals The numbers of outpatient visits in two hospitals were similar at around 70 000 per year but one had nearly double that, at more than 130 000 The numbers of inpatient days were more Table 2 Basic characteristics and activity statistics of district hospitals, 2006

Characteristics/statistics Dan Phuong Yen Dung Dai Tu

Number of out-patient visits 71 451 131 249 75 543

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comparable, ranging from 41 189 to 54 865 The numbers of operations also varied from 302 to 541

The costs of providing the selected clinical services in the studied hospitals are presented in Table 3 In general the hospital in Yen Dung had costs about 50% higher than the other two, with the notable exceptions of a day as inpatient in the Surgery or Internal Medicine departments, where Yen Dung had the lowest cost Differences between the costs of an outpatient visit across the hospitals were relatively small The cost of an operation also varied among the hospitals and was much higher in Yen Dung than in Dan Phuong

In all three hospitals, the second most expensive service was an inpatient day in the Surgery Department, although this cost also differed among the hospitals Comparing the cost of an inpatient day among departments within one hospital,

we found that for Dan Phuong District Hospital, the least expensive inpatient day was

in the Paediatrics Department (US$ 1.84) In Yen Dung, the cost as lowest in Obstetrics and Gynaecology at US$ 3.23, while in Dai Tu Hospital, the Internal Medicine Department charged only US$ 2.21 for an inpatient day

The cost structures of the selected services are illustrated in Tables 4–6 The findings demonstrate that personnel costs accounted for the highest share of total cost

of services in all three hospitals Depreciation of buildings/equipments made up only

a small proportion of total costs The tables also show that the share of operating costs (cost of electricity, water, fuels and office consumables, etc) was considerable, especially in Dan Phuong and Dai Tu District Hospitals

Table 3 Unit costs of selected clinical services provided in district hospitals, 2006 (in US$)

Inpatient day in obstetrics and gynaecology 2.71 3.23 4.44

Table 4 Cost structures of selected services in Dan Phuong District Hospital, 2006

Personnel Building,

equipment

Operating cost

Indirect Total

Outpatient visit 0.18 (45%) 0.03 (8%) 0.12 (30%) 0.07 (17%) 0.4 (100%) Operation 22.35 (55%) 1.96 (5%) 10.33 (26%) 5.79 (14%) 40.43 (100%) Inpatient day in surgery 3.16 (41%) 0.12 (2%) 2.8 (37%) 1.57 (21%) 7.66 (100%) Inpatient day in obstetrics

and gynaecology

1.32 (49%) 0.21 (8%) 0.56 (21%) 0.62 (23%) 2.71 (100%) Inpatient day in internal

medicine

2.61 (48%) 0.06 (1%) 1.75 (32%) 0.98 (18%) 5.4 (100%) Inpatient day in paediatrics 0.9 (49%) 0.04 (2%) 0.57 (31%) 0.32 (17%) 1.84 (100%)

Indirect costs were allocated from administration and supporting departments

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In Figure 1, a comparison is shown between maximum hospital fee levels, according to official user fee policy (The Government of Vietnam, 1989), and the corresponding actual costs in the three hospitals The fee levels were found to be much lower than the actual costs of providing those services The cost recovery percentages were especially low for surgical operations, ranging from 7 (in Yen Dung District Hospital) to 12% (in Dan Phuong District Hospital) of the actual cost

to the hospital

DISCUSSION

Due to a weak information system and a lack of resources devoted to hospital management, cost data are seldom available from routine information systems in

Vietnam (Lieu et al., 2005) That means that research studies providing at least

estimates of the costs of providing health care are needed as basic information for hospital planning and management in Vietnam

We focused on cost estimates for clinical services because these are usually the

largest components of total hospital costs (Oostenbrink et al., 2003) We attempted to

Table 5 Cost structures of selected services in Yen Dung District Hospital, 2006

Personnel Building,

equipment

Operating cost

Indirect Total

and gynaecology

medicine

Table 6 Cost structures of selected services in Dai Tu District Hospital, 2006

Personnel Building

equipment

Operating cost

Indirect Total

and gynaecology

medicine

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make a preliminary assessment of the efficiency of the hospitals’ performance by estimating and comparing the cost levels and structures of the key services provided

in three district hospitals which were quite similar in terms of infrastructure We also estimated how much of the cost of selected key services provided by the district hospitals was covered by user fees

The cost levels found in this study demonstrate both similarities and differences to what has been reported by the few previous cost studies in Vietnam In 2000, the cost

of an outpatient visit to a district hospital in the North of Vietnam was reported to vary between US$ 0.27 and US$ 0.65, the cost of an inpatient day ranged from US$ 0.81 to US$ 2.62 and the cost of an operation was between US$ 77.83 and US$ 279.82 (Steffen Flessa, 2004) A more recent study by Mediconsult Vietnam found that the costs of an outpatient visit in a district hospital in 2007 varied between US$ 0.21 and US$ 0.43, the cost of an inpatient day ranged from US$ 2.31 to US$ 6.45 and the cost of an operation was between US$ 28.51 and US$ 47.61 (Mediconsult Vietnam, 2007) (Table 7)

In fact, hospital costs are determined by many factors such as resources available

to hospitals, experience, mix and specialization of medical staff, equipment,

Table 7 Comparison of cost figures from this study and previous studies

Services This study Steffen Flessa, 2004 Mediconsult Vietnam, 2007

Figure 1 Comparisons between maximum hospital fee levels applied in district hospitals (according to user fee policy in Vietnam) and the corresponding actual costs in each hospital in 2006

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technology and economies of scale For hospitals at different levels and even within the same level, different ways of allocating resources within the hospital and differences in case mix also result in differences in cost results, as do utilization rates

A previous study found that economies of scale of hospitals in Vietnam depended on the category of the hospital in addition to the number of beds and volume of output (Hanson and Gilson, 1996)

There are also many factors, beside efficiency issues, that can influence the cost estimates such as the patient case mix, the scope of the study, definition of costs, methods for costing, cost components included in the costing, availability and quality

of data, the effect of inflation, etc

In this study, the comparisons of costs for the same service provided in different facilities of the same size, during the same period of time and using the same costing method enable us to discuss aspects related to efficiency Assuming that there was no difference in the quality of the surgical operations among the three hospitals, the lowest cost in Dan Phuong District Hospital would imply that the hospital was possibly more efficient in providing this type of service (Table 2) The data on facility activities support this hypothesis In 2006, Dan Phuong District Hospital provided

541 operations, while the figures for Yen Dung and Dai Tu were 302 and 383, respectively (Table 1) However, in the context of present-day Vietnam, the higher number of operations might in fact reflect a higher quality of the service, which would mean that the hospital was not necessarily more efficient

Comparing the average cost of an inpatient day, it is noted that Yen Dung and Dai

Tu District Hospitals were possibly more efficient in providing this type of service Their costs were US$ 3.53 and US$ 3.70, respectively (compared to US$ 4.40 in Dan Phuong) One explanation could be the difference in the workload and throughputs which were higher than in Dan Phuong However, in this case, the over-crowding in Yen Dung and Dai Tu (bed occupancy rates were over 100%) might lower the quality

of the service Over-utilization of facility capacity would obviously not be a good strategy to improve hospital efficiency It was recommended on the basis of a previous study in Vietnam that hospitals would operate most effectively and efficiently at 80–90% bed occupancy rates (Hanson and Gilson, 1996)

In this study, we found variations in the costs of an inpatient day between different departments within one hospital, which probably reflected variations in the patient case mix and the volume of services used for different types of patients

The findings on the structures of the service costs found in this study are quite similar to those from previous studies in Vietnam, which also reported that personnel costs accounted for the highest share of total cost of the services (Steffen Flessa,

2004; Lieu et al., 2005; Mediconsult Vietnam, 2007) These also in line with findings from a number of international studies (Oostenbrink et al., 2003; Olukoga, 2007; Riewpaiboon et al., 2007).

The study also revealed that the shares taken by operating cost were considerable (Table 4) This would imply that more rational use of electricity, water, fuel and office consumables could be a good strategy to contain the rise in cost of services, especially in the context of the high inflation rate in Vietnam nowadays

The great majority of health managers in Vietnam are now confused between the concepts of ‘‘cost’’ and ‘‘fee’’ as well as the relationship between the two In this

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study, we founds that the fee levels in use at the time were much lower than the actual costs of providing the corresponding services, especially for surgical operations This reflects the fact that hospital services in Vietnam were still heavily subsidized by the State In the coming years, once Decree 43 has been applied in district hospitals, hospital managers will have to consider and propose more appropriate fee levels to recover more of their costs In order to do so, they in turn need to improve the quality

of their services At the same time, they also have to establish a routine cost information system to provide data they can use in their routine planning and management

We should note a limitation of the step-down method used in this study That method is based on the assumption that the patients are a homogeneous group, while

in fact, there are always variations in the patient case mix and the volume of services used, which reduces the accuracy of the results This method is; however, widely used because of its simplicity and applicability (Conteh and Walker, 2004)

In summary, the present study provides useful information on the actual cost of providing key clinical services at district level in Northern Vietnam This information can be of great use to hospital managers to help them to assess the hospital’s efficiency (by comparing the cost figures over time and/or with other similar health facilities) as well as to establish appropriate user fee levels The results also highlight the importance of costing exercises as a hospital planning and management tool Ours was a preliminary study on cost of services in district hospitals in Vietnam Further studies on this issue, with larger sample size and more sophisticated design, should be done as soon as possible to provide clearer and more detailed data about the levels and determinants of hospital costs in Vietnam

ACKNOWLEDGEMENTS

The authors would like to acknowledge the financial support from the Evidence-based Planning and Management Project, managed by the Medical Committee Netherlands–Vietnam (MCNV), and the Community Training and Consulting Net-work, Hanoi Medical University, for coordinating the research

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Drummond MF, Sculpher MJ, Torrance GW, O’Brien BJ, Stoddart GL 2005 Methods for the

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Hanson K, Gilson L 1996 Cost, resource use and Financing Methodology for District Health

Services: A Practical Manual, Bamako Initiative Technical Report Series No: 34, UNICEF,

New York

Lieu DH, Long NH, Bales S, et al 2005 Study on treatment costs for selected disease groups

at provincial general hospitals Ministry of Health of Vietnam: Hanoi

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