Tropical Medicine and International Health doi:10.1111/j.1365-3156.2007.01815.

volume 12 no 4 pp 554–563 april 2007

Effect of costing methods on unit cost of hospital medical

services
Arthorn Riewpaiboon1, Saranya Malaroje1 and Sukalaya Kongsawatt2

1 Faculty of Pharmacy, Mahidol University, Bangkok, Thailand

2 Bureau of Health Policy and Planning, Ministry of Public Health, Bangkok, Thailand

Summary objective To explore the variance of unit costs of hospital medical services due to different costing
methods employed in the analysis.
methods Retrospective and descriptive study at Kaengkhoi District Hospital, Saraburi Province,
Thailand, in the fiscal year 2002. The process started with a calculation of unit costs of medical services
as a base case. After that, the unit costs were re-calculated based on various methods. Finally, the
variations of the results obtained from various methods and the base case were computed and compared.
results The total annualized capital cost of buildings and capital items calculated by the accounting-
based approach (averaging the capital purchase prices throughout their useful life) was 13.02% lower
than that calculated by the economic-based approach (combination of depreciation cost and interest on
undepreciated portion over the useful life). A change of discount rate from 3% to 6% results in a 4.76%
increase of the hospital’s total annualized capital cost. When the useful life of durable goods was
changed from 5 to 10 years, the total annualized capital cost of the hospital decreased by 17.28% from
that of the base case. Regarding alternative criteria of indirect cost allocation, unit cost of medical
services changed by a range of )6.99% to +4.05%. We explored the effect on unit cost of medical
services in one department. Various costing methods, including departmental allocation methods,
ranged between )85% and +32% against those of the base case. Based on the variation analysis, the
economic-based approach was suitable for capital cost calculation. For the useful life of capital items,
appropriate duration should be studied and standardized. Regarding allocation criteria, single-output
criteria might be more efficient than the combined-output and complicated ones. For the departmental
allocation methods, micro-costing method was the most suitable method at the time of study.
conclusions These different costing methods should be standardized and developed as guidelines
since they could affect implementation of the national health insurance scheme and health financing
management.

keywords costing method, unit cost, medical service, hospital

accounting-based approaches (averaging the capital

Introduction
As health care expenditure has been increasing, it is
essential for the public health sector to use existing
resources efficiently through improving and controlling the
management of hospital operations. Information regarding
unit cost analysis is important for hospital administrators
to make decisions for planning, budgeting, controlling and
assessing the organization (Newbrander et al. 1992;
Shepard et al. 2000). In some developing countries with
middle income economies where there has not been a
reference unit cost and/or standard hospital costing system
for medical services, individual hospitals conduct unit
cost analysis employing different methods. For example,
methods of capital cost calculation are based on
purchase prices throughout their useful life) and economic-
based approaches (combination of depreciation cost and
interest on undepreciated portion over the useful life),
various direct cost distribution criteria, various indirect
cost allocation criteria, and various methods of depart-
mental allocation. Different methods result in different
calculation outcomes. The problem comes up when
efficiency is compared because we do not know what the
effect of different costing methods on the variance is.
Information on unit costs of medical services is also needed
for performance-based budgeting systems and financing
methods of insurance schemes. Some developing countries
have introduced health reforms. For example in Thailand,
hospitals directly receive provider payments from the

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A. Riewpaiboon et al. Effect of costing methods on unit cost of hospital medical services

Social Security Office, the Comptroller General’s Depart-
ment and the National Health Security Office, for private
employees under the Social Security Scheme (SSS), civil
servants under the Civil Servants Medical Benefit Scheme
(CSMBS) and others under the Universal Coverage of
Health Care Scheme (UC). The hospitals that provide
services for patients under the CSMBS are reimbursed by a
retrospective fee-for-service model (Sriratanaban 2002).
The rest of health insurance schemes pay to hospitals based
on negotiated capitation. To negotiate appropriate rates of
payment or budget based on the results of hospital cost
analysis, costing methods have to be standardized.
Recently, the Centre for Health Economics of the
University of York published a review on methodologies of
costing health care services (Mogyorosy & Smith 2005). The
theoretical foundation of costing is accounting vs. economic
cost; economic and accounting assessment apply different
costing methodologies. An example of potential differences
between the accounting and the economic approach in
valuing resources consumed is the costing of capital assets.
The accounting approach uses historical acquisition price;
the economic approach uses replacement value. Practically,
costing studies to value resource use in production goods or
services can be classified into five general ways: (a) direct
measure of costs; (b) cost accounting methods; (c) standard
unit costs; (d) fees, charges and/or market prices; and (e)
estimates/extrapolations. The review covered various cost-
ing methods but did not provide empirical data of their
effects on unit cost of services.
To our knowledge, in the hospital industry of Thailand
there was only one report studied on costing methodology.
This study proposed standard and quick methodologies of
unit cost analysis (Tisayaticom et al. 2001). The standard
costing methodology consists of five steps: (1) organization
analysis and cost centre classification; (2) direct cost
determination; (3) indirect cost determination; (4) full cost
determination; and (5) calculating unit cost of medical
services. We did not find any study comparing on
alternative methods employed in the standard costing
methodology. The purpose of this study was to explore the
variance of unit costs of hospital medical services given by
different costing methods employed in the analysis. The
conceptual frameworks of costing methods tested are
represented in Figure 1. The results of this study could be
used as information for establishing standards or recom-
mended methods of unit cost analysis of medical services
for hospital management, and for budgeting and insurance
payment systems.
Methods
Study design and study population
This study was designed as a retrospective descriptive cost
analysis based on a provider perspective in the fiscal year
2002. The study population was district hospitals (30–60
beds) in Thailand. Kaengkhoi Hospital in Saraburi Prov-
ince in central Thailand was selected by convenience
method.
Study procedures
The study procedure consisted of two parts. Part 1 was a
base case calculation employing the standard five-step

Unit cost of medical services

Average
Department allocation Ratio of cost to charge
RVU

Full cost of ACC Micro – costing

Direct cost Indirect cost

Allocation of
indirect cost Method
Criteria Single
ACC TCC
Direct cost of cost centers Combined
Distribution criteria Single

Discrete Shared Combined

Value of resources
Capital cost Accounting-based
Economic-based

Figure 1 Conceptual framework of the Quantity of recurrent Quantity of

study. ACC ¼ absorbing cost center; resources consumed capital items used
TCC ¼ transient cost center; RVU ¼
Labour Material Building Construction Equipment Vehicle
relative cost center.

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A. Riewpaiboon et al. Effect of costing methods on unit cost of hospital medical services

Table 1 Variation of total annualized capital cost due to approaches and discount rate

Base case* Accounting-based approach 6% Discount

Change Change

Cost centre US$ US$ US$ % US$ US$ %

Administration 25 342 21 770 )3571 )14.09 26 068 726 2.87

Clerical works 1579 1378 )200 )12.70 1653 75 4.72
Transportation 8707 7745 )962 )11.04 9385 678 7.79
Accounting 1579 1378 )200 )12.70 1653 75 4.72
Purchasing 2643 2336 )307 )11.60 2810 167 6.33
Maintenance 4243 3568 )675 )15.91 4249 6 0.14
Nurse administration 590 505 )84 )14.29 611 21 3.55
Medical record 1803 1577 )226 )12.51 1887 84 4.68
Registration 7629 6661 )968 )12.68 8086 458 6.00
Central supply 12 167 10 446 )1722 )14.15 12 522 355 2.92
Catering 4312 3690 )623 )14.44 4418 105 2.44
Health education 3015 2646 )368 )12.22 3169 154 5.10
Counsellingà 1044 913 )130 )12.46 1096 53 5.07
Pharmacyà 7178 6162 )1016 )14.15 7410 232 3.23
Laboratoryà 11 596 10 447 )1149 )9.91 12 485 889 7.67
Radiologyà 6517 5767 )750 )11.51 6987 470 7.21
Physical therapyà 4754 4093 )661 )13.90 4891 137 2.89
Operating roomà 3451 2946 )505 )14.63 3544 94 2.71
Emergency roomà 6760 5857 )904 )13.37 7051 290 4.29
Dentistryà 9077 7995 )1081 )11.91 9694 618 6.81
Outpatientà 12 011 10 574 )1437 )11.96 12 809 798 6.65
Male wardà 17 223 14 783 )2440 )14.17 17 797 574 3.33
Female wardà 22 160 19 240 )2920 )13.18 23 152 992 4.47
Sanitationà 10 535 9236 )1299 )12.33 11 352 817 7.76
Health promotionà 2959 2559 )400 )13.51 3078 119 4.03
Total 188 872 164 276 )24 596 )13.02 197 858 8986 4.76

*Base case: economic-based calculation with 3% discount and 5-year useful life of equipment.
Transient cost centre; àabsorbing cost centre.

costing approach outlined above (Rigden 1983; Drum-
mond et al. 1997; Tisayaticom et al. 2001) with the
following steps (Riewpaiboon 2003). Organizational
structure was analysed and classified as cost centres. All
cost centres were classified into two groups: transient cost
centres and absorbing cost centres (Table 1). Direct costs
of each cost centre were determined by summation of its
capital costs, labour costs and material costs. Capital cost
consists of two components: costs of capital items, and
opportunity costs of land and stocked materials. Labour
cost of individual refers to the summation of salaries,
wages, incentives and fringe benefits such as accommoda-
tion, training expenses, and healthcare expenses. Then
individual labour cost was assigned to cost centres based
proportion of time spent for each cost centre. Material
costs cover drug and medical material (e.g. scientific
materials and medical supplies), office materials, household
materials, petrol and utilities (electricity, water, telephone
and mail). Maintenance costs of equipment, vehicles and
buildings are classified as material cost because they recur.
The specific methods employed for base case analysis were
as follows:
The economic-based approach of capital costing covers
both depreciation cost (the rate at which the capital is ‘used
up’) and opportunity cost (interest) of making the invest-
ment (the funds tied up in the asset) (Edejer et al. 2003).
The calculation is to divide current price by annuity factor.
Current price is the result of adjusting purchase price by
consumer price index (Kumaranayake 2000). The annuity
factor is calculated based on useful life and discount rate
(Drummond et al. 1997). The discount rate, as recom-
mended by WHO guide (Edejer et al. 2003), was 3% for
base case and 6% for sensitivity analysis.
Useful life was taken as 5 years for capital items and as
20 years for buildings (Creese & Parker 2000; Tisayaticom
et al. 2001). According to the Comptroller General’s
Department of Thailand useful life of medical equipment is
3–8 years and of buildings, 8–40 years. Creese and Parker

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A. Riewpaiboon et al. Effect of costing methods on unit cost of hospital medical services

(2000) stated that ‘For consistency, it is best to use the
same time period for a given type of vehicle for the entire
analysis’. Therefore, in practice, we use the average of
5 years for equipment and 20 years for buildings. Base case
allocation criteria of indirect cost allocation followed the
simultaneous equation method (Drummond et al. 1997).
Micro-costing of departmental allocation (Leaner et al.
1985; Suver & Cooper 1988) starts by determining direct
cost of each service (amount of countable resources directly
used in providing such services). Then indirect cost of
services (the result of the full cost of each department
subtracted by sum of total direct cost of all services) is
allocated to each service based on proportion of direct cost
of each service.
Part 2 comprised analysis of cost variance employing
various costing methods and assumptions as follows:
Accounting-based approach of capital costing: this is the
financial cost calculated by averaging the capital purchase
prices throughout their useful life (Creese & Parker
2000; Tisayaticom et al. 2001), vs. the economic-based
approach.
Useful life was taken as 10 years vs. 5 years for
depreciable assets, excluding buildings and construction.
Ten years is the approximate average of useful years of
capital assets recommended by the Comptroller General’s
Department (Riewpaiboon 2003).
Proposed allocation criteria vs. base case allocation
criteria of indirect cost allocation: for the Clerical Works
supporting cost centre, number of documents was used
as allocation criteria instead of weighted criteria of
number of document and person-year equivalent. Number
of person-months involved in payroll operations was used
instead of weighted criteria of payroll and patient-service
charging for the accounting cost centre (Table 2).
Ratio of costs to charges (RCC) and relative value unit
(RVU) (Finger 1982; Suver & Cooper 1988) vs. micro-
costing of departmental allocation. RCC is computed when
we know the full cost of the department, prices and total
number of services produced. First, total expected charge is
calculated using unit prices and total number of services
produced. Then, full cost is divided by total expected
charge resulting in the RCC. Finally, the ratio is used to
multiply unit price, resulting in unit cost of each service.
For example, if the total charges are US$100 000 and total
costs are US$75 000, the RCC is calculated as 0.75. The
RCC is then used for determining the costs of services.
Charge (unit price) of individual service is multiplied by
0.75 resulting in unit cost of each service. RVU is a
weighted procedure method. This method concentrates on
each production or service cost of individual department.
Each service is assigned a number of relative units which
represents its relative resource consumption or how much
time each one uses. In order to construct the RVUs,
resource consumption or cost for each service is determined
and all of them are computed. A service which is twice
as costly as another will be assigned a relative value
twice as high as that of the comparison service. In some
methods of establishing the RVU, standard time of
each activity or service is used. In application, for example,
a blood gas test might have a weight of 40, whereas an
acetone test might have a weight of 10. Thus, if a
laboratory performed 100 blood gas tests and 200 acetone

Table 2 Allocation criteria

Cost centre Base case criteria Proposed criteria

Administration Man–year equivalent Same as base case

Clerical works Number of document and man-year equivalent Number of document
(estimated time spent 5:1)
Transportation Distance (km) of transportation Same as base case
Accounting Number of man–month salary paying and number of Number of man–month salary paying
patient-service charging (estimated time spent 6:1)
Purchasing Monetary value of office materials to each cost centre Same as base case
Maintenance Job requested by cost centre Same as base case
Nursing Administration Man–year equivalent of nursing personnel Same as base case
Medical record Number of inpatient Same as base case
Registration Patient visit Same as base case
Central supply Number of big materials supplied, number of small Number of material (package) supplied: weight
material supplied, and weight of clothes supplied of clothes (km) supplied to each centre (1:1)
to each centre (estimated time spent 2:1:2)
Catering Number of general meals and number of special meals General meal:special meal (1:1)
(cost of meal 1:1.6)
Health education Number of answer the questions, educating, and admission Number of education services
patient from OPD (estimated time spent 1:6:2)

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A. Riewpaiboon et al. Effect of costing methods on unit cost of hospital medical services

tests, there would be a total of 6000 RVUs (40 units · 100 Table 3 Variation of total annualized capital cost due to useful lives
tests ¼ 4,000; 10 units · 200 units ¼ 2000;
Depreciation costs*
4000 + 2000 ¼ 6000). If the full cost of the laboratory
(US$) Cost change
(both direct costs and those assigned through the allocation
process) were $9600, the cost per RVU would then be 5-year 10-year
$1.60 ($9600/6000 total units). Therefore, the cost of a Cost centre useful life useful life US$ %
blood gas test would be $64 (40 units · $1.60) and acetone
Administration 219 299 80.04 36.53
test would be $16 (10 units · $1.60). In this study, Clerical works 22 17 )5.24 )23.29
material costs were used to calculate RVU of Laboratory Transportation 205 194 )10.23 )5.00
Department. Time spent in giving services was calculated Accounting 22 17 )5.24 )23.29
as a proportion of the remainder of the cost. Purchasing 50 51 0.21 0.42
Maintenance 2 1 )0.83 )46.31
Nursing 6 11 4.43 70.21
administration
Results Medical record 25 17 )8.82 )34.67
Effect of different capital costing methods Registration 138 93 )44.73 )32.37
Central supply 107 120 13.26 12.39
For base case, total hospital cost was million US$1.17 Catering 32 21 )10.94 )34.48
(US$1 ¼ 38 Thai baht). Capital, labour and material Health education 46 28 )18.62 )40.11
costs accounted for 17.8%, 54.4% and 27.8%, respect- Counselling 16 10 )5.86 )36.71
Pharmacy 70 48 )22.11 )31.56
ively. In recalculating, we used the accounting-based
Laboratory 268 182 )86.05 )32.07
approach of capital costing rather than the economic- Radiology 142 144 2.38 1.68
based approach. The results indicated a decrease of total Physical therapy 41 24 )17.86 )43.07
annualized capital costs of the hospital of US$24 596 or Operating room 28 19 )9.20 )32.61
13.02% (Table 1). The effect on unit cost of medical Emergency room 88 130 42.21 48.19
services is shown in Table 5. The unit costs of surgery Dentistry 186 117 )69.69 )37.39
services fell by 3–4%. Out patient 241 139 )101.36 )42.09
Male ward 173 129 )43.63 )25.20
Female ward 299 221 )78.19 )26.13
Effect of different discount rates Sanitation 247 184 )62.89 )25.50
Health promotion 36 26 )9.54 )26.50
The sensitivity analysis of discount rate was tested using a Total 2712 2243 )468.48 )17.28
6% discount rate in the calculation instead of 3% of the
base case. This resulted in an increase of total annualized *Capital assets except building and construction.
capital cost by 4.76%. The changes by cost centres ranged
between 0.14% and 7.76% (Table 1). Effect on unit cost
of medical services is demonstrated in Table 5. The unit
Effect of different allocation criteria
costs of surgery services rose by 4%.
In this study, supporting departments (or transient cost
centres) were General Administration, Clerical Works,
Effect of different useful lives
Transportation, Accounting, Purchasing, Maintenance,
When useful life is extended, the capital cost of new items Nursing Administration, Medical Records, Central Supply,
falls. Meanwhile, some items that are supposed to have no Catering and Health Education. Combined-output criteria
capital cost because they are over the short useful life have for indirect cost allocation were changed to the single-
a capital cost based on longer useful life. In this study, output criteria. For example, in the Accounting cost centre,
when useful life of depreciable assets, excluding buildings the number of person-months for payroll combined with
and construction, was changed from 5 years to 10 years, number of patient-service charging (6:1) was substituted by
429 additional items had to be calculated in the cost. In the the number of person-months for payroll. This result
end, total annualized capital costs of these assets fell by indicated that variation occurred in decreases of counsel-
US$468.48 (17.28%) (Table 3). At department level, the ling ()0.29%), physical therapy ()0.57%), dental
changes of departments’ total cost ranged from )46% and ()0.81%), outpatient ()6.99%). Emergency service
+70%. The effect on unit cost of medical services is (+4.05%) was the cost centres with the highest increase in
demonstrated in Table 5. The unit costs of surgery services full costs. There were some absorbing cost centres with
fell by 1–2%. constant full costs (Table 4).The effect on unit cost of

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A. Riewpaiboon et al. Effect of costing methods on unit cost of hospital medical services

Table 4 Variation of production cost centres’ full cost due to planning, the hospital would lose by US$24 596 per year.
different allocation criteria The bigger hospitals with more capital items would lose
more. These results confirm WHO guidelines that the
Full cost (US$) Cost change
economic-based approach is appropriate for calculating the
Proposed capital costs of hospital cost analysis (Shepard et al. 2000).
allocation
Cost centre Base case criteria US$ %
Effect of different discount rates
Counselling 7308 7287 )21 )0.29
Pharmacy 206 802 208 008 1206 0.58 In addition, the amount of difference also varied based on
Laboratory 69 071 69 475 404 0.58 the discount rate employed in the calculation. The discount
Radiology 26 455 26 755 300 1.13 rate is based on nominal interest and inflation rate in the
Physical therapy 15 426 15 337 )89 )0.57 future (Kumaranayake 2000; Walker & Kumaranayake
Operating room 16 431 16 598 167 1.02
2002). This study showed that the change of discount rate
Emergency room 131 877 137 213 5336 4.05
Dentistry 56 686 56 225 )461 )0.81
from 3% to 6% resulted in 4.76% (US$8986) increase of
Out patient 163 963 152 497 )11 466 )6.99 the total annualized capital cost. The change of discount
Male ward 182 419 182 880 461 0.25 rates affected the total hospital cost by 0.77% (US$8986 of
Female ward 203 160 205 529 2369 1.17 million US$1.17). In terms of business management, the
country specific rates should be employed. To analyse
efficiency of hospitals, value of resources consumed are
medical services is shown in Table 5. The unit costs of
compared. To avoid effect of discount rate, although the
surgery services were increased by 1%.
effect is not much, discount rates employed in the
calculations should be the same. Therefore, the rates
Effect of different departmental allocation methods proposed by reference organizations e.g. WHO, World
Bank, are quoted (Walker & Kumaranayake 2002).
Operating room cost centre producing surgery services was
Recently, it was suggested that 3% be used as a base case
selected for testing effect of departmental allocation
and 6% for sensitivity analysis (Edejer et al. 2003).
methods. Comparing results calculated by micro-costing
method to the ratio of cost to charge method (RCC)
revealed that unit costs of the surgery services varied from Comparison of the variation of capital costs calculated by
an 85% decrease to a 32% increase (Table 5). Analysis of using different useful lives
the RVU ()25% to +15%) showed that the variation of
Because of the changes of the durable goods’ useful life from
unit costs of medical services was less than that of the RCC
5 to 10 years, more items could be included in the analysis.
method (Table 5).
These were the items that had been used for >5 years but
not >10 years at the time of analysis. It was discovered that
Discussion the additional number of capital items to be calculated was
26% (an increase from 1620 items to 2049 items). In
Accounting-based approach vs. economic-based approach
contrast, the average annual capital cost of each item
of capital costing
decreased due to the longer useful life. In summary, the
Unit costs from the hospital cost analysis are used for price capital costs of the hospital decreased by 17.28% from base
setting, reimbursement and other payment negotiations. case. At department or cost centre level, both decreases and
Therefore, the revenue covers capital cost, which will be increases in cost can happen. This depends on the number
accumulated for equipment replacement in the future. In of capital resources in use for 6–10 years in each depart-
Thailand, most studies have used the accounting-based ment. Care should be taken with generalization of the
approach due to its simplicity. The practical accounting- results because capital items in different settings might be
based approach is simply a division of purchase price of a different in quality and useful life period. Analyses con-
capital item by its useful years. However, it ignores the ducted in the same country should employ the same useful
concept of opportunity cost and costs in time difference life guidelines. Due to different productions, prices and,
(Drummond et al. 1997). This can distort the reality. This then, working years in various countries, each country
study, for instance, capital cost of buildings and capital should develop its own guidelines with specific useful life
items calculated by accounting-based approach was 13% for each item. As a model, U.S. guidelines could be
less than that calculated by the economic-based approach. consulted because they are quite specific and comprehensive
If the results were used for price setting or financial detailed (American Hospital Association 2004).

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A. Riewpaiboon et al. Effect of costing methods on unit cost of hospital medical services

Table 5 Unit costs and variation due to costing methods of surgery services

Costing method

Capital costing Economic* Economic Economic Accounting Economic Economic Economic

Discount rate (%) 3 3 3 3 6 3 3
Useful year 5 5 5 5 5 5 10
Allocation criteria Base case Base case Base case Base case Base case Proposed Base case
Departmental allocation Micro-costing RVU RCC Micro-costing Micro-costing Micro-costing Micro-costing

Unit cost

Change Change Change Change Change Change

Service US$ US$ (%) US$ (%) US$ (%) US$ (%) US$ (%) US$ (%)

Tubal resection 113.16 130.34 15 149.03 32 109.10 )4 118.00 4 114.32 1 110.86 )2

Skin graft 296.17 220.82 )25 149.03 )50 286.14 )3 308.28 4 299.18 1 293.06 )1
Excision 152.55 141.56 )7 29.81 )80 147.19 )4 158.96 4 154.10 1 150.05 )2
Debridement 99.70 97.93 )2 89.42 )10 96.13 )4 103.96 4 100.72 1 97.76 )2
Incision and 153.42 132.07 )14 22.35 )85 148.13 )3 159.78 4 154.98 1 151.37 )1
drainage
Curettage 100.96 89.19 )12 74.52 )26 97.45 )3 105.17 4 101.99 1 99.45 )1

*Base case scenario. Calculations of the changes are compared to the base case scenario.
RCC, ratio of cost to charge; RVU, relative valued unit.

Analysis of RVU showed that the variation of unit costs

Proposed allocation criteria vs. combined allocation
criteria of indirect cost allocation
Proposed criteria of indirect cost allocation were selected
and tested. The proposed criteria were simpler and easier
than those of the base case. This change does not affect the
total cost of the hospital but the variations occur only to
indirect cost of each cost centre, full cost of each cost
centre, and finally unit costs of medical services. Total
increase of some cost centres is equal to total decrease of
the rest. In this study, the variation of full costs of cost
centres were not great – between )6.99% and +4.05%.
Therefore, it might not be efficient to employ the combined
and complicated criteria.
Ratio of costs to charges and relative value unit vs.
micro-costing of departmental allocation
Analysis of RCC revealed that the variation of unit costs of
medical services was high, ranging from )85% to +32%,
which suggested that the existing prices (charges) of
medical services were not relevant to real costs of medical
services. This result was consistent with previous research
by Chotiwan et al. (1996). This could be due to the fact
that the hospital set the prices based on only direct material
cost and proportions of material cost in total unit costs and
the prices varied among services. In addition, public
hospitals are non-profit organizations and subsidized by
government. So prices do not always reflect cost.
of medical services was less than those of the RCC method.
The unit costs decreased by 25% and increased by 15%.
Ideally, RVU was calculated based on the very detail of
consumption of supplies, equipment or personnel as cost
drivers. However, in this study focusing on practicality, a
major resource consumed was selected as a cost driver. For
example, the emergency room had labour costs of 80.22%
of total direct costs. So, RVU was weighted based on time
used for producing one service. Direct time study or stop-
watch is a technique usually applied to analyse the time.
For cardiopulmonary resuscitation (CPR) service, its
labour cost was US$2.7 out of US$65.7 (4.07%) of the
total direct cost of this service. Therefore, labour time was
not an appropriate cost driver for this service. Thus, the
variation of unit cost decreased by 93.73% from the micro-
costing method, while the variation of nebulization service
decreased by only 5.81% from the micro-costing method
because labour cost of this service was US$2 of US$3.3
(61.18%) of total direct cost of this service. Therefore, the
RVU method was suitable for calculating the unit costs,
and all services in cost centre had similar cost drivers.
Otherwise weighted RVUs are needed (Berlin et al.
1997a,b).
Implications for the national health insurance scheme
The variations of costing results given by different cost
methods could affect the implementation of national health

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Tropical Medicine and International Health
A. Riewpaiboon et al. Effect of costing methods on unit cost of hospital medical services
insurance schemes. This is demonstrable in the case of
Thailand. Regarding health reform, the government
established the Universal Coverage of Health Care Scheme
(UC) managed by the National Health Security Office
(NHSO) in 2001. Until 2004, the UC covered approxi-
mately two-thirds of the Thai populations (Sritham-
rongsawat 2004). NHSO pays contracted providers based
on a capitation basis.
Capitation payment is estimated based on services
provided, i.e. outpatient care, inpatient care, prevention
and promotion services, high cost care, accident and
emergency care, capital replacement and emergency med-
ical services. To estimate the payment rate, unit costs of
services are retrieved from studies available (Tangcharo-
ensathien et al. 2001). The amount of payment has been
adjusted continuously based on revised unit costs of health
services (Patcharanarumol et al. 2004). For instance, cap-
ital replacement was increased from US$2.19 to 2.24 per
capita per year during 2003 and 2004 (Srithamrongsawat
2004). Capital replacement was based on the capital cost
of depreciable items used for providing services. These
amounts are to save up for replacement of the capital
assets. While there is inflation, accounting-based approach
employing purchase price will understate the amount
required to replace a given asset (Shepard et al. 2000).
While most international publications recommend the
economic-based approach of capital costing (Rehabilit-
ation unit division of health promotion 1997; Creese &
Parker 2000; Shepard et al. 2000; UNAIDS 2000; Edejer
et al. 2003), in Thailand there have been guidelines
recommending the accounting-based approach (Kongsa-
watt 1995; Tisayaticom et al. 2001a,b). If the payment for
capital replacement mentioned earlier was estimated
employing the accounting-based approach, hospitals
would face problems on shortage of budget for purchasing
depreciable goods for substitution. The NHSO might use
the information for budget planning of capital replace-
ment. An additional US$24 596 per year are required for a
district hospital. For high cost care, and accident and
emergency, parts of the budget are managed by the NHSO
regarding hospitals’ reimbursement. Hospitals are reim-
bursed based on cost of services provided. The reimburse-
ment amounts are calculated based on unit cost of services
and quantity of services used by patients. This shows how
unit cost of medical services can affect the national health
insurance scheme. Therefore, the NHSO should provide
practice guidelines for hospital cost analysis.
Conclusion
The appropriate costing methods of unit cost analysis are
proposed as follows. Depreciation cost of buildings and
ª 2007 Blackwell Publishing Ltd
volume 12 no 4 pp 554–563 april 2007
capital items calculated by accounting-based approach
was 13% less than that calculated by the economic-
based approach. If the results were used for price setting
or financial planning, a similar hospital would lose by
US$24 596 per year, whereas the bigger hospitals with
more capital items would lose more. Therefore, the
economic-based approach is more appropriate. When the
useful life of capital items is changed, the capital cost of
hospital changes considerably. Therefore, the appropriate
useful life of all capital items should be studied and
standardized. Regarding indirect cost allocation criteria,
using one output of a supporting or transient cost centre
as indirect cost allocation criteria (then called single-
output criterion) did not have much affect on the change
of unit cost of each cost centre. Given the constraints
and limitations of current practice and knowledge in
Thailand at present, and in terms of efficiency of
analysis, the single-output allocation criterion would
seem to be an appropriate tool. For departmental
allocation method, at the time of this study, micro-
costing method was the most accurate method in
calculating the unit cost of medical services since it could
reflect best the resources consumption. However, the
RVU method would be suitable for calculating the unit
costs, if all services in cost centres had similar cost
drivers. In the future, standard RVUs should be formu-
lated based on the results of the micro-costing method.
Similarly, RCC would be an efficient method after the
prices have been adjusted based on the results of micro-
costing method.
Particularly as regards policy implications, standard
costing methods are needed for implementation and
planning of the national health insurance scheme. This is
because results from hospital unit cost analysis could affect
budget estimation. An appropriate budget would affect
hospital financial management and thus the sustainability
of the national insurance scheme.
Acknowledgements
We would like to thank Dr Prasitchai Mungjit, the
director of Keang-khoi Hospital and the hospital staff for
giving us the great opportunity to study at the hospital,
and the valuable suggestions. We also appreciate the
kind comments of Asst. Prof. Dr Rungpetch Sakulbum-
rungsil, Faculty of Pharmaceutical Science, Chulalongk-
orn University and Dr Usa Chaikledkaew, Faculty of
Pharmacy, Mahidol University for their advice on
improvement of analysis and manuscript preparation,
respectively. We are grateful to the Faculty of
Graduate Studies, Mahidol University for partial
financial support.
561
Tropical Medicine and International Health
A. Riewpaiboon et al. Effect of costing methods on unit cost of hospital medical services
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A. Riewpaiboon et al. Effect of costing methods on unit cost of hospital medical services

Effet des méthodes d’analyse des coûts sur le prix unitaire des services médicaux d’hôpital

objectif L’objectif de cette étude a été d’explorer les variations dans les coûts unitaires des services médicaux d’hôpital selon différentes méthodes de
calcul de coûts utilisées pour l’analyse.
méthodes Etude rétrospective et descriptive entreprise à l’hôpital du district de Kaengkhoi dans la province de Saraburi en Thaı̈lande, au cours de
l’exercice budgétaire de l’année 2002. Le processus a commencé par une analyse des coûts unitaires des services médicaux en situation de base. Ensuite,
les coûts unitaires ont été re-analysés selon diverses méthodes. Enfin, les variations des résultats obtenus à partir des diverses méthodes et de la situation
de base ont été analysées par ordinateur et comparées.
résultats Les coûts financiers totaux, annualisés pour les bâtiments et les équipements, analysés par l’approche de comptabilité (i.e. en étalant la
valeur du prix d’achat sur la durée de vie utile des équipements) était 13,02% inférieure à ceux analysés par l’approche économique (i.e. en tenant
compte des coûts des amortissements et des intérêts sur la valeur fixe des équipements sur leur durée de vie utile). Un changement du taux d’escompte
passant de 3% à 6% mène à une augmentation de 4,76% des coûts financiers totaux annualisés de l’hôpital. Lorsque la durée de vie utile des
équipements durables est fixée à 10 ans plutôt qu’à 5 ans, les coûts financiers totaux annualisés de l’hôpital diminuaient de 17,28% par rapport à la
situation de base. Selon les critères alternatifs d’attribution des coûts indirects, les coûts unitaires des services médicaux variaient sur une échelle allant
de )6.99% à +4.05%. Nous avons exploré l’effet sur les coûts unitaires des services médicaux dans un département. Diverses méthodes d’analyse des
coûts tenant compte des méthodes d’attribution départementales varient entre )85% et +32% comparés à celle de la situation de base. Basé sur l’analyse
de variation, l’approche économique convenait mieux au calcul des coûts financiers. Pour la durée de vie utile des équipements, une durée appropriée
devrait être étudiée et standardisée. Pour les critères d’attribution, les critères à sortie unique seraient plus efficaces que ceux à combinaison de sorties et
compliqués. Pour les méthodes d’attribution départementale, la méthode par microanalyse des coûts était la plus appropriée au moment de cette étude.
conclusions Ces différentes méthodes d’analyse des coûts devraient être standardisées et développées pour servir de directives car elles pourraient
affecter l’implémentation du programme national de la sécurité sociale et de la gestion financière de la santé.

mots-clés méthode d’analyse des coûts, prix de revient unitaire, service médical, hôpital

Efecto de los métodos de cálculo de costes en los costes unitarios de los servicios médicos hospitalarios

objetivo El objetivo de este estudio era explorar las discrepancias, en los costes unitarios de los servicios médicos hospitalarios, debido a la utilización
de diferentes métodos para calcular el coste durante el análisis.
métodos Este estudio descriptivo y retrospectivo se realizó en el Hospital Distrital de Kaengkhoi, Provincia de Saraburi, Tailandia, durante el año
fiscal del 2002. El proceso se inició con el cálculo de los precios unitarios de los servicios médicos como caso base. Después de ello, los costes unitarios
fueron recalculados utilizando varios métodos. Finalmente, las variaciones de los resultados obtenidos a partir de varios métodos y el caso base fueron
computados y comparados.
resultados El coste total del capital por año de edificios y bienes capitales se calculado mediante un enfoque contable (sacando el promedio de los
precios de compra del capital, a lo largo de su vida útil) fue un 13.02% más bajo que el calculado utilizando un enfoque económico (combinación entre
el coste de la depreciación y los interese de la porción no depreciada a lo largo de la vida útil). Un cambio en la tasa de descuento del 3% al 6% resulta en
un aumento del coste total del capital por año del 4.76%. Cuando la vida útil de los bienes durables se cambió de 5 a 10, el coste total del capital por año
del hospital disminuyó un 17.28% con respecto al caso base. En lo que respecta a criterios alternativos de asignación de costes indirectos, el coste
unitario de los servicios médicos cambió en un rango de )6.99% a +4.05%. Exploramos el efecto de los costes unitarios de servicios médicos en un
departamento. Varios métodos de coste, incluyendo métodos de asignación departamental, estaban en un rango entre )85% y +32% comparado con
aquellos en el caso base. Basándose en los diferentes análisis, el enfoque económico era el más conveniente para el cálculo de costes de capital. Para
calcular la vida útil de bienes capitales, se deberı́a estudiar y estandarizar una duración apropiada. En cuanto a los criterios de asignación, aquellos con
un solo resultado (single-output) podrı́an ser más eficientes que los que tiene resultados varios (combined-output) y son más complicados. En el caso de
los métodos de asignación departamental, el método de micro-costes fue el más adecuado al momento del estudio.
conclusiones Estos diferentes métodos de calcular el coste deberı́an estandarizarse y desarrollarse como guı́as, puesto que podrı́an afectar la
implementación de los esquemas nacionales de seguros de salud y el manejo de los presupuestos sanitarios.

palabras clave métodos cálculo de coste, coste unitario, servicio médico, hospital

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