Cost calculation of a tertiary care referral dental center using activity-based costing method: A case study

Vadde Venkata Naga Sunil; Koneru Mrunalini; Vedati Prathima

doi:10.4103/jiaphd.jiaphd_213_20

ORIGINAL ARTICLE

Year : 2022 | Volume : 20 | Issue : 2 | Page : 168-173

Cost calculation of a tertiary care referral dental center using activity-based costing method: A case study

Vadde Venkata Naga Sunil¹, Koneru Mrunalini², Vedati Prathima²
¹ Department of Oral and Maxillofacial Pathology, Army College of Dental Sciences, Secunderabad, KNRUHS, Telangana, India
² Department of Public Health Dentistry, Army College of Dental Sciences, Secunderabad, KNRUHS, Telangana, India

Date of Submission	01-Dec-2020
Date of Decision	02-Jan-2022
Date of Acceptance	14-Mar-2022
Date of Web Publication	8-Jun-2022

Correspondence Address:
Vadde Venkata Naga Sunil
H.No: 1-4-212/71, Greenpark Enclave, Kapra, Sainikpuri, ECIL Post, Secunderabad - 500 062, Telangana
India

Source of Support: None, Conflict of Interest: None

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DOI: 10.4103/jiaphd.jiaphd_213_20

Abstract

Background: Economic evaluations in dentistry provide policymakers with information to facilitate efficient resource allocation. Dentistry involves multiple activities for one treatment outcome. This original research aims to calculate direct treatment and indirect costs for dental services provided at tertiary care referral dental center. Materials and Methods: The present original study reporting is done based on using the Consolidated Health Economic Evaluation Reporting Standards statement in dentistry, the basic dental services provided are divided into direct (revenue-generating) and indirect cost centers (nonrevenue generating) using activity-based costing (ABC) method. The total cost generated is calculated by aggregating the sum of direct and indirect cost incurred and unit cost is calculated by dividing total cost obtained by the number of units. Data are analyzed using Microsoft Excel worksheet. Results: Cost calculated using ABC method differed significantly from the tariff method. The major cost components varied are human resources (848,000 INR), capital costs (3,008,500 INR), and material costs (200,000 INR). Conclusion: At a tertiary care dental hospital level, we must provide patient's perspective care that is respectful of and responsive to individual patient preferences, needs, and values and ensuring that patient values guide all clinical decisions. By taking correct economic managerial decisions using ABC and budgeting the resources to dental services, the community can approach with true patient costs at an acceptable level of quality and at the least possible cost.

Keywords: Activity-based costing, dental health care costs, human capital, operating cost, patient's perspective care, unit cost

How to cite this article:
Sunil VV, Mrunalini K, Prathima V. Cost calculation of a tertiary care referral dental center using activity-based costing method: A case study. J Indian Assoc Public Health Dent 2022;20:168-73

How to cite this URL:
Sunil VV, Mrunalini K, Prathima V. Cost calculation of a tertiary care referral dental center using activity-based costing method: A case study. J Indian Assoc Public Health Dent [serial online] 2022 [cited 2023 Sep 30];20:168-73. Available from: https://journals.lww.com/aphd/pages/default.aspx/text.asp?2022/20/2/168/346882

Introduction

Economics is concerned with maximizing benefits from the resources available to us and is based on three fundamental principles; scarcity, choice, and opportunity cost.^[1],[2] Economic appraisal, such as clinical evaluation, is concerned with the assessment of performance.^[3] Resources are insufficient to allow the pursuit of all desirable objectives. Any resource allocation decision involves an opportunity cost and the use of resources in one way entails forgoing the opportunity of using them in some other worthwhile activity.^[4] Cost affects utilization, and the high cost of dental care is the primary reason cited by patients for not visiting the dentist. In the Indian scenario, many dental benefits are excluded from health insurance coverage and affordability of dental care to the common man is a daunting task.^[5] Many patients opt for cheaper procedures such as tooth removal instead of exhaustive expensive techniques.^[6] The economic burden of dental diseases is huge due to disparity between public and private sectors spending for comprehensive dental affordable dental care.^[7] Cost containment has emerged as one of the major challenges facing in dental operations. This is in addition to expectations for high-quality results with decreased turnaround times, and increased workloads with a decreased workforce.^[8] Cost analysis represents a necessary phase in their scientific progression. The true costs of dental care services must be known to reserve sufficient resources and use them effectively and efficiently. Conducting cost and performance analysis helps to reduce costs and improves work process. Tertiary care dental treatment falls under the service industry. Costs are traced by activities across departments or cost centers.^[9] Activity-based costing (ABC) solves this problem by estimating the cost of the work activities that consume resources and by linking these costs to the services that are provided. The purpose of this original study is to assess true costs for services using ABC costing method and set an example for user-friendly charges at community level.^[10]

Objectives of a costing system

Utilization of resources^[11],[12]
Fixation of doctor's honorarium
Fixing schedule of charges
Monitoring of factors affecting pricing
Budget allocation.

Materials and Methods

Study design

ABC methodology is employed. The unit cost of dental services and operating costs is estimated. The overall costs consist of the monetary value of the materials, labor, and capital assets used to provide the services.^{[8],[9],[10],[11],[12],} The study is based on consolidated health economic evaluation reporting Standards (CHEERS).^[13]

Study hospital

A tertiary care private referral dental center established in 2001, with the average number of outpatients visiting would be 50 per day was selected. There are about 12 fully equipped dental chairs, one operation theater (OT). The numbers of health care staff employed are 15 doctors, 2 dental technicians, 3 dental hygienists, 1 chair technician, 1 para-medical staff, 1 dental nurse, 1 receptionist, 8 workers, and 1 vehicle driver.

Data collection

A retrospective database analysis was conducted for 1 year (from April 2019 to March 2020), the main sources of data are from the hospital activity and accounting reports. Comprehensive information about human resources was taken from the hospital payroll, data on outpatient visits, admissions were collected from the medical records section. Operating theater statistics were taken from the theater register. Laboratory activity statistics are recorded from the lab register. Annual recurrent expenditures, which included salaries, drugs and medical supplies, laboratory, radiology materials, fuel and lubricants, office supplies, maintenance and cleaning, communications, water, electricity, telephone, and Internet, were collected from the annual expenditure report of the center. The study is exempted from obtaining the institutional ethical committee clearance.

Inclusion criteria

Services provided by tertiary care dental center for which the tariff method followed are included and even capitation methods such as insurance payments, central and state government reimbursement payment schemes such as Ex-Servicemen Contributory Health Scheme, Employees Health Scheme, Employees State Insurance Corporation Aarogya Badratha, Govt. Employee's Health Card Scheme, and Central Government Health Scheme are included in the study (Recognized referral dental center).

Exclusion criteria

Societal and patient individual costs are excluded from the study.

Costing methodology

The term “cost” in this study refers to the economic cost, which is defined as the monetary value of the resources that are consumed to create goods or services.^{[14],[15],[16]}

“Unit cost” is the total cost incurred divided by the number of unit production including goods or services.^[15],[17]

The ABC method is considered an excellent method that can provide entirely and accurately informed about the costs incurred to the result of the product. It is a way of accumulating the total cost by tracking the cost activities that affect the outcome.^[16] Through the ABC method, it can be known how far the maximization of health service enables health-care providers to minimize the costs and maximize the resources so that efficiency occurred [Figure 1].

Figure 1: Flowchart for calculation of Unit Cost

Click here to view

Step 1: The steps are:^{[17],[18],[19],[20]}

Results

During the study, cost recapitulation by usage cost groups in tertiary care dental center is calculated by implying ABC method and tracking the cost activities that affect the outcome.

How many productive hours do we put in?

Public holidays in a year 24
Sundays in a year 52
Conference leaves in a year 15
Vacation leaves in a year 10
Total days on average dentist take off in a year = 101
Working days in a year = 365–101 = 264
Working days in a month = 22.

Calculation of unit cost pools of dental center, April 2019–March 2020

Unit cost:

Unit-level (workforce cost, cost of dental consumables equipment) 24.06
Indirect group (pharmaceutical and equipment cost) 46.42
Batch level (workforce cost) 01.11
Routine expenditure cost 04.01
(Workforce cost) – at organization-sustaining level 24. 40.

Average time taken for each procedure is justified depending on the complexity of the treatment, professional competence, and patient cooperativeness. Considering these factors, a dentist can put in each day and can work on average of 9 h per day including holidays.

Discussion

Dental care presents financial burden and affordability issues in developing economies due to lack of insurance coverage to dental procedures, and almost complete out-of-pocket payments made by citizens.^[2] The total expenditure spent on dental care in the public sector is also limited. Due to the upgradation of medical technology and highly advanced treatment procedures, tertiary dental care becomes very difficult to reach the needy and poor.^[7],[21]

By understanding costs of various activities and services provided in dental hospitals at tertiary care level [Table 1],^{[21],[22],[23]} clinicians can plan and take responsibility to provide the dental services that the community needs at an acceptable level of quality and at the least possible cost to meet these public needs.^[24],[25] Cost analysis is a tool for ensuring economic efficiency.^{[26],[27],[28]} The patient's care needs and utilization patterns affected the subsequent cost for care. This will also influence the decisions of pricing the product and cost control.

Table 1: Classification of cost centers

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In the present study, hospital cost information is derived by relating the inputs of resources in monetary terms to the outputs of services provided; we have calculated the operating costs and unit costs of dental services at a tertiary care referral dental center using ABC method. For this foremost, activity centers are divided into patient care cost centers and supportive cost centers. We have allocated resource costs to activities and categorized into cost pools, cost recapitulation of dental service is classified into a unit, batch, and organizing sustaining level. Moreover, the determination of each cost pool depends on the level of activity and direct or indirect cost of dental service [Table 2].^{[7],[29],[30]} In the present study, capital costs calculated were 3,008,500 rupees and operating cost as 1,048,000 rupees, in contrast, Febrian et al.^[12] showed capital cost as 575,400 rupees and operating cost as 2,251,239 rupees, thus indicating that there is cost-cutting on recurrent expenditures in our present study. The total indirect costs in the present study results to 265,700 rupees in contrast Febrian.^[27] got 454,105 rupees.

Table 2: The basis for allocation of indirect costs to patient care cost centers

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The total full cost incurred in the present study showed 4,322,200 rupees [Table 3] in contrast Febrian.^[27] results showed 2,584,944.75 rupees. Thus, indicating that with low operational and overhead costs we could successfully commission the dental center.

Table 3: Total economic costs of inputs, April 2019 – March 2020

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In the present study shows operating costs incurred for performing the common procedure are as follows: Rotary randomized controlled trial (RCT) 7,624, Re-RCT 10,336, Extraction 1,706, Scaling 3,132, PFM 7,324, and Fillings 1,756 rupees. In contrast, Molete et al.^{[23],[31],[32]} results showed for Fillings 4,932 and Extractions 172 rupees. This indicates that the operating costs are more for Extraction and less for Dental Restoration [Table 4].

Table 4: Average costs of common procedures

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In the present study shows at the unit level which includes both cost pools A (24.06%) and B (46.42%) is the highest among other cost pools with 70.48% includes workforce cost and cost of dental consumables. These findings are in contrast to the results of Febrian et al.^[12],[33] A (81%) and B (1.48%), Chatterjee et al.^[15] the outpatient department (24%), in-patient department (63%), emergency (51%), and major OT (8.6%). In the present study, results showed the percentage distribution of costs for human resources (19.6%), materials (4.6%), equipment (67%), and indirect costs (6.1%); these findings are in contrast relation to the results of Chatterjee et al.^{[15],[34],[35]} showed human resources (41%), materials (39%), equipment (3%), and indirect costs (15%).

Limitations

Annualized unit cost fluctuates every year based on each activity and inflation rate of the rupee^{[36],[37],[38],[39],[40]}
The average cost only concentrated on cost calculation per type of treatment not per case due to the capitation method.

Conclusion

In summary, a major concern in accessing dental services in India is affordability, which is linked mainly to income adequacy and lack of dental insurance. A large proportion of working poor, low-and middle-income populations face these economic barriers and find themselves forfeiting dental care over basic needs such as housing and food. Through eliminating the cost barrier, a universal costing for services has the potential of improving access to dental care for disadvantaged populations. Costing studies for government-funded dental care services are limited. This study clearly shows that ABC calculates real unit costs by including support and administrative costs in the unit-cost information and workload of dental health services at the cost pool level, and what burdens the cost of service so that decision-makers can analyze to make savings, calculate the workload and improve the activity by increasing number of services, and frame costs that can be marginalized to save resources which can be utilized for patient betterment scheme and to provide subsidized care to the poorer section of the society.

Future recommendations

Adopting a proper model to determine the cost price of offered services to patients^{[31],[32],[33],[34],[37]}
Comparing the enacted tariffs method with the ABC method
Standardized activities and appraisal of performance (Benchmarking)
Implement dental hospital budgeting, especially Activity-Based Budgeting.

Financial support and sponsorship

Nil.

Conflicts of interest

There are no conflicts of interest.

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