Access to quality care should be a right, not a privilege, but rising medical costs prevent it from becoming a reality. From hospital stays to regular medicine purchases, the rising cost of healthcare is affecting everyone. While the current annual rate of medical inflation in India is 15%, globally, medical expenses have raised by 6.5% in 2022.
This calls for understanding hospital operational costs, as it sheds light on how these costs impact access to quality care. In this article, we discuss the current state of healthcare and hospital costs in India and around the world. Read along to uncover the truth about healthcare operational costs.
Hospital set-up costs in India
Have you ever wondered what drives the sky-high medical bills at hospitals? It’s not just the cost of treatment but also the set-up and operational costs that keep these facilities running.
Several factors, including the location, size and level of care offered, play a role in hospital set-up costs. While land and construction expenses account for 50-60% of the total cost, medical equipment, consumables, and ambulatory services add to the bill.
Setting up a tertiary care super-speciality hospital offering MRI, CT scans, and ultrasound diagnostics can cost anywhere above 70 Lakhs. This includes the out-patient department, in-patient ward, emergency block, diagnostic framework, central sterile supply department (CSSD), ambulatory service, mortuary and a 10% contingency for unforeseen expenses.
Operational costs of hospitals in India
From high-tech medical equipment to the necessary licences and permits, hospital operational expenses are influenced by several factors. These include staffing, utilities, supplies, insurance, etc., required to provide quality healthcare services.
Operational costs of hospitals in India vary with geographical location. The country is divided into three tiers, with tier 1 cities being the most developed and tier 3 cities the least developed. According to a recent study, here’s a rundown of hospital operational costs in each tier.
Hospital operational costs in tier 1 cities
- Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata, Ahmedabad and Pune are considered tier 1 cities in India.
- The cost per bed day in the in-patient department (IPD) in these cities is INR 1569 or 21 USD.
Hospital operational costs in tier 2 cities
- 104 cities—Aligarh, Agra, Bareilly, Lucknow, Varanasi, etc.—are categorised as tier 2 cities.
- The cost per bed day in IPD is highest in these cities is INR 1741 or 23 USD.
Hospital operational costs in tier 3 Cities
- 33 least developed cities are considered tier 3 cities.
- The cost per bed day in IPD was significantly lower in tier 3 cities—₹ 839 or 11 USD.
The ICU bed day cost was highest for hospitals in tier 1 (₹ 5534 or 73 USD) cities, followed by tier 2 (₹5427 or 71 USD) and tier 3 (₹ 2638 or 35 USD) cities.
Hospital operational costs across the globe
The operational costs of hospitals vary widely across the world. Overnight hospital stays in countries like Luxembourg, Norway, Qatar and Switzerland can cost up to USD 2509, USD 1858, USD 1810 and USD 1221, respectively. On the other hand, in the United States, the cost ranges from USD 888 to 14900, depending on insurance coverage.
National healthcare expenses make up 17% of the United States’ GDP, and in India, it is 7% of the GDP. The Commonwealth Fund study found the U.S. healthcare system most expensive among 11 developed countries, yet it ranks last in terms of access, equity and health outcomes.
Reasons behind the rise in healthcare costs
Recent Harvard Business Report indicates an ageing population, the development of new and advanced treatments and the pandemic as major causes. The report also highlights how the current method of measuring hospital costs is flawed and leads to arbitrary cuts in expenses that don’t effectively reduce the real cost of care delivery.
The report further states a new approach to measuring hospital costs by comparing them with patient outcomes. Several institutions have started implementing this new approach and are seeing promising results. These new findings aim to transform the healthcare system by improving the value delivered to patients and making the healthcare system efficient.
4 tips to reduce operational costs in healthcare
With over 81% of executives agreeing that uncontrolled healthcare costs are passed on to patients, cost containment has never been more crucial. Here are four tips to help healthcare organisations implement an effective system-wide cost-containment strategy:
- Improve understanding of organisational costs: Track supply chain costs and utilisation data to gauge hospital performance and guide purchasing plans.
- Build engagement organisation-wide: Create a culture of cost containment that involves all stakeholders to identify realistic and sustainable targets.
- Link labour costs and productivity: Tie labour costs to physician and staff productivity to uncover inefficiencies and allocate resources efficiently.
- Provide robust tools for data-driven decision-making: Give clinical leaders access to accurate cost data and analytics to make informed decisions.
Parting words
With both positive and negative implications, the future outlook for operational costs in the healthcare industry is uncertain and complex. Implementing effective cost-containment strategies can help control costs and improve overall performance. However, with ongoing staffing shortages, inflation and cyber threats, healthcare executives face a challenging landscape likely to drive unexpected costs.
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