The determination of cost drivers of three public district hospitals in the Western Cape
Thesis (MBA)--University of Stellenbosch, 2010.
The aim of this research report is to identify and quantify the cost drivers of three district hospitals in the Western Cape, namely Knysna Hospital, Oudtshoorn Hospital and Mossel Bay Hospital, and to simultaneously measure value-driven performance indicators. An environmental scan identified various driving forces that would significantly affect change in the healthcare industry such as the brain drain of health professionals, consumerism and cost containment and efficiency initiatives. The Department of Health’s understanding of the eighth Batho Pele principle of value for money is generally understood as providing quality health care within prescribed cost limits. An attempt is made to establish the effect of the quadruple burden of disease (the HIV/AIDS pandemic, persistent infectious diseases, injury arising from violence and road traffic collisions and emerging chronic conditions) on hospital expenditure in the Eden District. Research identified Mossel Bay as a high TB burden area known as a TB “hotspot” and it is a recognized immigration transit point en route to Cape Town. The population analyses revealed that Mossel Bay is the growth point of the Eden District, showing extraordinary growth of 25% between 2007 and 2009. Personnel costs: This study revealed that personnel costs are responsible for the overwhelming majority of the total expenditure of the district hospitals.Staff numbers, occupation specific dispensation (OSD) implementation and annual wage negotiations are the cost drivers of personnel costs. This study also found a clear correlation between an over-expenditure in personnel expenses and over-expenditure in the total expenditure of all three hospitals. Health care costs: Expenditure on blood products is considered a major cost driver of clinical expenses. Laboratory expenditure is clearly the largest cost driver for clinical expenses at all three hospitals. Together with laboratory expenses, medicine and medical supplies are the cost drivers for clinical expenses. Costs not related to health care: The three most significant administrative expenses are communication, stationery and printing as well as travel and subsistence allowances. The cost driver for subsistence and travel expenses is the number of vehicles followed by the preference of vehicle, which in turn determines the daily tariff and the kilometre tariff. This study revealed that Knysna Municipality has the cheapest electricity cost of the three towns. It is clear that cost and consumption of electricity and water are the two variables that affect municipal service expenditure the most. Equity: When the district hospital expenditure is combined with the primary health care expenditure in the three sub-districts, the figures show that Oudtshoorn is spending 3% more than its equitable share of the total budget at a higher cost of R978 per capita, in excess of R100 above the district average. Efficiency: The cost per patient day equivalent (PDE) per economic classification for all three hospitals is less than the average cost per PDE of the district hospitals in the Western Cape. The cost/PDE of Oudtshoorn Hospital is considerably higher than that of Knysna and Mossel Bay in all economic classifications, with the single exception of the agency cost of Mossel Bay Hospital. The cost of health care always reflects a combination of price, quantity and value, and it is impossible to consider individual cost drivers in isolation. Several cost-saving initiatives and managerial control measures are recommended.