Challenges in the Era of Globalization - iaabd

Proceedings of the 12th Annual Conference © 2011 IAABD
Table 2 says that, in all three hospitals, fixed costs exceeded variable costs substantially - more than twice
as much at the mission and district hospitals and more than 13 times as much in the case of the referral
hospital. The implication of our finding for all hospitals is that a reduction in the number of patients
attended to without an adjustment in the structure of hospital costs will lead to technical inefficiency,
Fuchs (1993), Roberts et al. (1999) and Wamukuo and Ntulela (2002). Our findings for the mission and
district hospitals are lower than the 84% reported by Roberts et al. and Wamukuo and Ntulela.
In all cases, the entire labour cost, Personal Emoluments, is virtually fixed and does not depend on the
number of patients attended to. In addition, it is the biggest contributor to total costs, more than 50% in all
cases. Thus, it would appear that, this is the first place to look to, to re-align resource allocations.
The next item with a huge fixed cost component is Item 2: Total Administrative Costs. 97% of this item is
fixed cost in the mission hospital; 98% in the district hospital and 89% in the referral hospital. Given the
composition of this item – depreciation of equipment, equipment maintenance, travel and transport and
utilities, it would appear that hospitals have little room to operate to reduce the proportion of fixed costs.
Thus once again, all hospitals are vulnerable to a drop in the number of patients.
On the other hand, fixed costs make up a smaller proportion of Item 3: Total Services Cost, 10% at both
the mission and district hospitals and 40% at the referral hospital. Thus, this item is the one that is most
directly tied to patient use of hospital services, and hospitals suffer least here if patient numbers fall.
For further insight, we recall the Ghana Health Service (2009) report which speaks to “Inadequate
resources for in-service training, fellowship and other management and leadership training.” The sub-item
training and conferences under Item 3 captures expenditures on the item in question. While it is entirely a
fixed cost, it makes up only 1% of total costs at each hospital. Training and conference attendance helps
practitioners horn their skills and competences for better performance and are necessary.
Fixed and variable costs at intermediate and direct patient-care centres
In Table 3, we present the proportions of fixed and variable costs of each intermediate and direct patientcare
center at each of the three hospitals. In all cases, fixed costs dominate variable costs. The dominance
is least in the OPD. As calculated, the proportion of fixed costs at the OPD is influenced heavily by the
sub-item Drug Consumables (drugs/medication issued to patients), which is entirely a variable cost, and
an overwhelming number of hospital patients are outpatients. It is also influenced by the fact that the
typical out-patient clinic uses few equipment, the main cost being doctors and nurses salaries.
Primary Health Care (PHC) and Pharmacy are among cost centers with the highest fixed costs. While
many outpatients report to the PHC unit for mother and child care, family planning, etc, not much of their
variable costs are reflected here because, in general, they operate under the district and regional health
directorates and receive drugs and other supplies directly from them. These are not reflected in hospital
accounts. In the case of Pharmacies, there is no drug component, a variable cost. However, we note that
on the whole, the cost of running Pharmacies is low, 2.5%, 11% and 8% at the at the mission, district and
referral hospitals respectively.
One also notes that, when cost centers within a hospital are ranked by the percentage of fixed costs, there
are differences in the ranks attained by many centers from one hospital to another. For example,
Radiology is higher than OPD only at the mission hospital, but ranks highest at the district and referral
hospitals, while Children and Maternity wards rank very high at the mission hospital, but not as high at
the district or referral hospitals. This observation lends support to the observation by Steinbrook (1996)
and Woolhandler and Himmelstein (1997) that individual hospitals vary in the relationship between fixed
and variable costs.
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