Dr Sayf Abdelrahman

In today’s healthcare industry, hospitals are facing immense pressure to reduce costs while maintaining the highest level of care for their patients. However, reducing costs without a proper costing methodology can lead to disastrous consequences. This is where Activity-Based Costing (ABC) comes in as the cornerstone of hospital cost strategies, stated Dr Sayf Abdelrahman, CEO, Topmed (Health Catalyst Exclusive Service Partner), MENA Region at Elets Global Healthcare Summit & Awards in Dubai. Edited Excerpts:

He explained, “Activity-Based Costing (ABC) is a cost analysis methodology that enables hospitals to allocate resources more accurately, reduce indirect costs, and improve financial performance. More than 90 per cent of hospitals miss out on this methodology, which is crucial for their success. Hospitals that have implemented ABC costing have seen significant improvements in their financial performance. For instance, a hospital in the United States implemented ABC costing and reduced their lab services’ costs by 20 per cent, resulting in annual savings of $200,000. Another hospital in Singapore implemented ABC costing and adjusted its pricing, increasing revenue by $2 million annually.”

ABC costing allows hospitals to identify the costs of specific procedures and services and allocate resources accordingly. It is crucial for hospitals to implement this methodology to improve their financial performance while maintaining high-quality care for their patients.

He added “In a medical center, the cost of procedures can vary depending on various factors. Two examples of procedures are Renoscopy and Gastric Sleeve Gastrectomy. The median price for Renoscopy is $6,700, and 130 cases have been reviewed based on the calculation. There is an opportunity to save costs by pushing the consumables toward the median. For example, if we set a target to reach an average of $6,700 for each case, we can reduce costs and save $1.5 million.”

The same approach can be applied to other procedures such as Gastric Sleeve Gastrectomy. The goal is to aim for the cost of the median to achieve cost savings. If a procedure has higher expenses than normal, a team consisting of finance, the medical department, and other stakeholders should review the case to understand why the costs are higher. This review process can lead to improvements in performance and cost savings.

“A case study of a medical center with four branches in Saudi Arabia was able to reduce costs significantly by reviewing consumables and implementing a costing strategy. The perception that more procedures lead to more profit was not always true, and the lack of a costing system was a significant factor in the loss of income. A costing strategy that tracks every item, activity, and procedure can help determine if there is a profit or loss in a department or operation. It is also essential to include indirect costs and overhead when making decisions about cost savings”, he concluded.

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