Concept: Hospital Care Cost Index

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Concept Description

Last Updated: 2007-03-07

    This concept describes a method of hospital costing using a Hospital Care Cost Index. NOTE: For an overview of general costing methods (sources of data, types of costs, and approaches) and the methods of costing specific health services (hospitals, physicians, home care, personal care homes and pharmaceutical/prescription drugs) that have been used in MCHP research over time, please see the Costing Methods: An Overview of Costing Health Services in Manitoba concept.

    In the absence of elaborate cost accounting systems, tracking the cost of care provided to people in hospital is a formidable task. The cost of each discrete service provided and good consumed would need to be recorded and summed to identify the unique cost of hospital care for an individual case. For example, a typical surgical stay for a person may involve the following types of costs: pre-surgical preparation (including opening a chart, nursing time, pre-op diagnostic work, IV), the surgical procedure (surgeon's time, anaesthesiologist's time, nursing time, operating suite time, anaesthetics, consumables such as sponges, dressings, single use items) and post surgical care (including nursing time, drugs, dressings). While there are several alternatives to this type of micro-costing, for many situations the use of standard costs is the best alternative. However, even the development of standard costs is data and labour intensive. As a result, standard costs are not calculated each year. Using a Hospital Care Cost Index it is possible to apply standard costs from one year to another.

    The Hospital Care Cost Index is an attempt to mitigate the hours of work required to develop a costing system that can be used for multiple years of Manitoba hospital cost data analysis. The Index allows us to estimate what the current dollar costs would be if all service costs were measured against the costs determined for a specific year.

    The Hospital Care Cost Index works with a set of case costs already developed by MCHP. A complete list of individual case costs is available from the Cost List for Manitoba Health Services report. This list contains a cost per case for each Refined Diagnosis Related Group (RDRG)® based on 1993/94 data, and is integral to the use of the Hospital Care Cost Index.
Developing the Index
    To come up with the index, several sources of cost data were investigated. These included:

    The last source of cost data was selected as the basis for the cost index multiplier because it is directly related to hospital expenditures, it is based solely on Manitoba expenditures, and it reflects the changes made to the health care system in Manitoba (i.e.: shows the decrease in expenditures resulting from cutbacks made in 1996 and 1997).

    The "All Expenditures" version for this information was selected instead of the "Public Expenditures" version because patient services revenue are not netted against costs when determining the case cost in the Manitoba Cost List.

    The index is derived from CIHI-reported data on hospital costs. Total expenditures on hospital care are reported by province and year, in current dollars. The index is calculated by dividing total expenditures for hospital care in Manitoba for the year of interest by the total hospital expenditures for Manitoba in the base year (1993). This approach allows any year to be selected as the base year, but the index presented here uses 1993 as this was the year in which the standard costs were calculated for the RDRGs®. Researchers requiring a more precise index may want to consider standardizing expenditures to the population utilizing hospitals. This index reflects only changes in levels of expenditure, not changes in utilization.
The Hospital Care Cost Index
    The following table presents the Hospital Care Cost Index for different calendar years and the corresponding index multiplier.
    Note: This table was last updated with information from December 2, 2005.
    Calendar Year Index Multiplier
    1990 0.94520
    1991 0.94815
    1992 1.00120
    1993 1.00000
    1994 1.00709
    1995 1.01595
    1996 0.96279
    1997 0.98369
    1998 1.03480
    1999 1.10238
    2000 1.17997
    2001 1.28300
    2002 1.37139
    2003 1.47707
    2004 1.58627
    NOTE: The Hospital Care Cost Index is standardized to the 1993 calendar year, and all multipliers are based on a calendar year, rather than a fiscal year.
How to Use the Index
    These values can be used to adjust the 1993/94 case costs as reported in the Manitoba Cost List to other years by multiplying the 1993/94 values by the index multiplier for the appropriate year. For example, if the hospital cost per case in 1993/94 was $1000, the cost of the same care in 1990 would be $945.25. This new value provides the cost in current dollars that result from applying the same cost list to all years. The index could also be applied to the CMG™-based average cost per weighted case (CWC) values that have been reported by MCHP for 1995/96 and 1997/98, although it would be necessary to adjust the index to the appropriate reference year.
Notes / Cautions
    • The hospital expenditure amounts include both inpatient and outpatient services, so if there was a shift in delivery from inpatient to outpatient, the values will be off.

    • The hospital expenditure amounts also include items that were excluded from the calculation of the case cost (i.e.: capital costs, education programs, and hospital-paid physicians), so any change in these costs will impact the overall value.

    • When designing studies, it is important for the researcher to consider whether current or constant values are the most appropriate.

    • Application of the index is only appropriate for situations in which the use of standard costs is appropriate. It is important for a user of the index to understand that standard costs are the average cost for a particular type of hospital stay, and are not necessarily reflective of an individual case, or even a group of cases that may have characteristics that are different from that of the average.

  • Consumer Price Index (CPI) data from StatsCan

    • Table 326-00021,2,3,4,5 - Consumer price index (CPI), 2001 basket content, annual (Index, 1992=100)

    • CANSIM II SERIES V738535
      • TABLE NUMBER: 3260002
      • Data Sources: IMDB (Integrated Meta Database) Numbers: 2301 - Consumer Price Index
      • CANSIM I Series Number: P207085

    • CANSIM II SERIES V738540
      • TABLE NUMBER: 3260002
      • Data Sources: IMDB (Integrated Meta Database) Numbers: 2301 - Consumer Price Index
      • CANSIM I Series Number: P207090

    • CANSIM II SERIES V738536
      • TABLE NUMBER: 3260002
      • Data Sources: IMDB (Integrated Meta Database) Numbers: 2301 - Consumer Price Index
      • CANSIM I Series Number: P207086

    • CANSIM II SERIES V738538
      • TABLE NUMBER: 3260002
      • Data Sources: IMDB (Integrated Meta Database) Numbers: 2301 - Consumer Price Index
      • CANSIM I Series Number: P207088

  • Hospital expenditure data from CIHI

    • Health Expenditure by Use of Funds, by Year, by Source of Finance, by Province/Territory and Canada - 1975-2003 - Current Dollars - (Manitoba, Hospitals) - Run Date:04-09-25

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  • Jacobs P, Shanahan M, Roos NP, Farnworth M. Cost List for Manitoba Health Services. Winnipeg, MB: Manitoba Centre for Health Policy and Evaluation, 1999. [Report] [Summary] (View)


  • Accounting
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