Variable cost

The paper aimed to estimate the cost of providing health care in district hospitals in South Africa. It is the mandate of the hospitals to ensure quality health care delivery. Primary health care service providers largely depend on the support they get from well established hospitals. A significant portion of government spending is allocated to hospitals as they form an integral component of a well functioning economy and these hospitals consume a large portion of given health care resources.

The paper found out that in developing countries, hospitals consume 50% to 80% of public sector health care resources and 30% to 50% of the total health care resources. At district level hospitals consume approximately 70% of health facility expenditure. The paper indicate that health care resources are scarce hence the need for an efficient allocation (Shepard et al, 2000).

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There is high information asymmetry on the part of costs associated with the provision of health care services especially in developing countries and this therefore constraint the process of policy making and the processes of any other interested stakeholders (Flessa and Dung, 2004 , Adam et al 2003) In South Africa, the health care sector experienced major policy changes due to changes in political framework.

According to Mjekuvu (1995), the new government of SA had a great task of rebuilding the health sector which it inherited in a disgraceful state and thus as a stepping stone adopted the primary health care approach with the chief corner stone being the district health system. The major constraint in this development around year 2000 was limited financial resources and this slowed the refurbishment of municipality hospitals into new ones with a newly elected administration.

The paper indicates that the cost of health care services in both the private and public sectors in SA have been very high with a gradual increase to unbearable levels for a number of years (Goudge, 1999).

According to the World Health Organisation, the year 1992 to 1993 saw a poor delivery of health care services in SA despite the fact that eight comma four percent of its GDP was spent on the health sector. Boulle et al, (2000), shows that hospital services in SA around this period was generally characterised by high costs, inefficiency, poor access, poor equity and high inequality gaps. The health care sector in SA heavily rely on the district hospitals for effective health care delivery but there is no information as to the costs involved in running these district hospitals.

The objective of the paper was necessary to serve as a guideline to policy making, assessment of the performance of district hospitals and improvement of the quality of health care provided. The methodology employed in this paper was relevant to the area of study though it may give biased results due to its failure to capture all relevant players in the health care sector . The paper made use of data obtained from published reports of the department of Health, Pretoria and SA Health Review 2000 (Department of Health, 2002).

The paper intentionally selected five district hospitals from four provinces and this was done to allow for comparability across the country, to ensure selected hospital were providing the acceptable health care package in SA and to include both urban and rural settings. The district hospital costs were allocated using the ingredients approach that combined a top down method and step down sequence. All the costs in the treatment of patients were grouped into six centres which are buildings, drugs, equipment, materials, personnel and utilities.

The unit costs were then broadly grouped into two categories using the hospital departments (fixed and variable costs) and input use (direct and indirect costs). The results in table 1 show that between 1996 and 1999, expenditure on hospitals in SA was gradually increasing from 59% in 1996 to 61. 3% in 1999.

This gives an average expenditure of 60% as compared to an average expenditure of 40% on non hospital health care providers during the same period. The hospitals were responsible for a significant portion of the SA budget during this period but suffocating other non hospital health care providers.

Health care expenditure on hospitals is further illustrated by table 2 which shows total public expenditure on hospitals in SA. The hospitals are divided into district, regional, tertiary and other hospitals. The results show that expenditure on district hospitals, which was at least 30. 5%, was responsible for the largest proportion of the total public expenditure on the various categories of hospitals between 1996 and 1999. Bed per population ratio is one critical rating of hospitals.

In SA during the same period the district hospitals which accounted for 38% of the public sector hospital had 1. 08 beds per hundred population which is not desirable hence depicting poor service delivery. The information given in table 4 shows that the five district hospitals selected had no or limited specialist services and some had one or very few number of doctors again indicating possibility for poor service delivery. A detailed breakup of the total costs of district hospitals is given in table 5 which gives the cost centre against the hospital.

The six cost centres selected are buildings, drugs, equipment, materials, personnel and utilities. The results show that there was a wide variation in the total costs of the district hospitals ranging between R7 million (Harrismith) and R37. 8 million (McCord) with an average of R22. 9 million. In all the selected hospitals, personnel were the most costly centres responsible for between 72. 4% (Barberton) and 81% (Harrismith). Personnel costs had an average of 76. 5% followed by materials with an average of 8. 7% and buildings are the least accounting for only 1.

6% on average. The cost of building is relatively low because the costs are somehow fixed unlike all other areas which have recurrent expenditures. Drugs, utilities and materials are in the middle range accounting for averages of 4. 4%, 3% and 5. 8% respectively. Of all the hospitals, McCord had the highest total cost of R24. 4 million and this is because of relatively high costs in utilities and personnel. Closely following is Barbaton with a total cost of R23. 1 million and this is attributed to high costs in materials and personnel.

Even though Harrismith had the highest cost in personnel it ended up with the least total of costs of R7 million while the rest have totals in twenty millions of rands. There is an uneven distribution of costs in Harrismith hospital. District hospitals are therefore more costly in terms of personnel. The unit costs of district hospitals are by department or input use. The analysis made in table 6 of the paper is departmental based. The inter link between fixed and variable costs determine the unit cost of district hospitals by department.

From the results in table 6, Osindisweni was the cheapest hospital using unit cost and McCord was the most expensive hospital. Fixed costs were the highest expenses in all the hospitals. Table 7 in the paper gives unit costs of hospitals by input use and divided into direct and indirect costs. Most of the expenses in all the hospitals were direct expenses with indirect expenses accounting for a relatively lower percentage. An over view of the paper (and limitations of the findings of the paper) * District hospitals account for the largest proportion of the total public expenditure on hospitals in SA.

* Personnel costs spend in running district hospitals were more than 72% which is generally higher than the 68% recommended in order for sufficient funds to be available for other necessary hospital expenditure. In this research Malawi is the only country with favourable personnel costs of 15% to 18%.

* The cost of drugs was too low. This is because provision of drugs is a primary objective of many district hospitals. According to the paper the cost of drugs at 3% to 6% in SA were much lower as compared to Malawi, Vietnam and Pakistan.

* The bed per population in the district hospitals was 1.08 beds per 1000 which is below the recommended 2. 64 beds per 1000 in SA. District hospitals accounts for 30% of total beds in the health care sector. The bed per patient ratio is a measure of quality hence unsatisfactory delivery in district hospitals.

* The bed occupancy rates were also lower than the recommended optimum for the country indicating inefficiency due to underfunding or overstaffing. The optimum bed occupancy rate for Sais 80% however no hospital managed to hit the target which indicates an under performance of district hospitals.

* There is need for policy makers to ensure an efficient and equitable distribution of health care resources between the private and public sector. According to the paper, health care resources are still skewed towards the private sector which caters for less than 20% of the population but accounts for 60% of the total health expenditure (Goudge, 1999).

* The methodology used in this paper may have affected the outcome of the paper. The secondary data used was only for five district hospitals yet the activities of all other district hospitals were left uncaptured yet necessary for reliable findings.

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