Cost accounting project report - CT & MRI Scan Analysis at a Superspeciality hospital

SUBMITTED BY:
WMP 11011 Bhawna Shrivastava
WMP 11003 Alok Goel
WMP 11002 Aditya Kumar
Note – This document is highly confidential and is not meant to be circulated without
prior written permission from the above authors.
Cost Analysis of CT scan and MRI at
Excel Super-Specialty Hospital, Ghaziabad
Management Accounting Project

1
CostAnalysisofCTscanandMRIatExcelSuper-SpecialtyHospital,Ghaziabad|WMP11
Cost Analysis of CT scan and MRI at Excel Super-
Specialty Hospital, Ghaziabad
Management Accounting Project
1. ABSTRACT
Economic constraints are one of the major limitations on the quality of health care even in
India’s urbanized cities. Quality improvement demands optimizing the existing facilities
within available resources. In addition, the cost of medical services has risen dramatically
in the past decade. This has laid a lot of importance to understand the actual cost of
providing medical services.
Radiology, which is an integral component of diagnostic modalities in a tertiary setting.
With more patients availing these services at tertiary care hospitals, thus with this study,
we strive to assess the cost analysis of MRI and CT scan radiology services at a tertiary
care hospital.
The Department of Radiology at Excel Super Specialty Hospital offers a comprehensive
range of highly sophisticated imaging tests that are conducted in a welcoming
environment that focuses on quality and patient comfort. The hospital administrators are
seeking newer methods and tools to control costs without affecting the quality of patient
care.
A prospective study for a period of one month was carried out for calculation of unit cost of
radiological investigations - CT scan and MRI. Unit costs were computed under direct and
indirect costs. The actual cost incurred by the hospital on CT scan was Rs.2339.52 and MRI
Rs.3924.40. However, in the hospital patients are charged Rs.4500 for a CT scan and
Rs.7000 for MRI. There is a profit of Rs.2160.48 on CT scan and Rs.3075.60 on each unit
of MRI which contributes towards hospital development, expansion and stockholders
equity.
2. INTRODUCTION
Cost control is a series of steps that a business uses to maintain proper control over its
costs. Implementing this level of control can have a profound positive impact on profits

2
over the long term. It is well known that there has been a dramatic increase in cost of
medical technology over the past decade which has led to an overall increase in healthcare
cost. This cost control analysis is not aimed to trim the quality or quantity of services
provided to a patient, rather it is aimed at increasing the performance efficiency of the
entire radiology department. Cost analysis also helps in assessing the efficiency and
effectiveness of each component (functionary) in the production process (in this case
radiology tests – CT scan and MRI) and their cost implication with a vision to contain cost.
Administrators in the healthcare sector are looking for newer tools to control costs without
affecting the quality of patient care. The knowledge of unit cost is required to assist
planning for recurrent budget as an indicator of efficiency and to enforce pricing of
services. With advancing technology, the imaging equipment is very complex now than
ever and the available choice is extensive. The newer imaging technologies, CT scan and
MRI are replacing older ones in the evaluation of patients. Since the CT scan and MRI are
costly investigations and an important component of patient care, hence attention should
be focused on cost control and quality of these investigations.
2.1 SALIENT FEATURES OF THE ORGANIZATION
Excel Super-Specialty Hospitals, Ghaziabad has been a name synonymous with advanced
and world class patient care in the NCR region of Delhi. The hospital had a humble
beginning around 20 years ago at Nehru Nagar, Ghaziabad. The institution has now grown
to become a major tertiary care healthcare provider to all walks of life in the region. At
present, Excel Super-Specialty Hospitals operates from two locations, Nehru Nagar with
300 beds and Kaushambi with 100 beds in Ghaziabad which are easily accessible by road
and rail.
Excel Super-Specialty Hospitals has laid a lot of emphasis on offering and delivering world-
class patient care services In addition to all general specialties, it has varied range of
Super-Specialty services like Cardiology, Endocrinology, Gastroenterology, Nephrology,
Neurology, Pulmonology, Urology, Neurosurgery, Plastic and Reconstructive Surgery. The
center at Nehru Nagar has in addition fully operational Nuclear Medicine department and a
state of the art Cardiac Cath Lab for Interventional Cardiology and Cardiothoracic and
Vascular Surgeries. It also has state of the art world class seamless operation theatre

3
complex with HEPA filters and laminar flow. Both the institutions have constant support
from well qualified and professional Consultants, Residents, Nurses, Technicians,
Administrative and Support staff. The hospitals have well equipped critical care units and
hemodialysis facility. The hospitals have its own fleet of ambulances including ICU
ambulances for transportation of critically ill patients.
Both institutions have advanced diagnostic facilities including CT scan, Ultrasonography,
Mammography, Routine Radiology, ECG, EEG, NCV & EMG, TMT, ECHO, Color Doppler,
Holter Monitoring, PFT, and Diagnostic Endoscopy. Fully Automated pathology,
Microbiology, Cyto & Histopathology. In addition, Nehru Nagar center has MRI and Nuclear
Medicine facility. Both institutions have Blood Banks and Component services. Nehru
Nagar, in addition has Apheresis Unit.
Excel Super-Specialty Hospital, Kaushambi became operational in the year 2006 with 100
beds to cater for the healthcare needs of the population residing in the area adjoining
Delhi. The facility was created to provide comprehensive medical care under one roof while
maintaining the highest standards of medical excellence.
Excel Super-Specialty Hospitals have designed comprehensive preventive healthcare
packages covering the varied requirements of all age groups. The Health check-up
packages are flexible enough to accommodate the specific requirements and can be tailor
made to suit particular organization. It also provides pre-employment health checks at
affordable costs.
Excel Super-Specialty Hospitals are an ISO 9001: 2008 certified organizations and
Kaushambi has been accredited with the highest recognition for hospitals in India from
NABH. The institution has carved a niche in short span of time and is rendering yeomen
services to the community.
3. OBJECTIVE
To find out and analyze the Unit Cost of CT scan and MRI investigations at Excel Super-
Specialty Hospital, Ghaziabad. Unit cost is an important tool for Hospital Administrators in
planning of services and pricing to fix the user charges.

4
4. FLOW CHART OF OPERATIONS AT RADIOLOGY DEPARTMENT
The flow of operations for a patient who requires radiology services at Excel Super-
Specialty hospitals is shown below -
Physician prescribes scan on consultation slip
/ physician order form
Physician
Order Form
If
Inpatient
Ward Nurse raises order in the system to the
radiology department
Patient / Relative goes for
billing at billing desk
Radiology receptionist / coordinator checks
the schedule and gives time to the patient
Radiology
Schedule
Patient wheeled in by the transportation staff
Scan is performed
Patient leaves after scanning
Reports are prepared (analyzed & typed) and
handed over to the patient and treating
doctor is informed
Next step of care is advised
by the doctor

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5. MATERIALS AND METHODOLOGY
5.1 SOU RCES OF DATA
5. 1.1 PRIMARY DATA
Interviews with the staff and supplemented by observational study conducted over four
weeks’ time in the month of October & November 2015 carried out in radiology
department of Excel Hospital, Ghaziabad.
5. 1.2 SECONDARY DATA
Sample records of radiology department, accounts department, and maintenance
department, stores, and purchase department provided by the hospital.
5.2 METHODOLOGY
We have followed the activity based costing (ABC) methodology. To start off, we found out
input resources cost and resources drivers. Next, we found out the activities involved in
each radiology procedure and identified the cost drivers. We then calculated the overhead
rates and allocated these overheads to procedure/job based on number of scans
performed. Since activities consume resources and their costs while products consume
different level of activities. So costs are traced to activities to job, based on the demand for
these activities during the job process.
The required inputs for the costing analysis were obtained through direct observation,
interviews with staff of radiology department and inspection of documents maintained.
Cost inputs were initially divided into direct and indirect costs and further divided into fixed
and variable cost. Total cost for functioning of the each procedure was divided by the total
number of procedures performed to arrive at the cost per unit procedure.
Subsequently, break even analysis was performed to determine the breakeven volume i.e
the number of procedures to be performed beyond which all marginal contributions
(Revenue-Variable cost) will represent income for the hospital.
5. 2 .1 UNIT C OST O F CT SCAN (ABDOMEN)
 Direct labor cost includes salary of actual staff working in CT section of Radio diagnosis
department. The staff includes 2 nos. of CT technicians. The total direct labor costs for
CT abdomen for the study period was Rs.6,00,000 which was 6.72% of total cost.

6
 Indirect labor cost or wages and salary for common staff includes 1 HOD, 1 radiologist,
1 staff nurse, 2 ward boys, 1 receptionist with total wages of Rs.4,23,6000 of which
Rs.19,42,827.07 was apportioned to CT scan which was 21.77% of total cost.
 Material cost which includes cost of CT film, film processing chemicals, film covers and
other stationary items was Rs.149 per scan which was 6.11% of total cost.
 Machine depreciation & maintenance cost: The purchase cost of CT scan machine
commissioned in 2010 was Rupees 1,50,00,000. The equipment would depreciate at
the rate of 10% per year with a straight line method. The annual AMC cost was
11,25,000. Thus, the total annual cost of machine maintenance and depreciation
came out to be Rs.26,25,000 which was 31.87% of total cost.
 Electricity cost includes cost of electricity consumption of machine and developer
during exposure time was Rs.259250 and during standby was Rs.150000 which was
4.58% of total cost.
 The total overhead cost which includes total telephone charges (Rs.36,000), total
internet charges (Rs.14,400), total fuel for generator (Rs.2,08,000), total printing and
other stationary (Rs.12,000), total linen and laundry supplies (Rs.6,000), total overhead
electricity (Rs.4,50,000) was Rs.7,26,400, of which Rs.3,33,160.90 was apportioned to
CT scan which was 3.73% of total cost.
 Facility cost: The rental value and housekeeping cost for the one year was
Rs.44,20,000. Of this, Rs.13,26,000 was directly allocated to CT scan on the basis of
sq.feet area used. Also, Rs.9,21,778 for facility and maintenance were allocated to CT
scan from the common area cost. Total facility cost for CT scan is Rs.26,89,778 which
was 14.86% of total cost.
Direct Material,
6.11
Electricity for
Exposure, 2.9
Direct Labor, 6.72
Depreciation,
Machine
Maintenance &
Insurance/Scan,
31.87
Electricity for
standby, 1.68
Common Area
cost, 10.33
Rent, Building
&
Maintenance,
14.86
Wages &
Salary, 21.77
Other
Overheads,
3.73
Cost Analysis - CT Scan

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5. 2 .2 UNIT C OST O F MRI
 Direct labor cost includes salary of actual staff working in MRI section of Radio
diagnosis department. The staff includes 2 nos. of MRI technicians. The total direct
labor costs for MRI for the study period was Rs.7,20,000 which was 5% of total cost.
 Indirect labor cost or wages and salary for common staff includes 1 HOD, 1 radiologist,
1 staff nurse, 2 ward boys, 1 receptionist with total wages of Rs.4,23,6000 of which
Rs.22,93,172.93 was apportioned to MRI which is 16% of the total cost.
 Material cost which includes cost of CT film, film processing chemicals, film covers and
other stationary items was Rs.214.29 per scan or 5% of total cost.
 Machine depreciation & maintenance cost: The purchase cost of MRI machine
commissioned in 2010 was Rupees 450,00,000. The equipment would depreciate at
the rate of 10% per year with a straight line method. Thus, the total annual cost of
machine maintenance and depreciation came out to be Rs.51,20,000 or 44% of the
total cost.
 Electricity cost includes cost of electricity consumption of machine and developer
during exposure time was Rs.1092000 and during standby was Rs.1425600 which was
12% of total cost.
 The total overhead cost was same as CT scan at Rs.7,26,400, of which Rs.3,93,239.10
was apportioned to MRI which is 3% of the total cost.
 Facility cost: The rental value and housekeeping cost for the one year was
Rs.44,20,000. Of this, Rs.13,26,000 was directly allocated to MRI on the basis of
sq.feet area used. Also, Rs.8,46,222 for facility and maintenance were allocated to CT
scan from the common area cost. Total facility cost for MRI scan is Rs.21,72,222 or 9%
of the total cost.
Direct Material
5%
Electricity for
Exposure
2%
Direct Labor
Depreciation,
Machine
Maintenance &
Insurance/Scan
44%
Electricity for
standby
10%
Common Area
cost
6%
Rent, Building &
Maintenance
9%
Wages & Salary
16%
Other Overheads
3%
Cost Analysis - MRI

8
6. UNIT COST ANALYSIS
6.1 BASIC INFORMATION OF MRI & CT SCAN (all cost in Rs.)
MRI CT Scan
Yearly Volume 3360 3660
Volumes/month 280 305
Avg. time/procedure (minutes) 45 35
Total machine hours/month 210 178
Total machine hours/year 2520 2135
Machine hours available/year
25 days @ 10 hours/day =
3000
25 days @ 10 hours/day
= 3000
Idle Time/year 480 865
Capacity Utilization 84% 71%
Avg. per unit revenue 7000 4500
Revenue/month 1960000 1372500
AREA USED BY EACH PROCEDURE
Scan Room(21.6*13.4 ft.) 286.595
Equipment room (11*11.6ft) 126.5
Console Room(12*08 ft.) 96
Changing room(06*08 ft.) 48
Total 557.095
6.2 ELETCRIC POWER U SAGE ANALYSIS (all cost in Rs.)
MRI CT Scan
Load details
Exposure Load @65 KWH
and machine standby load
@ 45 KWH
Exposure Load @90
KWH and machine
standby load @ 05 KWH
Machine Hours
Capacity 3000 3000
Actual use 2520 2135

9
Idle time 480 865
Procedure time
Exposure time (mins) 30 5
Machine Standby
time (hours)
840 1830
Total standby and
idle time
1320 2695
Electricity bill for exposure time 1092000 274500
Electricity bill for Non-exposure time &
Standby time
594000 134750
Machine standby time for other then
use
75600 NA
Variable electricity cost 336000 259250
Fixed electricity cost 1425600 150000
Total Electricity bill 1761600 409250
Total electricity cost/scan 524.29 111.82
6.3 COST BREAK-UP
6. 3.1 DIRECT C OST
6. 3.1.1 Variable Cost
Direct Material per scan (all cost in Rs.) Total per unit cost (MRI)
Total per unit cost
(CT Scan)
Filmprocessing chemicals
(3 nos. @ Rs.12/film)
36.00 NA
MRI/CT Scan films
(3 nos. films @ Rs.60/film)
180.00 NA
Filmprocessing chemicals
(2 films @ Rs.12/film)
NA 24.00
CT films (2 nos. @ Rs.60/film) NA 120.00
Report Envelopes (@ Rs.5/film) 5.00 5.00
Direct Material per Scan 221.00 149.00

10
Electricity cost per scan (all cost in Rs.) MRI CT Scan
Electricity consumption during exposure 336000.00 259250.00
Variable electricity cost/Scan 100.00 70.83
6. 3.1.2 F ixed C ost
Since in radiology labs, we have to hire technicians on permanent basis, so we have taken this cost
as fixed.
DirectLabor per scan (all cost in Rs.) MRI CT Scan
MRI Technician Annual Cost
(2 nos. @ 30,000/month)
720000 NA
CT Technician Annual Cost
(2 nos. @ 25,000/month)
NA 600000
Total Direct Labor 720000 600000
Labor Cost/Scan 720000.00/3360 600000.00/3660
Labor Cost/Scan
(allocated on no. of scans)
214.29 163.93
Depreciation & machine maintenance
and insurance (all cost in Rs.)
MRI CT Scan
Cost of the machine 32500000.00 15000000.00
Yearly AMC cost @7.5% of machine
book cost
2437500.00 1125000.00
Maintenance cost of non-medical
Equipment
20000.00 20000.00
Insurance cost of the scan Dept. 600000.00 199500.00
Depreciation SLM (Life of 10 Years) 3250000.00 1500000.00
Total 6307500.00 2844500.00
Depreciation & Machine Maintenance
Cost/machine hour (Actual use)
2502.98 1332.32
Cost/Scan 1877.23 777.19

11
Fixed Electricity costper scan
(all cost in Rs.)
MRI CT Scan
Electricity consumption during standby 1425600.00 150000.00
Fixed electricity cost/Scan 424.29 40.98
6. 3.2 INDIRECT F IXED C OST
Since in these radiological procedures all indirect cost will have to be borne whether or not
there are any units of scans performed, so we have categorized all indirect costs as fixed
costs.
6. 3.2.1 F acility C ost
FACILITY COST (all cost in Rs.)
Total facility area (sq. ft.) 2000
Annual allocated rent of ready building (@180/sq. ft.) 4320000.00
Annual cleaning cost (housekeeping) insidedepartments 100000.00
Total Annual Cost 4420000.00
Cost of Rent & maintenance per sq. ft. allocated on total area 2210.00
Facility Cost Apportionment MRI CT Scan Common Area
Area for facilities 600.00 600.00 800.00
Cost allocated to departments 1326000.00 1326000.00 1768000.00
Total Facility Cost/Scan 394.64 362.30 -
Allocation of common area cost
Common area costper scan MRI CT Scan
Cost allocated to each department 846222 921778
Common area cost allocated/Scan 252 252
Total facility cost/scan 646 614

12
6. 3.2.2 Wages and S alary
Wages and salary costperscan
(all cost in Rs.)
MRI CT SCAN
Head of the Department 1 nos.
@ 200,000/Month
2400000.00
Radiologist (1 nos. @ 120,000/Month) 1440000.00
Staff Nurses (1 nos. @ 13,000/Month) 156000.00
Ward Boys (2 nos. @ 5,000/month) 120000.00
Receptionist (1 nos. @ 10,000/month) 120000.00
Total Wages 4236000.00
Total Wages & Salary Department wise
allocation (based on machine hours)
2293172.93 1942827.07
Wages & Salary cost/MachineHour 909.99 909.99
Cost/Scan 682.49 530.83
6. 3.2.3 O ther Overheads
Other overhead costper scan
(all cost in Rs.)
MRI CT SCAN
Annual Telephone
(2 nos. @ Rs.1500/month)
36000.00
Annual Internet (@ Rs.1200/month) 14400.00
Annual Fuel for generator 208000.00
Annual Printing and Stationary
(@ Rs.5/scan)
12000.00
Annual Linen and Laundry Supplies 6000.00
Annual Electricity 45000.00
Annual Total 726400.00
Other overhead cost
(based on machine hours)
393239.10 333160.90
Overhead cost/scan 117.04 91.03

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6.3 COST SU MMARY PER U NIT SCAN (all cost in Rs.)
MRI Scan
% of total
cost
CT Scan % of total cost
Direct Cost Per Scan
Variable Cost
Direct Material 221 5.16 149 6.11
Electricity for Exposure 100 2.33 70.83 2.90
Total Direct Variable Cost 321 7.5 219.83 9.02
Fixed Cost
Direct Labor 214.29 5 163.93 6.72
Depreciation, Machine
Maintenance &
Insurance/Scan
1877.23 43.83 777.19 31.87
Electricity for standby 424.29 9.91 40.98 1.68
Total Direct Fixed Cost 2515.81 58.74 982.1 40.28
Indirect Cost Per Scan
Fixed Cost
Common Area cost 251.85 5.88 251.85 10.33
Rent, Building &
Maintenance
394.64 9.21 362.3 14.86
Wages & Salary 682.49 15.94 530.83 21.77
Other Overheads 117.04 2.73 91.03 3.73
TOTAL INDIRECT COST 1446.02 33.76 1236.01 50.7
Total Cost/Scan (Total Direct + Total Indirect
Cost)
4282.83 - 2437.94 -
Total Revenue/Scan 7000 - 4500 -
Net Profit (Total Revenue – Total Cost) 2717.17 - 2062.06 -
Net Profit % 38.8% - 45.82% -
Total Fixed Cost for MRI = Rs. 13311748.8
Total Fixed Cost for CT scan = Rs. 8118282.6
Total Variable Cost for MRI per unit = Rs. 321
Total Variable Cost for CT Scanper unit = Rs. 219.83

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6.4 BREAKEVEN ANALYSIS
The break-even point of a business is the level of output or sales at which the revenue
received by the business is exactly equal to the cost of making (or selling) that output. The
calculation is given as: (Sales Revenue – Variable Cost = Contribution Margin). This
contribution margin contributes towards the incurred fixed cost.
For MRI,
Fixed cost = Rs. 13311748.8
Sales revenue = Rs.7000; Total Variable Cost = 321
Thus, contribution margin = 6679
Breakeven point = Fixed cost/contribution margin = 1993.07 or 1993 MRI scans per year.
For CT scan,
Fixed cost = Rs. 8118282.6
Sales revenue = Rs.4500; Total Variable Cost = 219.83
Thus, contribution margin = 4239.18
Breakeven point = Fixed cost/contribution margin = 1915.05 or 1915 CT scans per year.
Thus, the radiology department at Excel hospital will have to perform at least 1993 MRI
and 1915 CT scans annually in order to achieve breakeven.

15
7. RESULTS
7.1 DIRECT COST PER SCAN
7. 2 INDIRECT COST PER SCAN
0
500
1000
1500
2000
2500
3000
MR I
0
200
400
600
800
1000
1200
1400
1600
MRI
0
200
400
600
800
1000
1200
1400
C T SC AN
0
200
400
600
800
1000
1200
C T SC AN

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7.3 COST BREAKUP & PROFIT ANALYSIS
In case of MRI, the direct and indirect cost are almost equally contributing to the total cost.
In case of CT scan direct cost accounts for 58% of the toal cost, while indirect cost
contributes 42% of the total cost.
2437.94
4500
2062.06
0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000
Total Cost/Scan (Total Direct + Total Indirect Cost)
Total Revenue/Scan
Net Profit (Total Revenue – Total Cost)
CT Scan
49%
51%
CT Scan
Total Direct Cost TOTAL INDIRECT COST
66%
34%
MRI
Total Direct Cost TOTAL INDIRECT COST
4282.83
7000
2717.17
0 1000 2000 3000 4000 5000 6000 7000 8000
Total Cost/Scan (Total Direct + Total Indirect Cost)
Total Revenue/Scan
Net Profit (Total Revenue – Total Cost)
MRI

17
8. CONCLUSION
The actual cost incurred by the hospital to provide CT scan services was Rs.2437.94. The
direct cost accounts for 51% and indirect cost 49% of the total cost. The actual cost
incurred by the hospital to provide MRI was Rs.4282.83. The direct cost accounts for 34%
and indirect cost 66% of the total cost. The hospital charges Rs.4500 for CT scan and
Rs.7000 for MRI thereby resulting in profit for unit of CT scan performed to Rs.2062.06
and a profit on per unit of MRI to Rs.2717.17.
Also, as per the breakeven analysis, the radiology department at Excel hospital will have to
perform at least 1993 MRI and 1915 CT scans annually in order to achieve breakeven.
Hospitals these days, are becoming technology intensive organizations and technology
acquisition is a major challenge for hospital administrators. Cost saving is an essential
factor, but it should not be made at the expense of the patient lives. Physicians and
healthcare providers are increasingly pressured to contain the cost of Medicare. Such
pressures are driven by competition in the market. Thus, it is incumbent upon radiologists
to have a basic understanding of the costs of radiology procedures and the factors that
determine those costs.

18
9. REFERENCES

Cost accounting project report - CT & MRI Scan Analysis at a Superspeciality hospital

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