Annals of the Royal College of Surgeons of England (1992) vol. 74, 406-411

Costs can and must be a component surgical audit Peter M Cuckow



Surgical Registrar

Addenbrooke's Hospital, Cambridge

Key words: Audit; Surgery; Finance

The cost of running a surgical firm at Addenbrooke's Hospital in Cambridge was assessed over a 1 month period in May 1989. The total of £97 380 was much more than expected for a firm of one fuli-time and one part-time consultant. It related to the month's workload of 101 admissions, 656 inpatient days, 92 operations and 442 outpatient visits. The derivation of a simple formula enabled individual patient episodes to be costed; from this new data and information stored routinely on the firm's audit system. It has been used to cost patients undergoing procedures commonly performed by the firm and also to illustrate the effect of complicated surgery on resources. Audit has been shown to have potential in a clinician's assessment of his resource use. Its future development in this role is strongly advocated.

The Government's White Paper, 'Resource Management' and the concept of the 'Internal Market', has made us more aware than ever before of the need to assess the cost of our work. Doctors normally depend on managers for costing information, which may be phrased in confusing language and is often difficult to relate directly to an individual practice. An independent cost study was therefore undertaken to show if it was possible for a surgical registrar to cost the work of a general surgical firm. This was successfully performed for the workload of one calendar month in 1989 at Addenbrooke's Hospital, Cambridge. To cost individual patient episodes from the study information, each was split into component parts, defining the formula: Patient episode = Days in hospital + Hours in operating theatre + Investigations performed + Outpatient visits Correspondence to: Mr Peter Cuckow FRCS, The Department of Virology, Addenbrooke's Hospital, Hill's Road, Cambridge CB2 2QQ

These elements were then costed from the study data and thus patient specific costing information could be produced. Because the patient information required for this simple formula was collected routinely on the Firm's own Audit Database, this was shown to have potential as a costing tool. Several patient episodes were analysed using this system and one of its uses demonstrated to show the cost impact of surgical complications.

Methods The work of one general surgical firm was studied between 3 May 1989 and 2 June 1989 (one calendar month). Initially, the areas of expense were defined so that they could be studied separately and these are listed below: (i) The Firm itself; (ii) The Ward; (iii) Investigations;

(iv) The Operating Theatre; (v) Outpatients. Various methods were employed to record every item used or activity performed in the period of the study, and these varied between the different areas. Careful records were kept in log books and through the completion of detailed proformas. Existing computer data was often available and 'apportionment' was used to allocate part of the cost of shared commodities to the Firm's budget. Management figures were used when it was not possible to generate original data. Workload data for the month was collated from the completed proformas, hospital computer records and the Firm's own computerised audit. The cost of the two consultants (one part-time), one senior registrar, one registrar (the author), two housemen and one secretary was obtained from salaries and wages

Costs as a component of surgical audit

information. The cost of running the office was supplied by the hospital management. On the ward rigorous stock counts were performed at the beginning and end of the study period and thorough records of all supplies made during the study. This data was then combined with local hospital price lists, and in this way the cost of pharmacy or medical and surgical supplies, for example, could be calculated. Several hospital departments including catering, cleaning and physiotherapy, were able to supply itemised bills for their services, and these were included after checking that hidden costs had not been missed. Salaries and wages information was used to assess staff costs in all areas of the study. The bed occupancy of the ward was not completely due to the Firm's patients and there were some outliers on other surgical wards. Data from the main ward and its bed occupancy figures were therefore used to calculate the cost of an inpatient day and this was multiplied by the total number of inpatient days spent under the Firm to give the total ward cost of our patients. One night was spent on the intensive care unit by a patient after routine aneurysmectomy and the cost of this was supplied by the management. Of the six investigative departments used, four were fully computerised (Biochemistry, Haematology, Histopathology and Microbiology). It was therefore possible to obtain accurate printouts of the investigations performed by them on the Firm's patients during the period of the study. The charge for an individual investigation was then calculated by dividing the department's annual budget by the total number of tests performed in the same year. This was then combined with the printouts to give a figure for each department. Data from the blood bank was combined with local price lists to account for the cross-matching and use of blood and blood products. Radiology and Nuclear Medicine were not computerised at the time of the study and so each radiograph or scan requested, on inpatients and outpatients, had to be recorded by the medical staff. Local charges made to the private sector and Kbrner weightings were then used to allocate a price to each individual investigation, and thus a total was obtained. Endoscopy was included in the Radiology figures and departmental electrocardiograms performed were recorded so that their cost could be included among the investigations. Perhaps the biggest challenge of accounting was met in the operating theatres. The large number of items used there were recorded on very detailed proformas. These were designed with the help of theatre sisters and operating department assistants, who became committed to completing them during each operating session. Thus, large lists of drugs, suture materials, disposable and reusable equipment were generated for subsequent pricing, using hospital price lists. Reusable items, like instrument sets, had not been priced before in our hospital and so a method was developed which accounted for recycling expense and the periodic replacement of instruments. Theatre staff and anaesthetists' salaries were apportioned to the Firm, as were the costs of


anaesthetic gases, volatile agents, theatre administration and equipment servicing. In outpatients proformas were again completed, and in this way data was obtained on the number of patients seen and the investigations requested. The staff salaries and cleaning were apportioned. After collection of the data, members of the hospital's resource management team were consulted to ensure that no item had been excluded and that there had been no double counting. At the time of the study overhead costs for the hospital had been calculated according to inpatient or outpatient activity and a breakdown of these per inpatient day or per visit is seen in Fig. 1 and Fig. 2. These included the running costs of the hospital, administration and hospital-wide services (eg laundry and telephone) and were added to the ward and outpatient costs. For the purpose of costing individual patients, their episodes were first divided into four component parts defining the simple formula: Episode = Inpatient days + Hours in operating theatre + Investigations performed + Outpatient visits It was possible to use information from the cost study to price these separate elements. An individual inpatient day was costed from the 'Firm' and 'Ward' costs. Operating theatre time was defined as time taken from the start of anaesthesia to the end of the surgical procedure and priced from theatre statistics during the study and the 'theatre' cost result. An outpatient visit was costed by dividing 'outpatient' results by the total number of visits and each investigation could be indi-


Laundry/Linen £2.01 Energy+water £2.93 Estate management

0 a


Administration f3.74 Maintenance


U Patient services £5.02 U Education £6.1 7

£27.69 per patient day Figure 1. Inpatient overheads.

U Energy±water

0 0 U


Patient services 77p Estate management 89p Administration 96p Maintenance 1 1 6p Education 162p

£6.1 7 per visit Figure 2. Outpatient overheads.


P M Cuckow

vidually priced. Thus, the general data of the study could be related to an individual patient. The basic patient data required for this system was collected routinely on our patients for the purpose of surgical audit. It was therefore possible to derive the cost of a given patient from his or her computerised audit data. Four operations: hernia repair, appendicectomy, cholecystectomy and anterior resection were selected for study. Firstly, four individuals whose procedures had been uncomplicated were priced. Then four others of similar age, who had had the same initial diagnosis and operation but had suffered complications of their surgery, were selected for comparison.

U U 0 0 U

Radiology £5000 (36.8%) Blood bank f2400 (1 7.6%) Haematol. £21 30 (1 5.7%) Biochemistry £2200 (1 6.2%) Histology £1230 (9%) Microbiology £370 (2.7%) E.C.G. £270 (2%)


Total £13,600 Figure 4. Investigations.

Results There were 101 admissions during the study, of which 38 were emergencies from the one in four 'on take' or the outpatients, and 656 inpatient days were spent under the Firm's care. Of the 92 operations that were performed, 27 were major, and the cases are listed below, reflecting a major interest in colorectal surgery: 13 Bowel resection 1 Aortic aneurysm 3 Cholecystectomy Miscellaneous laparotomy 7 10 Hernia 10 Appendicectomy 8 Breast 19 Miscellaneous anal 8 Abscess 13 Other In outpatients, 442 visits took place of which 121 were new referrals to the consultants from general practitioners. The Firm itself cost £14 860 for the month. The breakdown of cost for the other areas is shown in Figs. 36 and the total cost is displayed in Fig. 7. An inpatient day was calculated to cost £88.50, an hour's operating time £237 and an outpatient visit £12.26. Table I shows the use of this information in costing individual patient episodes using the formula described.


0 Is U U

Salaries £7900 (39%) Anaesthetists £7430 (36%) C.S.S.D.(R) £ 1 680 (8.2) C.S.S.D.(D) £840 (4%) Sutures l1020 (5%) Pharmacy £860 (4.1%) Running Costs £610 (2-7%)

Total £20,340

Figure 5. Theatres.



Staff Costs £2090 (39%) Hotel costs £ 61 5 (1 1 %) Overheads £2715 (50%)

Total £ 5,420 Figure 6. Outpatients.


Nursing f 15020 (35%) Food £2800 (6.o%) Cleaning £1800 (4.1%) 0 Pharmacy £1440 (3.3%) 0 Med/surg £1140 (2.6%) £880 (2%) 0 Administration Physiotherapy £650 (1.5%) 0 Overheads f 1 8180 (42%) I.T.U. bed 1290 (3%)


Total £43,200

Figure 3. The ward.

U 'Firm' Cost £14,820 (15.2%) U Ward £43,200 (44.3%) U Ea 0

Investigations £13,600 (14%) Theatres

£20,340 (20.9%)

Outpatients £5,420 (5.6%)

Total £97,380 Figure 7. Final costing.

Costs as a component of surgical audit


Table I. Costing of different patient episodes Operation (age and sex) Inguinal hernia repair (64M) Inguinal hernia repair (67M)

Complications None

Outpatient cost (visits)

Ward cost (days)

Theatre cost (time)

£265.50 (3)

£177.75 (45 min)


£24.52 (2)


£276.50 (45+25 min)


£24.52 (2)


£158.00 (40 min)


£12.26 (1)


£118.50 (30 min)


£36.78 (3)


£296.15 (75 min)


£36.78 (3)


£256.75 (65 min)


£36.78 (3)*


£493.75 (125 min)


£36.78 (3)*


£1241.88 (315 mins) Four operations


£49.04 (4)*


Scrotal haematoma, £1150.80 (13) testicular infarction needing drainage and orchidectomy £354.00 (4) Appendicectomy None (1SM) Appendicectomy Infected wound £796.50 (9) (8M) haematoma, readmitted for drainage under local anaesthesia £531.00 (6) Cholecystectomy None (52F) £973.50 (11) Cholecystectomy Deep vein thrombosis (46F) fully anticoagulated Anterior resection None £1062.00 (12) (72M) Anterior resection Chest infection, £12832.50 (145) (82M) pulmonary embolus, anastomotic leak, abscess drainage with temporary ileostomy. Four separate admissions

Investigation cost


* These patients are subject to long-term follow-up

Discussion In 1983 the Griffiths report introduced the idea of stricter financial control and greater responsibility within hospital departments for their budgets (1). The White Paper has precipitated an even greater need for hospital staff to be aware of the cost implications of their work (2). Previous clinician-based cost studies have been performed within service departments (3,4). This study shows that it is possible for a clinician in a mainline hospital specialty to assess the cost implications of his work. Apart from overheads, the nursing salaries comprised the largest portion of ward expenditure, and salaries comprised a significant proportion of the remainder. Surprisingly, pharmacy (including intravenous fluids and antibiotics) proved to be only a small part of the total, as were the medical and surgical supplies (syringes, needles, dressings, catheters, etc.). The high cost of the ITU shows what an impact greater use of this resource would have on overall ward costs for the Firm. The lack of information technology in investigative departments like Radiology made the task of costing them difficult, although a representative figure was achieved. As was expected, the most expensive department was Radiology followed by the cost of blood transfusion and blood products. Haematology and Biochemistry showed approximately equal contributions, reflecting the routine nature of most of these tests.

Unfortunately, using an average price per test in these departments leads to an overestimate of the cost of simple routine tests, and it would have been preferable to use more specific prices, had they been available at the time of the study. Although a huge amount of time was spent counting, collating and pricing the individual items used in theatres, they make a proportionately very small contribution compared with staff costs. Pharmacy (including all lotions, drugs, anaesthetic gases and intravenous fluids) was also surprisingly cheap in this area, as were the suture materials (of which almost 50% of the cost was due to one intraluminal bowel stapler and three skin staplers). In Outpatients, staff salaries comprise most of the cost, apart from the overheads. It appears a cost-effective place in which to see and treat patients, although the total shown for 442 patient visits does not include the cost of medical staff and investigations. This encourages the greater use of this department and day surgical facilities, which were available but were not used by the Firm during this particular month. The total of £97 380 for the month was much more than anticipated by the author, although the extrapolated annual figure from this of 1/50 of the hospital budget was close to the management estimate for the Firm. Of this, the administration costs were a surprisingly low proportion, contrary to previous misconceptions. The cost of undergraduate training is not included in the figures,


P M Cuckow

although both consultants and registrars contributed to it during the study. Also omitted is the capital cost of the hospital which had not been calculated at that time. In all areas, including the overheads, salaries comprised most of the cost. This concurs with studies in anaesthesia (4), showing that 83% of the cost is due to medical and nursing staff salaries. In an attempt to be accurate, all consumable items (medical and surgical supplies, pharmacy, etc.) were carefully accounted for. This proved very time-consuming and only represented a small proportion of the total cost. The use of staff time in managing our patients represented an area with a far greater bearing on the final cost and one that was more difficult to define. Through the simple formula, which proved easy to operate given the basic information required, the Firm became aware of the costs of individual patient episodes under their care. The system is patient-specific and can therefore show the consequences of more investigations, longer operations and postoperative complications, for example, in treating a group of patients with the same clinical problem. These figures are also Firm-specific. The cost of day on the ward relates to the bed occupancy achieved, an hour's operating to the efficiency of theatre usage, investigations to the protocol employed, and outpatient attendances to the outpatient throughput of the Firm. Other expensive areas, not applicable to the illustrated cases, also need to be identified, such as the use of Intensive Care and surgical prostheses, redefining the formula to: Episode = Inpatient days + Hours in operating theatre + Investigations performed + Outpatient visits + Specific expensive items The effect of complications is dramatic in increasing the duration of hospitalisation and the number of investigations performed. Reoperation also has a pronounced impact on cost. These elements are well illustrated by the examples given, in particular the extremely complicated anterior resection. Surgical audit is here to stay and all surgeons are being advised to introduce the audit computer into their practice (5). As all the information required to cost episodes in this way can be stored on audit software, it

should be possible for all surgeons to add this new dimension to their audit meetings, given the necessary financial data. Taking this further, audit systems could be developed to play a role in planning budgets, monitoring efficiency, pricing different treatment options and even producing itemised bills for patient episodes. In other words, putting a very formidable instrument into the hands of surgeons operating in the new NHS.

Conclusions This study illustrates that it is possible for a doctor to cost the work of his hospital practice and demonstrates a new use to which audit data may be put in costing individual episodes. The patients shown were treated at the time of the study. The figures used do not represent the current cost of patient episodes at Addenbrooke's Hospital or resultant charges to be made within the internal market by our finance department. I would like to thank everyone who collected data and freely offered their advice and expertise. Without them this would have been an impossible undertaking. I would particularly like to thank Miss Nicole Davis of the Finance Department and Mr W G Everett and Mr C Quick for allowing their patients to be studied.

References 1 NHS Management enquiry. Report. London: DHSS, 1983 (Griffiths Report). 2 Department of Health. Working for Patients. London: HMSO, 1989. 3 Lethbridge JR, Secker Walker J. Cost of anaesthetic drugs and clinical budgeting. Br MedJ7 1986;293:1587-8. 4 Astley BA, Walker JS. Cost of anaesthesia. Br Med J 1982;285: 189-91. 5 Kettlewell MGW. Surgical Audit. Ann R Coll Surg Engl Suppl 1990;72(5):70. Received 27 january 1992

Invited comment Some papers should not need to be written. One such is that from Cuckow. Mr Cuckow is to be congratulated on the achievement represented by a very successful and effective costing study. The Health Service should bow its head in shame. So should most of the medical profession. The small number of references indicates the paucity of the literature in this field. Reading the paper

brought to mind the visit by John Harvey Jones to Eastern Europe in his 'Trouble Shooter' series. He found major industries and their staff not knowing, let alone understanding, the costs of what they do. He would find the same in the National Health Service. The Resource Management Initiative may change all this. Within the next few years many hospitals will be

Costs can and must be a component of surgical audit.

The cost of running a surgical firm at Addenbrooke's Hospital in Cambridge was assessed over a 1 month period in May 1989. The total of 97,380 pounds ...
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