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Health care cost accounting in the Indian hospital sector
Yashika Chugh1 , Shuchita Sharma1 , Abha Mehndiratta2 , Deepshikha Sharma1 , Basant Garg3 ,
Shankar Prinja 1 and Lorna Guinness 2,*
1
Department of Community Medicine and School of Public Health, Postgraduate Institute of Medical Education and Research, Sector 12,
Chandigarh 160012, India
2
Global Health Policy Program, Center for Global Development, Europe, Great College St, London SW1P 3SE, United Kingdom
3
Government of India, National Health Authority, Tower-L, Jeevan Bharti, Janpath, Connaught Place, New Delhi 110001, India
*Corresponding author. Center for Global Development, Europe, Great Peter House, Abbey Gardens, Great College St, London W1P 3SE, United Kingdom.
E-mail: [email protected]

Abstract
Setting reimbursement rates in national insurance schemes requires robust cost data. Collecting provider-generated cost accounting information
is a potential mechanism for improving the cost evidence. To inform strategies for obtaining cost data to set reimbursement rates, this analysis
aims to describe the role of cost accounting in public and private health sectors in India and describe the importance, perceived barriers and
facilitators to improving cost accounting systems. In-depth interviews were conducted with 11 key informants. The interview tool guide was
informed by a review of published and grey literature and government websites. The interviews were recorded as both audio and video and
transcribed. A thematic coding framework was developed for the analysis. Multiple discussions were held to add, delete, classify or merge the
themes. The themes identified were as follows: the status of cost accounting in the Indian hospital sector, legal and regulatory requirements
for cost reporting, challenges to implementing cost accounting and recommendations for improving cost reporting by health care providers.
The findings indicate that the sector lacks maturity in cost accounting due to a lack of understanding of its benefits, limited capacity and weak
enforcement of cost reporting regulations. Providers recognize the value of cost analysis for investment decisions but have mixed opinions on
the willingness to gather and report cost information, citing resource constraints and a lack of trust in payers. Additionally, heterogeneity among
providers will require tailored approaches in developing cost accounting reporting frameworks and regulations. Health care cost accounting
systems in India are rudimentary with a few exceptions, raising questions about how to source these data sustainably. Strengthening cost
accounting systems in India will require standardized data formats, integrated into existing data management systems, that both meet the
needs of policy makers and are acceptable to hospital providers.
Keywords: Cost accounting, hospital cost accounting, financial accounting, cost reporting, price setting in health, India, health insurance reimbursement

assurance scheme Pradhan Mantri Jan Arogya Yojana (PM-

Key Messages JAY) (National Health Authority, 2019), providing the poor
and vulnerable with curative care services. The potential
• Collecting provider-generated cost accounting information of the PM-JAY platform to achieve its objectives will, in
will be a key mechanism for improving the cost evidence part, be contingent upon setting priorities and reimburse-
to inform reimbursement rates or tariffs for public health ment tariffs that ensure widespread health care provider
insurance schemes in India. participation while obtaining the best value for the avail-
• Providers recognize the value of cost analysis but have able budget. In turn, this will rely on the availability of
mixed opinions on gathering and report cost information robust evidence on disease burden, service availability and
citing resource constraints and a lack of trust in payers. use and costs.
• Strengthening cost accounting systems in India will require Implementation of PM-JAY is entrusted to the National
standardized data formats, integrated into existing data Health Authority (NHA) and—as part of a transition from
management systems, that both meet the needs of policy volume-based to value-based care—the hospitals empanelled
makers and are acceptable to hospital providers. with PM-JAY are being paid using case-based bundled pay-
ments (National Health Authority, 2019). The NHA sets
the reimbursement rates for and regularly updates the list
Introduction of health benefits packages (HBP). The setting of reimburse-
In 2018, the Government of India launched the flagship ment rates is currently informed by evidence from a one off
Ayushman Bharat scheme as part of its strategy for univer- nationally representative costing survey, evidence from eco-
sal health coverage (UHC) (Sarwal et al., 2021). Ayushman nomic evaluations and expert consultation (Prinja et al., 2021;
Bharat encompasses the world’s largest tax-funded health Chauhan et al., 2022; National Health Authority, Govern-

© The Author(s) 2024. Published by Oxford University Press in association with The London School of Hygiene and Tropical Medicine.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/),
which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
2 Health Policy and Planning, 2024, Vol. 00, No. 00

ment of India, New Delhi, 2022). While the use of evidence Cost systems should be tailored to the context and data
on health care costs is critical, costing exercises are resource availability, while also allowing for adaptability and invest-

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and time intensive and have rapidly become outdated. At the ment in complexity as data infrastructure improves. As a
same time, empanelled providers complain of the inadequacy result, national costing systems range from sporadic costing
of the reimbursement rates (Federation of Indian Chambers of studies to routine national surveillance efforts (Raulinajtys-
Commerce and Industry (FICCI), 2018) and the flat rate pay- Grzybek, 2014; Bredenkamp et al., 2020). The diversity
ment that does not adjust for severity and complexity. These arises from decisions regarding data collection processes,
issues raise the risk of providers declining to participate in the the stage of reimbursement system development, regulatory
scheme, balance billing or selectively denying hospitalization frameworks around cost accounting and the chosen costing
to sicker and more vulnerable patients. methodologies (Guinness et al., 2022). In some instances,
The NHA is considering reforms to the payment scheme, comprehensive cost accounting surveys involve all participat-
similar to a diagnosis-related group-based payment mecha- ing providers, as mandated in the UK and Australia, while
nism, built on a classification system which factors in the in others, only representative samples of providers are uti-
patient case mix and severity. Such systems rely on transpar- lized, such as in France, Germany and Thailand (Barber et al.,
ent and robust evidence to inform both diagnosis groupings 2019). Other countries require all providers to submit data
and their reimbursement tariffs. In particular, data are needed but use charge/billing data as a proxy for costs (e.g. USA, Tai-
for standardized patient classification around diagnosis and wan) although this can result in aligning rates with provider’s
procedures, how costs might vary with case mix and severity profit incentives rather than strategic priorities of the national
and the average costs of providing health services. These data purchasing agency (Tan et al., 2014). In settings where there
could be generated through a sustainable national cost system are limiting factors such as budget constraints, mixed health
that produces reliable time-relevant cost information based on systems, poor data and weak regulation, simpler methods
standardized costing methods (Barber et al., 2019). However, like utilizing expenditure data or gathering information from
the scope to capture these data at a national level in this way smaller facility samples have been employed for price setting.
in India is unclear. Alternative approaches, exemplified in India, Cambodia and
National health care costing systems found in many coun- Kenya, involve implementing baseline multisite costing stud-
tries are fundamental for informing the design of case-based ies to kick-start the process (Mathauer, 2011; Jacobs et al.,
payment schemes (e.g. England, Australia, Germany and 2019; Prinja et al., 2020), providing foundational evidence,
Thailand) (Tan et al., 2014; Patcharanarumol et al., 2018; best practices or pilots for future development. Experiences in
Barber et al., 2019; Australian Hospital Patient Costing Stan- Thailand, Kyrgyzstan and China showcase how cost systems
dards, 2023; National Cost Collection for the NHS, 2022). can evolve iteratively from initial one-time exercises into com-
By accurately capturing direct and indirect costs associated plex systems with increasing provider participation as capac-
with procedures, cost systems enable health care organiza- ity evolves (Mathauer and Wittenbecher, 2013; Bredenkamp
tions to make informed decisions regarding reimbursements, et al., 2020).
resource allocation and process optimization. Incorporating A national-level sustainable cost system based on provider-
cost information into rate-setting processes also enhances level cost accounting systems could be used to inform the HBP
credibility and transparency, providing stakeholders with a review process for India as well as address other national cost-
clear understanding of the rationale behind pricing decisions. ing needs such as reference costs, efficiency analysis and cost
Moreover, establishing a direct link between costs and reim- evidence for health technology assessment. However, it is vital
bursement rates enables policy-makers and the public to assess to first understand the current state of how cost information
the efficiency and effectiveness of health care spending. This is maintained in the hospital sector to understand the capacity
transparency fosters trust and accountability, enhancing the for generating the required data. This analysis aims to develop
overall stewardship of public resources in health care. an understanding of the role of cost accounting in public and
National costing systems rely on various different costing private health sectors in India to inform strategies for improv-
methods. The gold standard method used for national ref- ing the cost evidence base for the setting of reimbursement
erence costs is cost accounting (e.g. England and Australia) rates.
(National Cost Collection for the NHS, 2022). Cost account-
ing determines the cost of each service or product (Chapman
et al., 2016); explains the production processes, how this links
to costs; and provides detailed information for use in analyt- Methods
ics around understanding the level of efficiency, the quality Study design
of care and, when linked to health outcomes, the value of We employed a qualitative study design where in-depth inter-
care (Kaplan and Witkowski, 2014; Malmmose and Lyder- views (IDIs) with individuals were conducted to enable atten-
sen, 2021). At the hospital level, cost accounting is vital for tion to the context and processes and for participants to
the accurate measurement of costs and therefore financial describe their views and experiences in detail. The respondents
and managerial performance (The Institute of Cost Accoun- for IDIs were chosen to include experts in the area of health
tants of India, 2015; Carroll and Lord, 2016; Soni, 2023). care cost accounting in India, key individuals (academics
Cost accounting methods have evolved over time (Kaplan and or cost accountants) or representatives of organizations that
Porter, 2011) and include multiple techniques that respond to have been involved in hospital costing and individuals who
different needs, varying in their levels of granularity, complex- could represent the views of hospital networks/associations
ity and data requirements (see Supplementary Annexure 1 for and industry bodies. To further substantiate the findings, a
a summary of the most commonly used methods) (Selto and virtual panel consisting of 32 experts from government agen-
Widener, 2004; Bonner et al., 2012; Carroll and Lord, 2016). cies, non-governmental organizations, private sector, health
Health Policy and Planning, 2024, Vol. 00, No. 00 3

care industry partners and health insurance industry was industry and the need for a cost data collection system in
conducted (Supplementary Annexure 2). The panels were India, keeping in view the overall aim of the qualitative study.

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requested to reflect and feedback on the initial findings from The key themes included in the guide were aimed at under-
the IDIs and provide further reflections and perspectives on standing the existing state of cost accounting in the hospital
the key study questions (Supplementary Annexe 5). sector in India, the legal requirements around reporting of
health care cost accounts, motivation and barriers to setting
up and implementing cost accounting systems, price setting in
Sampling and recruitment
the hospital sector including that for publicly financed health
For the qualitative interviews, we identified potential partic- insurance schemes, willingness to report cost accounts to
ipants through various routes. Firstly, a rigorous review of any central government organization and recommendations
grey and peer-reviewed hospital costing literature in India was for improving cost accounting practices in hospitals in India
identified through consultation within the research team, pub- (Figure 1).
lic health databases (PubMed) and internet searching. The
following search strategy was deployed: ‘((((((((healthcare)
OR (hospitals)) OR (healthcare management)) OR (hospital
Data analysis
operations)) AND (healthcare cost accounting)) OR (health- All interviews were recorded for both audio and video. A ver-
care costs)) OR (cost accounting)) AND (India))’. The review batim transcript was developed, checked and anonymized.
process was supplemented by a review of the websites of The data were analysed thematically to make comparisons
various government bodies leading us to reports of cost within and across the interviews, also allowing us to capture
accounting–related work done by government bodies and dif- specific issues discussed by the interviewees. To do this, a cod-
ferent researchers working on cost accounting in health in ing frame was drafted and refined. The authors independently
India. We compiled a list of committee members and authors read all the transcripts to provide codes in response to the
for those reports and papers. Next, we listed the key organiza- different sections in the transcript, followed by merging their
tions that represent health care providers in India. We sought codes to eventually group the themes as a priori and emer-
to identify and contact individuals identified in the docu- gent themes (Stemler, 2000). Finally, the framework method
ment review as well as representatives from the key health was applied to the interview transcripts conducted at different
care provider organizations who were willing to discuss the times in the data collection process (Goldsmith, 2021). Multi-
role of cost accounting in India. To supplement this, we also ple discussions were held to add, delete, classify or merge the
approached a few key respondents based on personal contacts existing themes (Figure 2). The themes and related excerpts
of those in our research and policy network, looking at web- from all the interviews were collated for analysis in MS Excel
sites and snowballing with individuals interviewed to suggest to allow for comparison of findings and reflection on differ-
others. Having identified potential participants, we contacted ences (Supplementary Annexure 4). Once the initial findings
12 individuals to obtain maximum diversity within our sam- were collated, they were presented to the costing panel for val-
ple according to their roles, professional backgrounds and idation whose feedback was incorporated into the thematic
level of experience. Participants for the panel discussion were analysis using the coding framework (Figure 2) to segregate
selected through the key informants and information gener- information. The relevant information was then added to the
ated by the IDIs. In addition, we also invited representatives text in the manuscript under relevant themes.
from and those suggested by the National Health Author-
ity, which is the apex body for Ayushman Bharat—Pradhan
Mantri Jan Arogya Yojana, India’s flagship health insurance
Results
programme. Participants’ characteristics
A total of 12 participants were invited to interview, includ-
ing a mix of those belonging to various health care provider
Data collection
organizations in India from the government, private and not-
The potential respondents were approached by email describ- for-profit sectors as well as from the academia. Out of the
ing the broad aims and objectives of the study as well as 12 participants invited, semi-structured interviews were con-
expectations from the interview. A concept note of the study ducted with 11 participants. One did not respond to the invite
was also circulated if further details were sought by the inter- (Table 1).
viewee. The interviewees were assured that they would not be
named or identifiable in any way. Given the dispersed nature
Findings
of the interviewees and research team, we interviewed the par-
Status of health care cost accounting in India
ticipants virtually. Written and verbal consent was sought to
record the interviews. The authors made reflective notes to The interviews explored the status of cost accounting in terms
assist with the analysis. All the interview audios/videos and of both current practices and the capacity to implement cost
transcripts were given codes to maintain anonymity in the accounting. The consensus from key informants (KI) is that
final write up, the access to which was limited to the authors. cost accounting practices in India today are ‘more rudimen-
tary’ (KI 1; KI 9), that the hospital industry ‘is not very mature
in terms of costing systems’ (KI 5) and that ‘99% of providers
Interview tool development and overview of … do not have any insight into their costs’ (KI 10). ‘It’s only
themes the big players who really have done costing’ (KI 3), i.e. in the
An exhaustive interview tool guide (Supplementary Annex- big private chain hospitals, which represent at most 10–20%
ure 3) was developed and piloted to ensure that key areas of providers (Assessment of the Healthcare Delivery Market
were covered. The tool guide was informed by the review of in India, 2023). Eight of the 11 participants agreed that the
literature on the role of cost accounting in the health care majority of health care providers are made up of ‘players who
4 Health Policy and Planning, 2024, Vol. 00, No. 00

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Figure 1. Representation of the a priori and emergent codes extracted from the interviews

Figure 2. Coding framework for analysis

have absolutely no idea what is the costing’ (KI 3), and the the last 100 Pyeloplasty. What would be the consumable use?
common practice is ‘thumb rule costing [which is when] you What would be the instrument use? I can retrieve that data
understand with guesswork’. In addition, the interviewees (4 and I understand whether by each surgeon, by the different
out of 11) felt that the limited attempts by providers to put surgeons, what has been an estimate’ (KI 8).
cost accounting in place were likely because ‘they are more When reflecting on the public sector, three participants
concerned with taking care of their hospital patients’ (KI 3) pointed out that the ‘exercise has not been done even in pub-
than on financial management processes. However, one key lic institutions’ (KI 8). As public hospitals have guaranteed
informant from the non-governmental organization (NGO) funding and do not need to set prices, ‘the public sector is not
sector mentioned that they had developed their own soft- bothered about how much it is costing at the management
ware, which encompasses finance, electronic medical records, level’ (KI 9). On the other hand, it was reported by one of
radiology information and management information systems the respondents that some tertiary care public sector hospi-
and allows for the extraction of granular information. For tals have begun to include finance officers in their teams and
instance: ‘So, if it is a robotic pyeloplasty, I can query it for started focusing on analysing costs.
Health Policy and Planning, 2024, Vol. 00, No. 00 5

Table 1. Characteristics of the key informants interviewed for the study corporate and not to the non-corporate entities, and in the
healthcare industry, you’ll find largely we have non corporate
Type of organization No. of interviewees

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entities’ (KI 3). In addition, although they are subject to audit,
Private Provider Chain of Hospitals 3 the public sector providers do not face the same accounting
Industry representatives (Association 3 regulations. One KI stated ‘Public sector never comes under
of Healthcare Providers of India, regulations. No rules or law applies to the public sector. So,
Confederation of Indian Industry) there is no level playing field’. Furthermore, the enforcement
Academia 2
of cost account submission is weak ‘we are supposed to engage
Ministry of Finance, Government of 1
India a cost accountant to give us a certificate every year that we
Public sector provider (Institute of 1 have a cost accounting system’ (KI 3), and the cost accounts
Medical Sciences) required are overall line-item accounts that do not address
Insurance provider 1 the complex needs of a hospital. Even for the larger facili-
ties, which could face legal action ranging from monetary fine
to imprisonment for non-compliance, the KIs were not aware
that the government had applied these provisions.
When asked about general capacity for cost accounting
in India, participants’ views were captured by this statement
‘obviously this expertise is available, but it is scattered. It is Feasibility/willingness for collating and reporting cost
not available at one place’ (KI 1) and that the national cost information
accounting body had limited experts in health care. In addi- The interviews also explored the feasibility of setting up a
tion, 4 out of the 11 respondents stated that ‘there was not national costing system based on providers cost accounting
a well-structured framework’ (KI 3, 4, 6, 7) for costing and data as well the willingness of the providers to share their cost
that there is a need for the government to develop and pro- information with the government bodies. Three respondents
vide a template. The respondents also raised the issues that out of 11 were very positive: ‘If the tool is developed, yes, the
cost accountants in the health sector ‘are not available’ (KI 8) private sector will be too willing to happily do that’ and that
and that the costing process is time consuming and is ‘costlier’ ‘I think by now we are able to get most data from the system’,
(KI 1). In addition to this, experts who had been involved in although one stated a better option would be to ‘ask for volun-
costing studies found capacity for costing at the hospital level teers who are willing … You can start with that, that will give
limited, ‘it was a complex exercise, the hospital people did you enough sample size’ (KI 6). Conversely, other respondents
not understand’ (KI 3). Two respondents also highlighted that were of the view that such an effort will not be very useful and
capturing human resource costs is very difficult as it is not moreover will consume resources that could be invested else-
standard practice to track the time spent by staff in different where ‘if we have to invest in the system that is more detailed
activities. As a result, where costs are tracked, the focus is on and will require more investment, which we would rather, you
the estimation of direct costs only. know, spend on medical equipment, et cetera’ (KI 7).
At the same time, interviews revealed that cost accounting When asked about willingness to share cost information,
procedures can and are being used although the users often do it was felt that legislation would be required. Half of the
not recognize it: ‘Most of the private providers, they may not respondents were of the opinion that most private providers
know the signs of cost accounting but they do the costing. We would not agree to share or would only share limited data:
need to figure out what our costs are, how we can control, ‘At the moment, price is available to me, if the cost becomes
drive down, optimize our costs, keep prices affordable and available to me, then the margin is visible to me …. And
still, you know, deliver return expectations of our investors’ it becomes a trade margin-oriented discussion which every
(KI 1). provider wants to avoid.’ In contrast, it was agreed that the
There have been a few costing initiatives including attempts majority of the hospitals run by NGOs or charitable or phil-
to build a standardized costing template for use in the Indian anthropic institutions had no problem with sharing their cost
hospital sector. One expert described the design of a tool data.
for time-driven activity-based costing with marginal cost- During our interviews, we identified a felt need for cost
ing. Others described costing exercises carried out to inform accounting to keep a track of costs being incurred, which in
reimbursement rates, including one by the Institute of Cost turn guides the return on investment and profitability. The
Accountants, for which a costing template was developed for most frequently stated and overarching motivation for costing
health care providers. However, uncertainty exists around the was because ‘I want to know my profits’ (KI 4) and under-
reach and usability of these costing initiatives as well as how stand the return on investment. Moreover, the providers have
the findings were used by the government: ‘it has not worked started to look into their competitiveness: ‘whether those rates
out’ (KI 7). are competitive, whether my efficiency is competitive, whether
my procedures are competitive’ (KI 3). A few experts and
Legal/regulatory requirements around cost reporting in India influential players in the private industry with knowledge of
While financial accounts provide information about profit health care costing have been advocating for more use of
and loss, cost accounts provide detail on the relative costs cost accounting systems to help inform PM-JAY and enable
of different specified areas of expenditure or cost e.g. human facilities to understand if and which of their costs are being
resources, capital, consumables, etc. All corporations and covered, which gave rise to the costing initiatives described
trusts submit financial accounts as part of a tax return and, earlier and in Figure 3.
additionally, there is a regulatory requirement to submit cost On the other hand, we also heard about a lack of interest in
accounts under corporation law and clinical establishment cost accounting, since price decisions in private industry ‘are
law (Government of India, 2014) but ‘that applies only to the made based on competitive pricing- it all depends on what
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Figure 3. Summary of the previous costing initiative undertaken in India

patients can afford and what [the] market is charging’ (KI 7, result, the validity of data generated from the existing systems
8), ‘so costing is not required’ (KI 8). is questionable adding to the reluctance to invest in these time
and resource-intensive activities.
Challenges to setting up a standardized hospital cost
Using cost information for price setting
accounting systems for PM-JAY
While cost-based pricing does not seem to be relevant to the
The interviewees identified numerous internal as well external
private sector, three respondents mentioned that health care
challenges to establishing cost accounting systems. Amongst
delivery funded by the government sector is likely to be cost
the external challenges, one of the issues most frequently
oriented, and four respondents expressed that cost-based pric-
(60% of the respondents) highlighted was the stated lack of
ing is more relevant for setting reimbursement rates in publicly
standardized guidelines or templates available to the hospitals
financed schemes. ‘… where the government is funding any
for reporting cost information. Moreover, there are privacy
insurance authorities … they necessarily will look into the cost
and confidentiality concerns to reporting such data. Amongst
aspect. Also, they will not approve the rates without look-
the internal barriers were, firstly, the requirement for skilled
ing to the cost of those services and all that … but as for the
personnel and a good IT system in the facility. Further, while
non-structured, private person has to pay for the cost of their
hospitals have robust health management information sys-
health, for that, why should the hospital apply cost?’ (KI 5).
tems (HMIS) ‘there’s a challenge, many of the IT systems are
Five respondents raised concerns over the inadequacy of
not oriented towards the cost’ (KI 1, 4) and ‘how do you
reimbursement rates for empanelled private provider and
integrate it with the financial accounting. So, from billing,
recommended that a market survey should supplement the
how do you segregate? And then paste them into my ledger
process of price setting.
accounting’. When probed further, we found that even in the
facilities where the IT system is good, it is not being used to
capture the data relevant to costing, and they tend to have Relationship between government and private health care
separate financial accounting systems that are not linked to providers
the HMIS: ‘Yeah, so the two key applications we use, one is ‘The costing is a very sensitive … data. No corporate entity is
hospital information system, which is often the billing system, willing to share the cost data with [anyone] outside the com-
and we have then enterprise application like SAP or, or where pany … until we have a structured, regulatory framework, the
we have all our inventories, financial accounting data. So, the hospital industry is not going to share any type of information
combination of both these systems, we do all our financials’ easily’ (KI 5). In addition to the issue of sensitivity, intervie-
(KI 7). It is likely that building the whole system for small- wees reported that the lack of standardized cost reporting and
or medium-sized hospitals will be hard particularly due to the regulatory frameworks has further accentuated this issue.
lack of understanding of the usefulness of costing: ‘Doctors A problematic relationship between the private and public
don’t understand the impact of costing. When it comes to shar- sector reason is another reason for unwillingness to share data
ing relevant data, the doctors think that they know, so that’s a with the government. The inadequacy of reimbursement rates
problem’ (KI 2). This point was emphasized during the costing and the insufficient support provided to the private empan-
panel, where participants underscored that providers gener- elled providers has further soured the relationship. When
ally do not recognize the value of such costing exercises. As a asked if they would share their data one KI replied ‘We don’t
Health Policy and Planning, 2024, Vol. 00, No. 00 7

get any benefit from government. We’ve not got land, you Finally, while capacity and trust were seen as an important
know, we pay 30% duty on medical equipment that we import area to focus on, 80% of the participants also strongly sup-

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… we don’t get any subsidy like IT industry gets [like the] tax ported that the government should set up regulatory systems
subsidy for initial five years …. So why should we do it?’ (KI or extend existing corporate hospital regulation to all health
7); another responded ‘My cost is at least around 12 000. My care providers including both the private and public sectors
margin another 3000–4000 Rs., I need at least 15 000 Rs. and and small-/medium-sized providers.
you are giving me 8000 Rs. So why do I share my data with
you?’ (KI 4). It was also noted that the slow processing of
claims data placed a significant burden on the private sector
hospitals.
Discussion
In addition, 4 of the 11 respondents indicated that the pri- Cost accounting can provide health care providers with infor-
vate empanelled providers are only included in the rate setting mation to improve efficiency, maximize return on investment
processes in name and the process is not transparent: ‘the Min- and help set tariff rates that reflect an efficient mode of pro-
istry of Health had set up the committee and put 2 or 3 of duction or service provision. Our qualitative survey to look
us across on the committee. They did not …. involve us in at the current capacity for cost accounting and cost account-
anything, and then came up with their own results’ (KI 2). ing practices in India found a mixed picture from advanced
cost accounting systems in the large, networked hospitals to
little documentation of costs among small- to medium-sized
Recommendations for building a national hospital cost hospitals. Among our key informants, there was an acknowl-
system edgement of the benefits of cost accounting as well as the
The respondents made a number of recommendations on limited capacity in the country and awareness of the benefits
how to build efficient cost accounting systems in health care. at the hospital level. They recognized the need to do more
Firstly, workshops and seminars for both private and public in this area to improve health care efficiency and facilitate
sectors, and including senior staff and management, should discussions with the government around setting of evidence-
be conducted to raise awareness on how cost accounting sys- based reimbursement rates that are acceptable to empanelled
tems contribute to boosting productivity, efficiency and profit providers.
margins. In its strategy to achieve UHC, the Indian government
Secondly, both the IDIs and the panel recognized that has sought the private sector’s involvement through empan-
government support to developing standardized cost data col- elment of private providers (Sarwal et al., 2021). There is a
lection methods and reporting formats, robust information huge diversity in the provision of care where around 80%
management systems, training on use of cost accounting sys- of the care is provided by small- and mid-sized health care
tems, as well as auditing systems is needed. This support providers (up to 400 beds) and the rest by large hospital chains
should address in particular the needs of small- and medium- (Federation of Indian Chambers of Commerce and Industry
sized health care providers ‘most of the small to medium (FICCI), 2018, Assessment of the Healthcare Delivery Mar-
hospitals sized hospitals cannot invest into the teams which ket in India, 2023). Our findings indicate that this diversity
can undertake this detail’ (KI 3). Alternatively, ‘a certain for- is manifested by extensive heterogeneity in the existing state
mat should be provided to each hospital ….to give the general of cost accounting, attributable to various provider charac-
financial’ (KI 6) and ‘and then at least come up with some teristics including ownership, size, geographical location as
kind of a minimum standard requirement’ (KI 8) so that a well their understanding of cost accounting. While large pri-
costing expert can study the costs of small- to mid-sized hos- vate providers have their own advanced business management
pitals. Third, it was suggested that there was a need for more tools and HMIS to inform profitability, HMIS for small- and
cost accountants to be formally involved in health care cost medium-sized hospitals generally serve a narrower purpose
accounting processes. of managing billing and financials. As a result, when col-
Fourth, it was recognized that having a repository of cost lating resource use information from different hospitals, the
data would mean that ‘Everybody would know what is the information is in varied formats and not easily comparable.
rate from each hospital. Many hospitals would be willing to Existing efforts at compiling standardized costs for public sec-
participate and they could be the consortium … bringing their tor planning have involved large-scale costing studies with
own rate’, contributing to more efficient and transparent rate stand-alone data collection exercises (Figure 3). While provid-
setting processes. Fifth, to improve the trust between the gov- ing a good foundation of cost evidence, this approach is not
ernment and private health care providers, government should sustainable in the long run. However, government attempts to
involve providers in the entire process of reimbursement rate compile costs at a national level have faced challenges around
setting and the related data collection and analysis while also lack of awareness of the initiative and the availability of the
implementing trust-building exercises. Institute of Cost Accountants standardized template. Only
Sixth, digitization (2 respondents, KI 3 & 6) is seen as an 4 out of 11 participants were aware of the freely available
opportunity to facilitate cost accounting and for the business, template and guidelines developed by the Institute of Cost
if it leads to systems that enable analysis of the profit from Accountants, which all hospitals are required to maintain
different specialities and activities. ‘We now understand that under the cost audit rules, 2014, but whose use is not enforced
digital is the new frontier … Power BI will help use to see by the government.
even the cost at the doctors’ level’ (KI 3). The view is that Where the cost accounting systems in the health care indus-
this is not widespread so that hospitals larger than 100 beds try in India are rudimentary, this can be explained by lack of
‘Most of them would be electronic’ (KI 6) but others ‘are still, costing capacity, the lack of understanding around the bene-
you know, making do with the, uh, basically all handwritten fits of maintaining cost records as well as the use of market
records and accounts’ (KI 6). rates to help set prices. This in turn means that there is a
8 Health Policy and Planning, 2024, Vol. 00, No. 00

low perceived benefit of and lack of motivation to introduce the guidelines issued by the public purchaser (Eldenburg and
cost accounting. The interviews further underscored that the Kallapur, 1997; Tan et al., 2011). These are focused at

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private health care industry remains highly unregulated with how cost should be calculated for pricing purposes and use
weak law enforcement where there is regulation. Along with standard principles and instructions (InEk, 2007; Department
this, the lack of awareness around costing system standards of Health and Ageing, 2011; Serdén and Heurgren, 2011).
for health care providers makes the use of cost accounting as Establishing such a nationwide cost accounting database also
standard practice in health care more difficult. requires consideration of the institutions involved. The Insti-
On the other hand, some providers recognize the benefits tute of Cost Accountants could play a crucial role in setting
of cost accounting but the necessary changes to data col- professional standards and ensuring the credibility of method-
lection systems pose a potential barrier to implementation. ologies for data collection and analysis. However, potential
Currently, linking cost information, based on resource con- hesitancy from private sector entities to share data with gov-
sumption, to the HMIS is not a common practice as health ernmental bodies suggests the necessity for an autonomous
care providers do not consider it necessary. Moreover, there oversight body that could serve to impartially manage the pro-
is a significant concern regarding the shortage of skilled staff cess, assuaging fears of data misuse and bolstering trust across
and limited analytical capacity for financial data across the sectors. Good governance will further demand rigorous vali-
different levels of the health care system. A potential opportu- dation and auditing protocols to maintain the accuracy and
nity is to leverage existing and developing digital systems, such reliability of the data collected.
as India’s ‘Ayushman Bharat digital Mission’ (ABDM) (NHA, National standard setting will also face the challenge of
2024), to establish sustainable cost reporting systems. The the current lack of standardization. There are differences in
ABDM components, including the Ayushman Bharat Health how different providers collate cost information, which is
Account for unique individual identification, registration of according to the needs of their set up (Kihuba et al., 2016).
health facilities and professionals and a unified health inter- The availability of a standardized nationwide framework and
face for interoperability, offer an opportunity to generate the establishment of efficient e-HMIS systems to inform the
critical information for patient-level cost accounting. How- costing will be instrumental in standardization and for cost
ever, this system will only capture billing information and accounting systems to be used for price setting (Fraser and
require additional effort for cost data entry and its integration Blaya, 2010).
with the HMIS. There are a number of inherent limitations with the study.
Our findings underline the need to raise awareness around Firstly, we followed a snowball sampling approach to iden-
the importance of the information needed for cost accounting tify key informants for our interviews and therefore may
and pricing, and strengthening both the capacity of providers have missed some expertise within the field. In addition, the
as well as the complex relationship between the private sector extensive heterogeneity of health care services and providers
and government. Efforts should be made to train and recruit across India has potential to limit the generalizability of our
skilled staff. One potential step in this direction is to develop findings. However, all the respondents were highly expe-
a short programme focused on building costing capacity. A rienced national-level stakeholders engaged in health care
programme such as this could be part of an effort to develop sector and had knowledge of financial and cost accounting
a stronger partnership between PM-JAY and its empanelled and its role in the hospital sector. Further, they also act
providers and create a real demand for cost data from both as national level representatives for the public and private
public and private providers. As the private sector already sectors across rural and urban areas and different health ser-
serves 70% of India’s population, it is pivotal for these major vices (hospitals, nursing homes, clinics, diagnostic centres,
stakeholders in health to be aligned (Federation of Indian etc.). The initial analysis was validated by the panel members
Chambers of Commerce and Industry (FICCI), 2018). Efforts who expanded the diversity of the group and interviews were
in this direction could take the form of introducing regulation conducted until we reached saturation in terms of themes.
on costing or creating incentives to produce cost information, Secondly, we carried out virtual interviews via Zoom as the
e.g., following examples from the UK and Australia where respondents were placed in different cities and it was not
summary cost data for each provider are shared across the sec- feasible to travel to each of them. This also meant that our
tor allowing providers to compare their levels of performance interviews were time bound due to the amount of time avail-
and efficiency. able with each respondent, which might have led to missing
Government may also be able to leverage consumer inter- some aspects.
est to promote cost accounting. Currently, consumers lack
access to benchmark price information, limiting their abil-
ity to make informed choices. Raising public awareness to Conclusion
demand easily accessible, and comparable cost information, at In publicly funded health care systems, where resources are
least regarding market prices, could also encourage efficiency finite and public trust is paramount, transparent accounting
and greater transparency for all, and incentivize hospitals to practices are essential. Cost accounting provides a system-
adopt more accountable and efficient practices including cost atic framework for accurately tracking and allocating costs
accounting. and generating evidence to inform public sector rates. For
Our findings are consistent with what has been reported the moment, hospital cost accounting in India is rudimen-
by other countries (Guinness et al., 2022). There is diversity tary but highly variable. While there is a recognition of some
in how regulatory systems operate in different country set- of the potential benefits, low perceived benefits of adoption
tings. Countries such as Australia, England and USA have and low perceived risks of non-compliance are contributing
mandatory cost accounting systems applying to all providers to the limited motivation to use cost accounting and invest-
who participate in publicly funded provision, according to ment in cost accounting capacity and resources that could
Health Policy and Planning, 2024, Vol. 00, No. 00 9

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Health Policy and Planning, 2024, 00, 1–10, DOI: https://doi.org/10.1093/heapol/czae040, Advance access publication 30 May 2024, Original
Article
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