A cost management model for hospital food and nutrition in a public hospital

Improving nutritional status in any country is a challenge. It has been well documented that poor people are at increased risk for specific health conditions and diseases given their financial situation, lack of education, poor nutrition and health status [1]. In this way, nutrition is a factor in exacerbating inequalities in health. Hospitals also have an important nutritional role in preventing illness and maintaining the health of their patients; this produces a constant need to improve their efficiency and productivity. However, achieving hospital efficiency is not easy, particularly nowadays when there are many hospitals suffering from the absence of administrative and financial autonomy, and also have budgets that ignore the actual services provided by them [2].

Thus, nutrition is an important determinant of health for any patient. Adequate patient meals are an essential part of hospital treatment and the consumption of a balanced diet is crucial for a patient’s recovery. Although diet is just one of the lifestyle factors that influences quality of life, a proper diet combined with aftercare and nutritional education may influence the quality of the patient’s future health and life. The importance of hospital food and its benefits have been well studied [3],[4]. However, the provision of hospital meals is a difficult process aggravated by the potential of the patient’s malnutrition [5],[6].

People tend to forget the importance of hospital food services when comparing other clinical activities, and meal services are more prone to be subject to a budgetary cut than other services [7]. Therefore, it is difficult to find the balance between delivering quality food services and appropriate costs, mainly because of the lack of competencies required to perform this task and tools to enable proper management of the services. In addition, the quality of hospital food services has a critical effect on patient satisfaction [8], which influences the patient’s perception of the quality of the services provided by the hospital. The potential impact on both health status and patient satisfaction emphasizes the need to achieve quality in the food and nutritional services provided, which is not independent of the decision of how to allocate limited resources.

In any hospital it is a challenge to control health care expenses. In fact, escalating health care costs due to changes in the age distribution of the population increases in the levels of expectation for health care services, and the application of new technologies for health care delivery urge governments towards cost containment solutions. As a result, there is a need for more accurate data on health care services costs, which is useful for policy making as well as internal management decisions [9]-[11].

In view of producing more accurate cost estimates, health care organizations have started to invest in sophisticated management tools, including costing systems. ABC is a cost accounting system, which: (i) allows cost efficiency without negative impact on the quality of services, (ii) provides information for management, and (iii) and aids with continuous quality improvements [12]. ABC allocates indirect costs to services using a multistep allocation procedure on the basis of activity consumption. Based on the information provided by ABC, there is a set of actions and improvements that can be performed in a process to satisfy customers and reduce or control costs, known as ABM [13].

In Chile, there is a lack of health care cost accounting systems for decision-making processes in public hospitals, including nutrition units. There are many benefits associated with the use of more sophisticated techniques, for example, Álvarez et al. have shown that improving the quality of information systems in clinical nutrition will have a positive impact on the overall results of the hospital when measured in terms of effectiveness, efficacy or quality [14].

The aim of this study is to describe the development and application of ABC and ABM systems for a nutrition department in a hospital of high complexity.

ABC involves a two-step process: the first step traces resources costs to activities, followed by a second step that traces activities costs to products or services to determine their cost. This paper adopts the methodology suggested by Kaplan and Cooper [13], which has been previously implemented by Canby [21] and Roybal et al. [19], to name a couple. The methodology consists of: first, thoroughly analyze the organization processes; second, identify and classify activities associated to the processes; third, identify resource drivers to assign indirect costs to activities; and fourth, assign activity costs to cost objects through the use of activity drivers.

This section details the development and implementation of ABC in the nutrition department of a hospital of high complexity in Chile. A key for this case study was the willingness of the nutrition unit to provide access to all relevant information. We have divided this section into four steps: in the first step, we explain the processes involved in the nutrition department; second, we present an activity analysis for each relevant activity performed by the nutrition unit. In a third step, we calculate the cost of the different activities; and fourth, we calculate the cost of the different diets.

The results provide insight into the actual costs of the patients’ meals for the hospital, but they also provide valuable information about the activities carried out in the hospital. Figure 3 presents the activity costs for the whole nutrition unit. It can be appreciated that the most expensive activities are preparing food (11%), washing and putting away trays (10%), and visiting the patients (10%).

This information provides nutritionists and administrators with a common language with which to discuss the link between costs and procedures, and also provides alternatives in case reduction of costs or activity improvement is required. At this point, let us provide an example of how ABM was applied for the “Visit Patients” activity implemented in this hospital, and accounted for 10% of the total costs. The nutritionists were in charge of performing this activity daily, visiting inpatients and evaluating their diets twice a day. The main activities of the clinical nutritionist should be oriented to the assessment and care of the patients, but those activities were displaced for administrative activities, which accounted for over 60% of the cost in the wages of the professionals. Nutritionists were asked to fill out several forms indicating the patients’ meals. Each nutritionist prepared a form by hand, and after they finished visiting the patients, a larger form compiling all this information was also prepared by hand. Thus, an important part of the nutritionists’ day was consumed by filling out paperwork. The administration took into consideration the costs of the activities, and using a more managerial approach, came up with the solution of implementing technological tools that help nutritionists to register the diets of the different patients and avoid the use of all the paperwork (a photo of the new system is presented in Figure 4). As a result, a scarce nutritional resource was liberated to perform more relevant activities, by approximately one hour a day. The hour freed up by the nutritionists is now devoted to educating patients regarding their future diets and their impact on patient recovery and health status. Also, nutritionists now have more time to investigate new balanced diets for patients. All these activities are more relevant from a point of view of patient relapse and prevention of future diseases. Non-value-adding activities were also eliminated, such as counting diets and creating reports, as the reports are now automatically created. Finally, this leads to a reduction of costs by eliminating low-value high-cost activities and continued improvement of the unit. It is expected that ABC could produce similar results in other areas of the hospital.

Many ABC models for health care institutions exist in the literature; in surgery departments [28], nursing administration [29], radiology department [18],[30], nuclear medicine [31], prenatal care [32], renal dialysis clinic [33] and intensive care unit [34], among others. The cost objects may be a disease, a homogeneous group of patients, a medical procedure, etc. However, there are no costing models for a nutrition unit. The importance of the nutrition area is sometimes forgotten and differs from hospital to hospital as far as the activities and cost objects are concerned.

This study also adds evidence that the ABC methodology can be implemented in a hospital. There are hospitals that are reluctant to use ABC because they believe that it is expensive and difficult to implement, that managers are not committed to such initiatives, and that the information is not fully leveraged in activity based systems [35]. However, this paper provides a replicable model for other nutrition departments that can be extended to the whole hospital.

ABC represents an opportunity to obtain a more detailed and rigorous method to allocate the costs for a nutrition unit. The results from this study yield a dollar amount per meal for a patient. This study, in fact, accomplished a series of objectives. First, ABC allows the identification of the processes and activities related with the food service of a hospital, which will help the management of the unit to understand their activities and resources. Second, there is a high level of information about the different meals produced in the hospital and their costs, which benefits the decision-making process of the services. This information was not available before. Third, there is a better understanding of what activities add value to the process of food production and delivery of the services. Fourth, it also allows one to determine the cost of activities, which are not directly related to nutritional activities, such as activities done for administrative purposes. Fifth, it provides useful information about the types and quantity of resources used and identifies possible sources of cost reduction, while maintaining the quality of services provided. Finally, a model for calculating indirect costs based on ABC can provide a stable basis for making managerial decisions in the nutrition unit and also meet the food standards that the Ministry of Health requires.

LN participated in the conception and the design of the project, obtained funding for the study, carried out the interpretation of the data, provided administrative, technical and material support, and reviewed the manuscript. AN participated in the conceptualization of the paper and synthesis of the literature, collected the data, carried out the analysis and interpretation of data, and drafted the manuscript. FR conceived of the study, participated in its design and coordination, developed the technological tools for the hospital, and helped to draft and review the manuscript. All authors read and approved the final manuscript.

LN is an assistant professor and chair of the Department of Management Control and Information Systems at University of Chile. She has a Bachelor Degree in Business from the School of Economics and Business at University of Chile, in Chile, and a PhD. in Economics and Business from Universidad Autónoma de Madrid, in Spain. Her research interests are in process innovation in health care and management control systems. She has developed and teaches several undergraduate and graduate courses in management such as Management Control and Management in Complex Organizations.

AN is an assistant professor in the Department of Management Control and Information Systems at University of Chile. She completed BA Information Systems and Management Control, BA Accounting Auditor, and Master in Finance in the School of Economics and Business at University of Chile, in Chile. She recently received a PhD in Public Health from Oregon State University Department of Public Health in Corvallis, Oregon. Her research interests are in evaluating equity and efficiency in health care services and system finance, comparing health care systems, management in health care organizations and health care policy. She has developed and teaches several undergraduate and graduate courses in management and international health, including Costs and Budgeting, Management in Complex Organizations, Health Systems Organization, and Health Care Economics.

FR is a professor at the Department of Industrial Engineering, University of Bio-Bio in Concepcion, Chile. He received a Bachelor of Mechanical Engineering from U. of Concepcion, Chile. M.Sc. and Ph.D IE from the Georgia Institute of Technology, U.S.A. His research interests are in healthcare simulation, developing objects to facilitate the development of simulation studies by non-simulation experts, which includes simulating all the different departments or services within a hospital, and process innovation. He has developed and teaches several undergraduate and graduate courses in simulation and optimization tools.