Context Most strategies proposed to control the rising cost of
health care are aimed at reducing medical resource consumption rates.
These approaches may be limited in effectiveness because of the
relatively low variable cost of medical care. Variable costs (for
medication and supplies) are saved if a facility does not provide a
service while fixed costs (for salaried labor, buildings, and
equipment) are not saved over the short term when a health care
facility reduces service.
Objective To determine the relative variable and fixed costs of
inpatient and outpatient care for a large urban public teaching
Design Cost analysis.
Setting A large urban public teaching hospital.
Main Outcome Measures All expenditures for the institution during
1993 and for each service were categorized as either variable or fixed.
Fixed costs included capital expenditures, employee salaries and
benefits, building maintenance, and utilities. Variable costs included
health care worker supplies, patient care supplies, diagnostic and
therapeutic supplies, and medications.
Results In 1993, the hospital had nearly 114,000 emergency
department visits, 40,000 hospital admissions, 240,000
inpatient days, and more than 500,000 outpatient clinic visits.
The total budget for 1993 was $429.2 million, of which $360.3 million
(84%) was fixed and $68.8 million (16%) was variable. Overall, 31.5%
of total costs were for support expenses such as utilities, employee
benefits, and housekeeping salaries, and 52.4% included direct costs
of salary for service center personnel who provide services to
Conclusions The majority of cost in providing hospital service is
related to buildings, equipment, salaried labor, and overhead, which
are fixed over the short term. The high fixed costs emphasize the
importance of adjusting fixed costs to patient consumption to maintain