a simulation model of hospital management based on cost accounting analysis according to disease

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Journal of Medical Systems [joms] pp1277-joms-490332 September 18, 2004 16:5 Style file version June 5th, 2002

Journal of Medical Systems, Vol. 28, No. 6, December 2004 ( C© 2004)

A Simulation Model of Hospital Management Basedon Cost Accounting Analysis According to Disease

Koji Tanaka,1,4 Junzo Sato,2 Jinqiu Guo,1 Akira Takada,2

and Hiroyuki Yoshihara3

Since a little before 2000, hospital cost accounting has been increasingly performed atJapanese national university hospitals. At Kumamoto University Hospital, for instance,departmental costs have been analyzed since 2000. And, since 2003, the cost balance hasbeen obtained according to certain diseases for the preparation of Diagnosis-RelatedGroups and Prospective Payment System. On the basis of these experiences, we haveconstructed a simulation model of hospital management. This program has workedcorrectly at repeated trials and with satisfactory speed. Although there has been roomfor improvement of detailed accounts and cost accounting engine, the basic modelhas proved satisfactory. We have constructed a hospital management model based onthe financial data of an existing hospital. We will later improve this program fromthe viewpoint of construction and using more various data of hospital management.A prospective outlook may be obtained for the practical application of this hospitalmanagement model.

KEY WORDS: hospital cost accounting; simulation; hospital management simulation model.

INTRODUCTION

Domestic Medical Circumstances in Japan

Japan successfully established its overall health insurance system equally for allnationals in 1961(1) and supplied them with a comparatively effective and reason-able medical examination and treatment system. However, this system has faced thedanger of disintegration since 1990s because of the aging of population, social depres-sion, and the tight budgets of the Government. The Government has increased thepressure of medical expenditure decrease, and in medical institutions, more efficient

1Graduate School of Medicine, Kumamoto University, Kumamoto, Japan.2Medical Information Technology, Kumamoto University Hospital, Kumamoto, Japan.3Medical Information Technology, Kyoto University Hospital, Kyoto, Japan.4To whom correspondence should be addressed; e-mail: [email protected].

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0148-5598/04/1200-0689/0 C© 2004 Springer Science+Business Media, Inc.

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690 Tanaka, Sato, Guo, Takada, and Yoshihara

profitability has come to be sought.(2–9) Since toward the end of 1990s, hospital costaccounting has been done at some private hospitals.

In 2003, there were 47 prefectures in Japan. And, there are national or quasi-national universities with university hospitals in all of these prefectures. Historicallyspeaking, in university hospitals, their chief roles have been the researches of basicmedicine or development of therapeutics and highly advanced clinical technologiesas well as the education of medical doctors. The administrative staff of universityhospitals has chiefly managed the given budgets and they have not developed theirfinancial principles. The finance is in great red in every national university hospital inJapan,(10,11) or in other words, under these circumstances, rationalization of the man-agement has not been likely to grow, compared with private hospitals. Officially, theconcept of cost accounting has not been introduced in the management of nationaluniversity hospitals in Japan. One of the earliest studies of the introduction of hospi-tal cost accounting is the software called “The management data analysis program forhospital management analysis” developed by the staff of Miyazaki Medical Collegein 1998. Before that year, there had not been any method of knowing hospital costbeyond the cost of the entire hospital management. This software has received con-tinuous improvements and began to be used at several Japanese university hospitalsaround 2000. At our Hospital this software was introduced in 2000.

The basic structure of this software is the equipment of the Relative ValueUnits (RVUs) method with proportional division by relative value units. In this soft-ware, the original expenditure is broken down into detailed categories; year—months,hospital—departments, back-office sections—direct departments, patients—inpatients and outpatients, month—days, and department—patients. The propor-tional division is done with respective income or occupied area, and the rules ofdivision are defined accordingly. The input and output to other systems are doneby loose connections through files. The data format of files is standardized, and theinformation concerning medical acts and amount of money are based on the formatof the Financial Analysis InfoRmation (FAIR). In FAIR, files of eXtensive MarkupLanguage (XML)(12) or Comma Separated Values (CSV) format are used. With thissoftware, expenditure of hospital is broken down into the daily expenditures accord-ing to patients.

Only 5 years have passed since the introduction of original hospital cost account-ing in some of the medical institutions in Japan. But, in the present year of 2004, thebalance sheets of every medical act have been stored in almost all university hospitalsin Japan.

Further in the spring of 2003, a trial diagnosis-dependent payment system ofDiagnosis Procedure Combination (DPC) was introduced into 82 major hospitals inJapan.(13,14) Sixteen major diagnosis-related groups, 575 diseases, and 2552 diagnosis-related groups were defined. Chiefly hospital fees are included in this payment sys-tem, and operation charges and other expensive treatment and examination chargesare paid at piece rates. The Japanese system is based on daily units, while the Amer-ican system is counted on the number of hospitalization.

Two factors are significant in this system; the suppression of the whole med-ical expenditure and standardization of medical diagnosis in the field of medicaleconomics. In the all-inclusive payment system, as particular treatments different

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A Simulation Model of Hospital Management 691

from the standard ones, are not likely to be done, payments are expected to be con-trolled. In addition, statistics based on the diagnosis-related groups have come to beproduced for the first time under this system in Japan.

Management Analysis at Kumamoto University Hospital

At our Hospital, the balance, income, and expenditure per department havebeen calculated since 2000. In 2001 and 2002, the incomes and the expenditures ofabout 60 diseases of 600 inpatients were worked out.(15) In 2003, by using the dataof 3 months starting in July 2002, the financial analysis was made per DPC.(16,17) Thedaily incomes and expenditures of 60% of inpatients were calculated, leading to theincomes and expenditures according to diagnosis-related groups.

However, these statistics have been made only in descriptive basis and are usefulonly when predictions of some decisions could be made with statistical certainty.There should be some new model, with new principles, which will be exact and usefulfor the predictions of some decisions to be made in the future. A new model should bemade with new definitions, which may produce principles, and the new model couldbe used for the future hospital management. The significance of hospital managementsimulation will be as follows.

• Previously, the effects of some decision at actual hospitals will become appar-ent only several months after the decision.

• A great amount of money may be spent before the effects are known.• As the effects are the results of complicated financial activities, simple holo-

morphic answers are not likely to be obtained.

Our Hospital is a large-scale one, with more than 20 departments and 850 inpa-tient beds, and the hospital workers are beyond 2000. The earliest financial informa-tion is known only in the next month, and several months will pass before the effectsof a decision will be known. The management analysis of a large-scale hospital likeours requires complex information, more than the profit-and-loss break-even point.And it should not be too minute to show the overall picture of the hospital.

Therefore, the model of the hospital management will be a complex one, andapproach through simulation will be desirable for this purpose.

The Aim of the Study

We tried to design a hospital management simulation model by abstracting eco-nomic features and activities of a hospital. This study is based on the results of theincome and expenditure analyses according to department, diseases, or DPC heldin our Hospital up to now. An experimental program for computing was made onthe basis of the designed model. The appropriateness of the program was tested, byputting the monthly data of our Hospital, comparing the results of hitherto-used costaccounting computer software. Next, certain initial condition was input into the sim-ulation model program and the result of calculations was discussed. Finally, this studyaims at the development of the software that the operators who are inexperiencedin programming on computers can use as means to get approximate solutions for

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various prediction problems in hospitals. But, with this report, fundamental studiessuch as the principle of a hospital management simulation model or trial manufactureprogram verification are described.

METHODOLOGY

Materials and Periods of the Study

The materials studied were the information obtained at our Hospital betweenJuly and October 2002. It included the balance sheets of our Hospital, the list ofpatients with DPC, the number of beds at the departments and the information ofoccupied area of the divisions or departments. Two thousand one hundred and sixty-four patients who were hospitalized between July and October 2000 were containedin the list of patients with DPC. About the data of beds and occupied area accordingto departments, the information of a point of July 2002 was used for the initial con-dition of simulations. And, about the expenditure data, the materials of the periodsbetween July and September 2002 were used, because the data of October were notyet provided.

The following computation resources were used for the trial hospital manage-ment simulation program:

• Hardware: Dell Latitude C400 (IBM PC/AT clone, Pentium III 1.2 GHz, 1GB RAM, 40 GB HDD) and

• Software: Microsoft Windows 2000, Wolfram research Mathematica 4.

In addition, for generating initial input data of simulation, the following kinds ofsoftware was used.

• The “Hospital Management Data Entry System,” version creased in 2000• Microsoft Excel 2000• Zetta Technology ADAM Version 7

Basic Concept of Hospital Management Simulation Model

A hospital consists of departments and sections of various kinds. Every unit(department or section) has human and materialistic resources with similar struc-tures, but different because its services are different in nature. These units can bedivided into the departments of specialties and back-office sections. All patientsare examined and treated at departments of specialties. Back-office sections includecentral divisions of medical services (such as the department of examination or thedepartment of pharmacy) and the administrative divisions.

From the viewpoint of accounting, there are incomes and expenditures in a hos-pital. Usually, the incomes of hospital mean medical service fees paid by patients.The monetary patterns of payment differ from patient to patient, but they are sim-ilar within the same diseases, and therefore the incoming model can be made perevery disease. There are different patterns of frequent diseases in different depart-ments. Medical fees are paid only to the departments of specialties, and back-office

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sections have no income. Expenditure derives from the maintenance or consumptionat the departments or back-office sections. For instance, human resource producespersonnel expenditures, materialistic resources produce the cost of materials, andmonetary resources produce taxes. Total expenditure of hospital should be dividedinto the expenditures of diseases beforehand.

The basic model of hospital management simulation is the layering combinationof financial data per disease (Fig. 1).(18) On this model, the change of initial conditionand recalculation are repeated so as to simulate the financial features and activitiesof a hospital.

Changes in the simulation model are divided into changes in items, changesin indexes, and a large-scale model change (Table I). Changes in items are in theunclassifiable elements such as the number of visits of a patient in a given month orthe number of workers doing a particular job in a department. The indexes are usefulvariables such as the ratio of occupied beds or the number of operations per doctor.Changes in indexes can be transformed into those in items by solving the formulasof indexes in advance. A large-scale model change means, for instance, the addition

Fig. 1. UML Class diagram of the hospital management simulation model. Structureand interrelationship among a hospital, departments, back-office sections, and patientsare illustrated in this Unified Modeling Language (UML) class diagram. This is not animplementation model but an analysis model. A hospital, departments, and back-officesections in the diagram have common structures and priorities in respect to human,material, and money. But, the relations of these three objects (classes) with their cir-cumstances are different each other. For example, patients are examined only in de-partments. Back-office sections, which provide services to departments, have no directrelation with patients. Departments and back-office sections are part of a hospital.

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Table I. The Change That Is Given to the Hospital Management Simulation Model

Changes in thesimulation model Explanations Examples

Changes in items Change of the smallest units onthe model

Change of the number of monthlymedical examinee of certaindiseases, change of the numberof staff in certain departments

Changes in indexes Change of the indexes that are thecombinations of items

Change of the rate of occupiedbeds in certain departments,change of the number ofsurgical operations per doctor

Large-scale modelchange

Change of a complicated initialvalue to have an influence onthe whole model

Abolition or establishment ofdepartments

or the abolition of a department, or any changes requiring grand-scale modificationsin the simulation model. Simulation is possible, in any case, by putting the initialdata and repeating recalculations. Recalculation means calculation of incomes andproportional division of expenditures. At the first stage of calculation, incomes bydiseases are sought after the substitution of the initial condition, and then totalexpenditure of a hospital is sought at the next stage. Fixed cost and variable cost arecalculated separately when computing the expenditures.(19–21) The fixed cost doesnot fluctuate with the increase or decrease in the incomes, and can be determinedby the unit of service, while the floating cost fluctuates according to incomes. Thereare several methods of dividing expenditures: calculation by items and statisticalmethods. The expenditures calculated according to diseases are added totally and willbe summed as expenditure. Total expenditure of hospital is treated by proportionaldivisions, seeking the cost according to disease. During calculations, data of expensesper disease or per classified item are obtained. In this way, the financial pattern perdisease, the number of visits per period, and the distribution of resources in thedepartments and divisions will constitute the whole picture of hospital managementof a given hospital.

Preparation of the Basic Data

At the same time, we have sought the basic data to be used in our simulationstudy; we have stored them in the Hospital Management Data Entry System andpretreated them for use. Collected data were classified into the data of the resourcesand data of the patients of the hospital. The data of resources included the occupiedarea of the departments or divisions, the number of beds of departments, the salariesof employees. The data pertaining to patients are largely divided into the incomesand expenditures.

The data of hospital resources had been present scattered in the hospital and notavailable on computers, so that the data were obtained with the help of the staff ofthe administrative division. The data pertaining to patients were obtained from theorder entry information of the hospital information system in the CSV format. Ad-ditional data were obtained from the accounting information, which was very rough,

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and the data were divided through the Hospital Management Data Entry Systemfor everyday expenditures per patient. The data of depreciation of resources andimpairment of assets were not available because the administration of the hospitalhas not completed the calculation, and they were treated as 0. The tax of the hospitalwas not charged because of huge red. Through the processes thus described, dailyincomes and expenditures by patients were obtained. About the information of areaand beds, which is included in the data of hospital resources, the lists of area and bedsaccording to departments in July 2002 were prepared. About the personnel expendi-ture, the product of the number of staff according to occupation in each departmentand the amount of average salary including annual bonuses according to occupationin July 2002 were defined as the initial condition of simulation.

Looking for the Financial Pattern Per Disease

On the basis of the daily incomes and expenditures of patients, the financialpatterns of diseases were abstracted. The diagnosis information, based on diagnosisclassification of DPC, was given to every record of the daily incomes and expendituresof patients. The average of incomes and expenditures of patients with particulardiagnosis-related groups were calculated, and the financial patterns of the diseaseswere sought. Extreme data different from the average were excluded. Cases of adiagnosis, of which cases were a very few (less than 2), were classified in the group ofthe rest in the study group of a department. Twenty-four departments, 291 (exceptthe rest groups of inpatients and outpatients) disease models, were generated finally.

In this study, the financial patterns of diseases were based on the data of inpa-tients only. The main reason was that the diagnosis perfectly classified could not beavailable in the information of the outpatients, and that the finance of the outpatientsof our Hospital was only one fifth of that of inpatients. Accordingly, data of the out-patients were handled on the supposition that it handled one disease, not classifiedby disease.

To avoid the model being complicated, the structure of financial data was madeas simple as possible. Incomes were classified into 10 items and expenditures into8 items (Table II). The structure of items was based on the largest divisions in the

Table II. Lists of Income and Expenditure Items Used in the Hospital Management Simulation Model

Items of income Items of expenditure

Payments not covered by health insurance Material costsBasic charges Utility charges at departmentsMedication charges DepreciationsInjection charges Impairment of assetsTreatment charges Personnel expenditures at departmentsOperation charges Personnel expenditures at back-office sectionsExamination charges TaxesDiagnostic imaging fees Utility charges at back-office sectionsPhysiotherapy and psychotherapy feesHospital fees

Note. The structure of items was based on the largest divisions in the FAIR format. Incomes were classifiedinto 10 items and expenditures into 8 items.

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Fig. 2. Sample screen shot of the simulation program. The experimental simulation program is describedon Mathematica notebooks. User interfaces for general use are not implemented on it yet. Calculationsare carried out by means of manipulating Mathematica notebooks directly. Input and output are basicallydone through CSV formatted files.

FAIR format. FAIR is a Japanese domestic format for exchanges of informationon hospital management and was defined by Araki and his coworkers of MiyazakiMedical College in 1999.(22)

Outline of a Trial Hospital Management Simulation Program

On the basis of the model hitherto described, we tried to manufacture a hos-pital management simulation program (Fig. 2). This program was described on theMathematica(23,24) notebook. In the trial simulation program, user interfaces suitablefor the general use are not yet implemented. Calculations are carried out by directmanipulations of Mathematica notebook, and input and output are done throughCSV format file basically. There are three steps of executing the program; import ofthe initial condition data, change of the model, and calculation. The change of themodel and calculation were done repeatedly (Fig. 3). Data inputs into the simulationprogram are shown in Table III, and outputs are shown in Table IV. An abstract ofproportional division rules in the simulation program is shown in Table V. We usedthe hospital resource information and patient information of our Hospital in the yearof 2002. But it is possible to replace our information with the initial information of

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Fig. 3. UML activity diagram of the simulationprogram (flow chart).

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Table III. Data Input Into the Simulation Program

Input data Contents of data Sources of information

Income dataaccording to DPC

CSV formatted lists of income perhospitalization according toDPC and monthly number ofmedical examinee

The data of DPC and theinformation of order entrysystem were input by doctors,and were gathered in theaccounting section. The listswere made by means of theHospital Management DataEntry System

Expenditure data ofhospital

Expenditure data of wholehospital according to item

Made from the financial data inthe finance division by means ofthe Hospital Management DataEntry System

Information aboutoccupied area andbeds

CSV formatted lists of occupiedarea and beds according todepartment

Made from the data of buildings inthe facilities division by meansof the Hospital ManagementData Entry System

Payroll data CSV formatted lists of personnelcomposition and salaryaccording to occupation

Made from the salary data in thepersonnel section by means ofthe Hospital Management DataEntry System

Note. All the input data into the simulation program are formatted in CSV files. Most of the input dataare made from the information accumulated from various places in our hospital after preprocessing withthe Hospital Management Data Entry System.

other hospitals if the format is the same. To assist the computer users, various indexesare shown at the end of calculation, such as the mean hospital days and the rate ofbed occupancy per department at our Hospital. For example, a warning is shownwhen inpatients are hospitalized beyond the capacity of a department, suggesting aproper number be put into the program. We created a simplified engine within oursystem as a cost accounting engine, following the “Hospital management data entrysystem.” The principle of the cost accounting engine is the proportional division byequivalent coefficients, but as the data of items are greatly simplified, the setting ofcoefficients is also simplified in the simulation program.

Table IV. Data Output From the Simulation Program

Output data Explanations

Expenditure data according to DPC CSV formatted lists of items of expenditure perone hospitalization according to DPC

Total hospitalization days Displayed on screen as an indexNumber of monthly hospitalizations Displayed on screen as an indexMean hospital days Displayed on screen as an indexThe rate of bed occupancy Displayed on screen as an indexThe number of monthly hospitalization per

doctorDisplayed on screen as an index

The number of monthly hospitalization pernurse

Displayed on screen as an index

Note. The results, in other words, lists of expenditure according to DPC, are output from the simulationprogram as CSV files. Various indexes (e.g., total hospitalization days) are just displayed on screen. Outputindexes can be added or changed in the case of specifications change in the future.

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Table V. Proportional Division Rules in the Simulation Program

Rules of proportional divisions

Items of From central divisions To inpatients From departmentsexpenditures to departments and outpatients to diseases

Material costs Injection fees andtreatment fees

Total income Total income

Utility charges ofdepartments

Occupied area Total income Total income

Depreciations Occupied area Occupied area Total incomeImpairment of assets Occupied area Occupied area Total incomePersonnel expenditures of

departmentsUse actual

expendituresTotal income Total income

Personnel expenditures ofback-office sections

Total income Total income Total income

Taxes Occupied area Occupied area Total incomeUtility charges of

back-office sectionsTotal income Total income except

basic fees andhospital fees

Total income

Note. Proportional division rules are the rules to distribute the expenditure in some items, which is notprovided actually, to departments or to in- and outpatients. For example, about proportional division by“total income,” expenditure of a department of the item is the product of the ratio that total income ofthe department occupied in the whole hospital and the whole expenditure of the hospital in the item.And, about proportional division by “injection fees and treatment fees,” the ratio to occupy in the wholehospital only about injection fees and treatment fees is used for pro rata.

Testing of the Action of the Trial Program and Calculation

It was tested whether the trial program would accept the data, whether com-puting worked well, or whether output was possible, as the fundamental job. To testthe appropriateness of the computing, the data obtained by the trial program werecompared with the data obtained by the Hospital Management Data Entry System.

Four different initial data—the model data of income per each disease, theexpenditure data of the entire Hospital, the personnel expenditure, the area and bednumber data—were input into the program for simulation.

Then, the expenditure for a disease and that of a department were computed.The appropriateness of this simulation was tested by means of comparing the datafrom July to September 2002, obtained by simulation and the data obtained by theHospital Management Data Entry System. The rules of division of the system weremade as similar as those of Table V for comparison. However, a small percentage ofthe rules has remained different. By the Hospital Management Data Entry System,computing was done, far minutely than the simulation. The cost of materials wasobtained by proportional division by the Hospital Management Data Entry System,the same process as that of simulation. The utility charges at departments were alsoobtained by means of proportional division. The depreciation amount, the propertywasting cost, and the taxes were handled as if they were 0 in amount, leaving noeffect on the results of computing.

Simulation of Intensification of Treatment of a Specific Disease

A simulation study was done for the clarification of an unsolved question, “Whatwill be the effect of intensification of treatment of a specific disease X?”

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In this case, disease X was a profitable disease with a wide margin of black-ink balance and the number of hospitalization was increased in simulation, duringwhich surgery is done. The disease X was the second frequent disease handled atDepartment A. The average hospital stay days of patients with disease X were 19.5days, and the number of admission per month was 11.5. The full capacity of bednumber of the ward was 50, the staff: 35 doctors and nurses.

In this simulation study, the cases of disease X handled at Department A permonth were increased from 11.5 to 15.0. The initial data were changed accordingly.The total costs also changed to the level of changeable costs, but the personnel costsremained unchanged. The cost for handling disease X and the cost at Department Awere firstly sought. The financial balance at Department A and the whole hospitalwere compared before and after the change of the initial condition. And, the indexesof the efficiency of works and workload at Department A, for example, the number ofmonthly hospitalizations, total hospitalization days, and hospitalizations per doctorand nurse, were also sought.

Simulation of the Abolition of a Department

Another simulation study was done for the effect of the abolition of DepartmentB; at the same time, personnel and material resources were given to Department C.The Department B was a Department belonging to internal medicine, with the totalbed number of 50 and the staff of 56 persons. Department B was supposed to gointo the red to approximately 58,000,000 yen in a month, while Department C wassupposed to go into the black to about 34,000,000 yen.

Department B was supposed to be abolished, and the remaining resources weresupposed to be given to Department C for the improvement of the finance of theHospital in this simulation study. The initial data were changed accordingly; allthe data resulting from treating diseases handled at Department B were deleted.The personnel and salary data and the area data at Department B were also deleted.

During the process of redistribution of resources, cases of diseases handled atDepartment C were increased proportionally, i.e., the total number of inpatientswere made twofold, while the total number of outpatients was 1.3 times reflectingthe previous records of the respective departments. By the change of the incomedata, the expenditure also increased to the level of changeable data. The personneland salary data of Department B were added to those of Department C. The areadata of Department B were added to those of Department C. The new initial datawere input into the simulation program, and the expenditure per disease and thatper department were calculated.

RESULTS


The data of initial condition were successfully input into the trial program, andthe computing of the cost was done also satisfactorily. There were no problems in the

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Table VI. Comparison of Expenditure Calculated by the Simulation Program and Control Study

Items of expenditure

Personnel UtilityUtility Personnel expenditures charges of

Total Material charges of expenditures back-office of back-officeexpenditures costs departments of departments sections sections

Whole hospital 1.002 1.000 1.000 1.007 1.0000 1.00023 departmentsMean of 0.9929 1.355 0.9458 1.001 1.021 1.027

23 departmentsMaximum 1.158 7.662 1.392 1.540 1.219 1.324Minimum 0.7253 0.9098 0.03219 0.6185 0.9390 0.9416Standard deviation 0.0757 1.3812 0.2686 0.1718 0.05872 0.0788321 departmentsMean of 0.9978 1.0456 1.0061 1.0020 1.0069 1.0096

21 departmentsMaximum 1.081 1.247 1.392 1.540 1.094 1.116Minimum 0.9361 0.9098 0.7063 0.6185 0.9390 0.9416Standard deviation 0.03656 0.08717 0.1662 0.1675 0.03543 0.04232

Note. Average expenditure according to departments by the simulation program was compared with that ofthe Hospital Management Data Entry System (Comparison by ratio). In the process of cost accounting,one department where division by 0 occurred was excluded from the study, and 23 departments wereremained. In the study of 21 departments, another 2 departments whose incomes, expenditures, andoccupying area were less than 1% of those of the whole hospital were excluded.

action of the program. At one department, however, there were items which werevalue 0, and the division by 0 was impossible. Hence the department was excluded.The time of computing was about 1–2 min.

Accuracy of simulation was evaluated by means of the comparison of the expen-diture for each department obtained by simulation and by the Hospital ManagementData Entry System (Table VI and Fig. 4). Table VI shows the ratio of expendituresobtained by simulation to that obtained by the Hospital Management Data EntrySystem. There were errors in the expenditure; items in the hospital and the meanvalue, maximum value, minimum value, and the standard deviation of errors wereexhibited. Two kinds of studies which were summarized about 23 and 21 departments.In the study of 23 departments, all departments were included except 1 departmentwhere 0 division were occurred. In the study of 21 departments, another 2 depart-ments whose incomes, expenditures, and occupying area were less than 1% of thoseof the whole hospital were excluded.

Figure 4 is the bar graph showing the income, expenditure, and the balance ineach department; the upper graph shows those obtained by simulation and the lattergraph those obtained by the Hospital Management Data Entry System.


Table VII summarizes the changes obtained by the simulation produced bythe change of initial condition in disease X, in Department A and in the entirehospital. A monthly improvement of +2,548,000 yen in Department A and a monthlyimprovement of +1,352,000 yen in the Hospital were obtained. Figure 5 shows the

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Fig. 4. Comparison of the calculation by the simulation program and control study.The graph of the top is the result of simulation, and the bottom one is control.Vertical axis expresses the amount (unit: 1000 yen), and horizontal axis expressesdepartments. The income (left and upswing bar of each department), expenditure(left and downward bar), and balance (right bar) of all the departments were plotted.

income, expenditure, and balance of every department, obtained by simulation, afterthe intensification of treatment of a specific disease. An arrow shows Department A.


In this simulation, the income of Department C was increased by 2.00 times,and the expenditure was also increased by 2.15 times but those of other departments

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Table VII. Simulation of Intensification of Treatment of a Specific Disease; Comparison of the ResultBefore and After the Change of Initial Condition

Indexes Before After

Disease X Monthly hospitalization (/month) 11.50 15.00Monthly hospitalization (/month) 95.80 99.80Monthly total hospitalization days (days/month) 1473.4 1546.1Mean hospital days (days) 10.80 11.10Monthly hospitalization per doctor

(/month/doctor)5.630 5.850

Before–after ratio of income 1.000 1.044Before–after ratio of expenditure 1.000 1.022Balance (×1000 yen) 33,911 36,459 (+2,548)Before–after ratio of income 1.000 1.003Before–after ratio of expenditure 1.000 1.002Balance (×1000 yen) −86,658 −85,306 (+1,352)

Note. The changes of parameters and indexes about disease X, Department A, and the whole hospitalwith the changes of initial condition were summarized. In particular, about Department A, severalindexes before and after the change were compared.

remained almost unchanged, i.e., within 1%. In Table VIII, the income, expendi-ture, and balance in the whole hospital were compared before and after the abo-lition of Department B and the redistribution of resources to Department C. Theincome of the Hospital decreased by 1.76%, and the expenditure decreased by 8.33%,improving the finance from 86,658,000 yen in red to 1,163,000 yen in red. Themost contributing factor is the decrease of the cost of materials by 27.2%.

Fig. 5. Simulation of intensification of treatment of a specific disease. The resultafter the change of initial condition is shown in the graph. The vertical axis expressesthe amount (unit: 1000 yen), and horizontal axis expresses departments. The income(left and upswing bar of each department), expenditure (left and downward bar), andbalance (right bar) of all departments were plotted. The number of admissions aboutdisease X at Department A (arrow) was increased. Compare with the result beforethe change of initial condition (graph in the bottom of Fig. 4).

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Table VIII. Simulation of the Abolition of a Department; Comparison of the Result Before and Afterthe Change of Initial Condition

Items of income and expenditure Before After

Before–after ratio ofincome

Total income of the hospital 1.000 0.9824

Personnel expenses 1.000 1.024Basic fees 1.000 1.031Medication fees 1.000 0.8507Injection fees 1.000 0.7571Treatment fees 1.000 1.014Operation fees 1.000 1.078Examination fees 1.000 1.015Diagnostic imaging fees 1.000 0.9742Physiotherapy and psychotherapy

fees1.000 0.9961

Hospital fees 1.000 1.009Before–after ratio of

expenditureTotal expenditure of the hospital 1.000 0.9167

Material costs 1.000 0.7877Utility charges of departments 1.000 0.9889Depreciations — —Impairment of assets — —Personnel expenditures of

departments1.000 1.0000

Personnel expenditures of back-officesections

1.000 0.9824

Taxes — —Utility charges of back-office sections 1.000 0.9824

Balance of hospital Total balance (×1000 yen) −86,658 −1,163 (+85,495)

Note. The income, expenditure, and balance in the whole hospital, before and after abolishingDepartment B and the redistribution of resources to Department C, were compared. The balance ofthe whole hospital before and after the change of the initial condition was shown in the bottom of thetable.

Figure 6 shows the results of simulation studies after the changes of initialcondition.

DISCUSSION


The expenditure at departments by simulation studies and the expenditure atdepartments by the Hospital Management Data Entry System were compared in allitems.

In the 23-department study, in a part of departments because of their small scale,errors of expenditure became large, when comparison by the ratio was done. Conse-quently, we examined the errors in 21 departments, excluding another 2 departmentswhose incomes, expenditure, and occupying area were less than 1% of those of thewhole hospital.

In the study of 21 departments, almost all cost items of errors became muchsmaller than in the study of 23 departments. Concerning the total expenditure of

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Fig. 6. Simulation of the abolition of a department. In the graph, the result after thechange of initial condition is shown. Vertical axis expresses the amount (unit: 1000yen), and horizontal axis expresses departments. Income (left and upswing bar ofeach department), expenditure (left and downward bar), and balance (right bar) ofall departments were plotted. Department B, which was abolished, is not displayedin the graph (an arrow in the left). Department C is the eighth one from the right (anarrow in the right). Compare with the result before the change of initial condition(graph in the bottom of Fig. 4). Department B is the second one from the left in thebottom graph of Fig. 4.

departments, the maximum error was 8.13% and the standard deviation was 3.66%.However, concerning the personnel expenditure of departments, great errors wereseen in two small departments, 38.2 and 54.0%, respectively. For simulation studies,the number of staff was fixed at that of July 2002, while the number of beds and thatof the staff varied from time to time. Monthly numerical fluctuation of the numberof patients was reflected in these errors. There was also a tendency that greatererrors were those of smaller departments in financial state and their patients andcases of admissions were generally small. About the departments where more than20 members of staff belonged, the errors of simulated personnel expenditures becameless than 20%.


One of the most simple initial changes as defined in Table I in simulation studiesis the change of an item; intensification of treatment of a specific disease. Given thesupposed change, simulation revealed that the income of Department A increased by4.4%, the expenditure increased by 2.2%, and the balance increased +2,548,000 yen.Under these idealistic conditions in which the effort in intensification of treatmentof disease X produced an increase of cases of disease X, the hospital stay days ofDepartment A were 1546.1, almost to the capacity of Department A. Measuressuch as this simple improvement are easy to perform, but reach limits of financialimprovement soon, because of the limit of personnel and bed resources. However,

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if this procedure is multiplied in many departments, the financial improvement of afew percent, or improvement of the balance of +10,000,000 yen to 30,000,000 yenwill be obtained. It is considered that simulation studies will produce correct andreliable answers, when the change is simple and small scale in size.


In this simulation study, Department B was abolished, and the personnel andother resources were given to Department C. The income and expenditure of De-partment B became 0, while those of Department C were twofold, and the balanceof the entire hospital improved greatly.

In our simulation study, there were no apparent effects of this initial conditionchange in other departments. But the expenditures in items not dependent on thetotal income of the hospital showed greater changes than those in items dependenton the income. It is expected that the abolition of a department will give greatereffects if the rules of division in simulation would become more detailed and morecomplicated.

The abolition of a department is apparently a major change as defined in Table Iin simulation studies. In this study, initial data were pretreated for secondary data,and the data were put into the newly formed formula of the simple change of an itemor combinations of the simple formula.

In simulation studies, it should be taken into account that problems are simpli-fied. For instance, it was done on the assumption that persons in enterprises could bereplaced. However, in reality, replacement cannot be always possible.(25) In reorga-nization such as the abolition of a department followed by the start of a new one, thecost of retirement and the cost of education and the cost of renewal including con-struction are needed in reality. But in this simulation study, these costs are negated.This simulation study shows only the two static states before and after the change,and the transitional state is not expressed. In further studies, initial changes shouldbe reconsidered such as the possibility of substitution of human resource and lossaccompanying transition. The calculation of initial condition is now done manually,but later, this calculation should be done automatically following more and morecomplicated condition.

Important Points in the Designing of the Model and in the Building of a System

On the basis of the results of the financial balance per disease at our Hospital,we designed a fundamental model as showing a universal model which works forother hospitals in general.

This model is an extension of the “profit and loss critical point” analysis model,with disease as the minimum unit. The summary of this hospital management simu-lation model can be defined as the following:

• extraction of the financial balance per disease;• division of the cost into the fixed cost and the changeable cost;• relate the disease model to upper models such as sections, departments, and

hospitals; and

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• at any change of the initial condition, the expenditure is calculated for theentire hospital, and then the cost is calculated again.

The basis of this disease model, which is the unit of this simulation, is the balanceanalysis per disease hitherto performed in our Hospital. We obtained the income,expenditure, and number of patients of every month, and obtained these per diseaseas the model. The expenditure was analyzed into the fixed cost and the changeablecost, looking for the “profit and loss critical point.”

The “profit and loss critical point” analysis has been a classical managementanalysis procedure dealing with cost, the amount of business activity, and profit.Usually, the amount of business activity (corresponding to the clinical activities in ahospital) is manipulated, or the fixed cost is reduced and the financial improvementis predicted. The “profit and loss critical point” analysis can be said to be a simulationmodel.

But, the “profit and loss critical point” analysis has been used as a completedanalysis, not extending beyond the narrow range of study; for instance, examiningdisease only or departments only in hospital studies. It has not reached the upperstrata or lower strata of study.

An upper concept of the disease model is the division, or department in a hos-pital, for instance, of internal medicine. By employing the DPC framework as thedisease model, more than 60% of admissions could be handled, and these strata,i.e., disease model level, departmental level, and hospital model, could be connectedseamlessly.

The back-office sections, which provide other departments with various kindsof services, are handled differently from clinical departments. The expenditure is puttogether as the entire hospital and divided proportionally. This procedure is to copewith any change of the initial condition and resulting changes which may require anychange of the “profit and loss critical point.”

For instance, a sudden increase of patient visits will limit the workload of theback-office sections; this should be handled by the suppression of patient visits orthe intensification of the activities of back-office sections. By the conventional “profitand loss critical point” analysis, redesigning of the items hitherto handled by the fixedcost should be done stepwise. In some diseases, cases of visits extending over monthsmay reach the limits of workload of the back-office sections, requiring very compli-cated calculation. This cannot be handled by conventional procedures. Therefore,our principle of going back to the initial changes is a very significant procedure.

Future Problems and Limits of Simulation Studies

Practical applicability and exactness of this simulation program have been ob-tained. We must refine it for further exactness and convenience.

• Basic patient data concerning incomes and expenditures should be collectedfor a longer period and of as many patients as possible.

• The transition and tendency of patient data should be accumulated at leastfor 1 year.

• The income and expenditure data should be classified into more detailed items.

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• The division of the expenditure into the fixed cost and changeable cost shouldbe modified by statistical methods such as by regression analysis.

In this study, patient data were collected only for a short period of 4 months andinformation of patients with a longer hospital stay or with less frequent disease maynot be collected. Therefore, the percentage of known diagnosis may have becomesmall or in smaller departments, patient data with a diagnosis of “the rest” becamea majority. Another big problem is the fees of expensive operations, of which, thepatients were not included in the list of patients of DPC classifications in our Hospital(the charges resulting from expensive operations are paid at piece rates). However,diseases with expensive operations are also included in the code of DPC classifica-tions, and manipulations will be possible in the future.

The simulation computing for cost in smaller departments tends to be under theinfluence of the monthly change of patients and personnel changes. This should besolved by taking a longer period of observations and examining as many patients aspossible. We must understand that there are seasonal changes in some diseases andfluctuations of patients resulting from social and school holidays and customs andother social conditions.

Concerning cost accounting, the Hospital Management Data Entry system is afar more complex program than the present simulation program. Detailed calcula-tions are made concerning the incomes in more than 100 items and concerning theexpenditures in about 50 items. The rules of proportional division are also compli-cated; in a small item of expenditure, respective rules of division have been set. Inour future simulation studies, minute cost accounting is considered necessary, andcorrespondingly, the items will be increased concerning incomes and expenditures.However, calculations by simulation need a certain speed not disturbing repeatedcalculations. Therefore, simulation is desired to be less exact than authentic costaccounting.

The division of expenditure into the fixed cost and the changeable cost was madeby the simple account item method. For detailed division, statistical methods such asregression should be employed.

It is our plan for this system to have connections through standardized filesand to develop user-friendly interfaces after these detailed improvements have beenaccomplished. Other plans include the programming and development of diseasemodels of outpatients, or daily income–expenditure model of inpatients.

CONCLUSIONS

We designed a set of programs for a hospital management simulation model,on the basis of our conventional financial balance critical point analysis method perdisease classified by DPC. We put our initial patient data into this system and provedthe availability and appropriateness of this model by comparing the results with theresults of a known hospital management nonsimulation model. It was revealed thatthis model works well for the evaluation of our Hospital.

Using our trial programs, a minor change, or an increase in patients in a depart-ment and a major change, the abolition of a department followed by the

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transfer of personnel and materialistic resources to another department, were testedby simulation.

A comparatively exact prediction was made, when a minor change was tested.However, it was considered that when a major change was tested, the transitionalstate could not be ignored, for instance, during which various limitations might bereached, which needed delicate manipulations beyond the scope of the model. Thetransitional state should be studied more deeply in the future.

To improve this model, basic data should be collected for longer periods of time,and more detailed improvements such as the improvement of the cost accountingengine should be made.

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a simulation model of hospital management based on cost accounting analysis according to disease

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