Hospitals Business model

Hospitals are based on service models rather than manufacturing. The hospital business prioritizes providing quality services.

Hospitals are basic healthcare service providers with varieties of trained staff and medical equipment and devices to treat ailments and sickness of patients. Hospitals provide two types of services: inpatient and outpatient services.

Patients that require care for more than a day are called “inpatients.” Patients that require care for a shorter period are called “outpatients.” Costing methods shall be devised for various cost pools. It is included as perfecting plans for

  • Hospital services
  • physician services
  • Home Care services
  • Personal Care Home services
  • Pharmaceutical or prescription drugs

There are two ways to approach hospital costs. Under the micro-costing approach, the researcher has to identify and specify all of the resources that are used by individual patients. This type of costing requires detailed knowledge of the treatment and services provided to individual patients.

All of the actual costs of the individual’s treatment and services are assigned to that one case. Under the standard costing approach, the method takes total health care expenditures and divides them by a measure of total services provided (the output) to determine a cost per patient.

Cost of goods sold for Hospitals

The cost of goods sold is the carrying value of goods sold during a particular period. As the hospitals are based on product and service models, COGS also equate to the cost of products and services sold or rendered. The cost of goods sold for hospitals are given below:

Cost of Direct materials

This includes costs related to providing services such as medicines, injectables, and other related drugs used to provide the service of treating the patients.

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The cost of direct materials is auxiliary to the cost of direct labor are costs that are directly attributable to patient care. Examples of direct costs include nursing services, drugs, medical supplies, diagnostic imaging, rehabilitation, and food services.

Cost of Direct labor

This includes the cost of maintaining the hospital staff. These basically include the cost of salary of doctors, staff nurses, lab technicians, and support employees providing support to provide the main service of the hospital.

All the salaries and wages of the hospital staff either temporary or permanent shall form part of the cost of direct labor.

Direct expenses

Direct expenses in the hospital consist of maintaining the equipment, maintaining the laboratories, and maintaining the premises.

The direct expenses also include the expenses related to the upkeep of premises. However, it does not include administration and selling, and marketing-related expenditure.

Statement of Cost of Goods sold

Hospitals

ParticularsAmount ($)Amount ($)
Beginning inventory of suppliesX 
+ Purchases (Medicine supplies)X 
-Purchases returnsX 
+ Direct labor (salary, commissions)X 
Cost of goods and services XX
-Ending inventory (X)
Cost of services rendered/ COGS XX