Managing the cost of cataract services

SPEAKER: Welcome to this presentation on managing the cost of cataract outlay. By the end of it, you should be able to understand the concept of cost versus price and how this is applies to cataract outlay, describe fixed and variable costs in cataract surgery, understand the relationship between cataract cost and surgical output, and be familiar with the concepts of cost containment, cost recovery, and income generation as used in eye care. Cataract surgery is one of the most cost effective medical interventions. It takes a short time to do and has a high impact on patient’s quality of life. The key priorities are to increase the volume of surgery and to reach everyone who needs it.

Outcome must be kept tied to restore sight and retain patient’s confidence. Services must be delivered at a low cost to insure affordability and sustainability.

To achieve all this, we need to understand the relationship between cost and price. Cost is the expense to the health care provider to do the surgery, and price is what the consumer pays. Different relationships between cost and price have different impacts. If cost is greater than price, then the programme is in trouble and will make a loss or have to be subsidised. If cost is equal to price, the programme has a chance to carry on and break even. Over the long term, though, it will be difficult to invest in and expand services and additional funds will need to be found, and the system will not be responsive to any shocks or difficulties. For example, a natural disaster.

If price is greater than cost, then there is a profit. There are varied margins of profit, and this depends on the setting and on the wealth of the population.

When we break down the cost of running an eye care programme, we see that it is made up of fixed and variable components. Fixed costs include capital costs, the building, equipment, instruments, et cetera, and running costs. And this is the money spent on salaries, utilities like electricity and water supply, maintenance of the building, rental or lease costs, et cetera. Even if no surgery is done, fixed costs are the expenses that will have to be paid for. Variable cost is the money spent on the consumables used in cataract surgery, materials like sutures, IOLs, eye drops, viscoelastic, and so on. For each surgery carried out, this is a cost that must be accounted for.

If no surgery is done then none of this will be purchased. So no cost. The cost per surgery can be calculated

with a formula: the fixed cost divided by the number of surgeries plus the cost of consumables for one surgery. So for example, dividing a fixed cost of $400,000 by a plan to do 500 surgeries gives us $800. Adding this to a cost of consumables for one surgery of $200, makes the cost of one surgery $1,000. This graph illustrates the relationship between productivity and cost of cataract surgery. The cost per cataract surgery shown on the y-axis and the number of surgeries on the x-axis. Looking at the graph, we can see that when 50 surgeries are done, the cost per cataract is $400. But if we increase the number of surgeries to 200, this cost comes down drastically to $100.

And when we do between 800 and 1,000 surgeries, the cost drops again, this time to less than $50 per cataract. This is because the fixed cost is spread across many more surgeries and this helps to reduce the price of surgery for the patient and increases affordability.

Managing outlay has three steps. In step one, the cost of surgery is brought down through cost containment activities. Steps two and three are cost recovery and income generation. These steps aim to reduce the fixed cost, and this is passed on to the patient through a reduced price of surgery. Cost containment is achieved in two ways. Firstly, by increasing the number of cataract surgeries carried out. And secondly, by reducing the variable component of the cost of surgery by intelligent purchasing. This means negotiating bulk prices for consumables, sourcing cheaper generic drugs and IOLs, or even using effective low cost technologies. These are decisions that can be managed by lobbying with management.

Buying intelligently means comparing prices and selecting the best options possible. In addition, using group purchasing to achieve better prices, maintaining a good inventory of materials to reduce wastage, and storing materials appropriately to reduce damage will also all help to reduce costs. The International Agency for the Prevention of Blindness has a Standard List and website with useful guidance for purchasing. Visit iapb.standardlist.org.

Cost recovery systems can be put in place to recoup fixed costs and reduce the cost that is passed on to patients in the price they have to pay for surgery. It is important that clinical standards are not compromised or outcomes affected by cost recovery. However, non clinical facilities can be varied. For example, the type of room a patient pays for can help subsidise free patients. LV Prasad in India uses four types of rooms. If 5% of their patients are willing to pay $100 for VIP recovery rooms, which have en suite and air conditioning, then the eye unit will have some profit.

If 10% use deluxe rooms, which is en suite but has no air conditioning, then the eye unit is still in profit. The economy room, which is private without en suite or air conditioning, requires 20% occupancy for the eye unit to break even. With these rooms occupied, LV Prasad can ensure that 65% of its patients can be poor and get free services. This is called a tiered system for charging patients. It is explained to the patients during the early counselling stage, and patients can then have a choice in what they want. The success of a cost recovery system depends on a population’s socio-economic status, willingness, and ability to pay. Income generation for the service can be achieved in several ways.

By charging fees to the rich to subsidise the poor, from making money through a hospital canteen for relatives and friends of patients, by selling eye drops, and even spectacles in some cases. Many eye units in areas of poor socio-economic status depend on direct government subsidy. For example, salaries are paid or the infrastructure is owned by the government. Local or international non-governmental organisations– NGOs– can sometimes be lobbied to pay for components of fixed or variable costs. Insurance schemes are another option which will sometimes pay for their client’s surgeries.

In conclusion, cost per cataract can be reduced by increasing productivity. Cost containment strategies include bulk purchasing and negotiating. Income generation supports subsidies for poor patients who are unable to pay. And cost recovery is possible through tiered fees for access to non clinical facilities.