2017, Volume 33, Number 1, Page(s) 017-024
A Comparative Study of Activity-Based Costing vs. Current Pricing System for Pathology Examinations at Okmeydani Training and Research Hospital, Turkey
Enver YARIKKAYA1, Selver ÖZEKİNCİ2, Aytül SARGAN2, Şenay ERDOĞAN DURMUŞ3, Fetin Rüştü YILDIZ2
1Department of Pathology, Ağrı State Hospital, AĞRI, TURKEY
2Okmeydanı Educational and Research Hospital, İSTANBUL, TURKEY
3Erzurum Research and Training Hospital, ERZURUM, TURKEY
Keywords: Activity-based costing, Cost effectiveness, Pathology
To provide real cost data for pathology examinations by using activity-based costing method, in order to provide means to departments,
health administrators and the social security institution to achieve improvements in financial planning, quality and cost control.
Material and Method: The cost of the histopathological examinations, which were accepted by the Department of Pathology at Okmeydanı
Training and Research Hospital during August 2014, was calculated using the activity-based costing method. The costs were compared with the
amounts specified in the Healthcare Implementation Notification Tariff and the conventional volume-based costing.
Results: Most pathology examinations listed within a given band in the Healthcare Implementation Notification Tariff show variations in
unit costs. The study found that the costs of 77.4% of the examinations were higher than the prices listed in the Healthcare Implementation
Conclusion: The pathology examination tariffs specified in the Healthcare Implementation Notification do not reflect the real costs of the
examinations. The costs that are calculated using the activity-based costing system may vary according to the service types and levels of health
care institutions. However, the main parameters of the method used in the study reflect the necessity of a more accurate banding of pathology
examinations. The banding specified by the Healthcare Implementation Notification Tariff needs to be revised to reflect the real costs in Turkey.
At most of the institutions providing health care service
in Turkey, costs of the services provided are not given due
consideration. The systems in place are inadequate for
providing sufficient, reliable and comparable information
necessary for costing1
The true costs of health care services must be known in
order to reserve sufficient resources for the health care
sector, to use the resources effectively and efficiently.
Conducting cost and performance analysis in the health
care sector helps reduce costs and improves effectiveness,
efficiency and performance, subsequently allowing the
provision of better quality health care services2.
Competition between facilities, private entrepreneurs
taking a bigger part in the sector, and the large-scale referral
chain formed between public and private facilities in recent years make a more accurate and effective costing necessary
for appropriate pricing3. The costs of health care services
provided by the institutions and the tariffs applied in the
social security system (SSS) of the state must be compared4.
The cost can be defined as a sum of direct and indirect
expenses of procuring any goods or services in the event or
place they are sold or used5,6. The cost in hospitals can
be defined as a monetary expression of the materials and
labour involved in providing health care services7. Cost
of production has three basic elements, which are direct
raw materials and supplies cost (DMC), direct labour cost
(DLC) and production overheads (PO)5.
Direct raw materials and supplies are the materials that
constitute the basic structure of the service and are directly
traceable7. The sum of economic endeavours that are
directly used in services and in main production areas of institutions is called direct labor5. Use of values related to
production other than DMC and DLC is called production
overhead. PO is comprised of various individual,
unscheduled expenses that are not related to one another.
The precise amounts of some of these expenses can only
be known at the end of the year8. Electricity, water,
cleaning, etc. are involved in PO7.
Activity Based Costing (ABC) system is a costing system
that assigns the costs only to the relevant service groups.
With this feature, it has the advantage of achieving a more
accurate costing by accurately assigning PO to the services
in health care institutions. Therefore, the use of ABC is
gradually increasing among health care services7.
There is no such thing as a standard model since each
facility has its own specific way of applying the ABC system9. The basis of the ABC method is comprised of five steps.
These are; personnel training, process evaluation analysis,
identifying activity centers, transferring costs to activity
centers, and choosing cost drivers10.
This study aims to provide approximately accurate cost
data by using the ABC system for pathology examinations
at a training and research hospital (TRH) affiliated to the
Ministry of Health, and to provide means to Okmeydanı
TRH, health administrators and the SSS to achieve
improvements in financial planning and quality in
All histopathological examinations, autopsy materials
and special pathological investigations (frozen section
examinations, preparations stained with ready-mixed paint
and/or paraffin blocks) recorded between August 1-31,
2014, at the Okmeydanı TRH Pathology Laboratory were
included in the study. Cytological materials, histochemical
examinations and immunohistochemical examinations
were excluded from the study.
In the first implementation stage of the study, the production
process was analysed and the personnel received training on
ABC. Each activity related to production was presented in
a workflow diagram. The activities were gathered together
in activity centers. The activity centers were established
as follows: 1. Delivery of Materials to the Laboratory,
2. Patient Registration and Specimen Acceptance, 3.
Material Identification and Macroscopic Examination, 4.
Monitoring of Tissue Specimen, 5. Paraffin Blocking of
Specimens, 6. Paraffin Sectioning of Specimens, 7. Staining,
Cover Slipping, Checking, 8. Microscopic Examination, 9. Report Writing, 10. Results Reporting, 11. Archiving, and
12. Frozen Section.
In the second stage of the study, the amount of all of the
materials used in the laboratory was recorded daily by
the laboratory personnel, and “direct raw materials and
supplies costs” of all investigations included in the study
were calculated. Unit prices of the materials used in the
laboratory were identified by data of the Medical Stock
Unit of the hospital.
In the third stage of the study, which is calculation of the
“Direct Production Costs”, the time period spent for each
investigation in the abovementioned activity centers were
measured, and an average time period was determined for
each examination. Then, wages of personnel working in the
respective activity centers were calculated per second and
these wages per second were multiplied by the average time
spent for each process.
In the fourth stage, which is the calculation of “Production
Overhead”, first, the primary cost drivers were identified.
Identified primary cost drivers were classified as: indirect
personnel expenses, the electricity bill, the water bill, the
heating bill, the cleaning bill, amortization of fixed assets,
amortization of the building, stationery and consumables
costs and food costs. The allocation of indirect personnel
expenses was done focusing on the working time that the
personnel spent in their respective activity centers. For
direct wage calculation, the number of working days of
individuals and the value of their daily total working hours
in seconds were formulated. Salary and floating capital extra
payment information of individuals were accessed through
the Personnel Unit. Calculated direct wage was postulated
as DLC; and indirect wage and floating capital payments
were postulated as PO. Electricity, water and natural gas
bills were accessed by data of the Hospitality Services
Management. While calculating amortization expense of
fixed assets, the revaluation ratio published by the Revenue
Administration was used11. The economic life of fixed
assets and devices used in the laboratory was estimated as five
years. In order to calculate the amortization expense of the
building, “Notification Regarding Approximate Unit Costs
to be Used in Calculating Remunerations for Architectural
and Engineering Services for Buildings in 2014” published
by the Ministry of Environment and Urbanization was
used12. The economic life of the hospital building was
estimated as 50 years. The expenses added to the activity
centers by means of primary cost drivers were transferred
to the models by means of secondary cost drivers, by which
PO was obtained. The time spent at relevant activity centers
was used as a base for choosing secondary cost drivers.
The calculated DMC, DLC and PO were added together
and the cost of each examination was calculated by using
the ABC method. Also, the conventional volume-based
costing results were obtained by allocating PO at a fixed
rate to specimens accepted to the laboratory during the
relevant month. In order to allow for comparison with
future studies, the figures were converted into US Dollar
and Euro using the exchange rates by the Central Bank
of the Republic of Turkey dated August 1, 201413. The
results were discussed using the Healthcare Implementation
Notification (HIN) tariff and current knowledge in the
The study found the total number of materials received
by Okmeydanı TRH Pathology Laboratory to be 3137 in
August 2014. During the same period of time, a total of
1852 histopathological examinations of 93 types that were
included in the study were performed.
In the study, the material cost of preparing a block was
found to be 0.62 TL, and the unit cost of staining of a slide
was found to be 0.81 TL (cutting: 0.61 TL, HE staining: 0.06
TL, cover slipping: 0.14 TL).
DMCs were calculated by multiplying calculated costs of
blocks and slides by the average numbers of blocks and
slides specified for each histopathological examination and
adding other costs (Table I).
In the study, DLC was obtained by calculating wages of
personnel working in their respective activity centers per second and multiplying the wages per second by
the average time spent for each process (Table II). The
employee wages per second were found to be 0.005 TL for
Associate Professors; 0.004 TL for Teaching Staff, Chief
Assistants and Attending Physicians; 0.003 TL for Assistant
Physicians; 0.002 TL for Laborants, Transfer Personnel and
Archivists; 0.001 TL for Specimen Acceptance Personnel
and Report Personnel.
The transfer of primary cost drivers was identified in the
scope of PO to the activity centers. Calculated values were
transferred to the specimens by means of secondary cost
drivers and PO of specimens was found (Table III).
The cost of each examination was calculated by adding
DLC, DMC and PO results together using ABC method.
Also, conventional volume-based costing results were
obtained for the relevant month. The costs calculated using
ABC method were converted into US Dollar and Euro
using the exchange rates by the Central Bank dated August
Pathology examinations differ from other laboratory examinations
for having various procedure steps. Macroscopic
examination and sampling of materials, microscopic
examination of specimen slides, and preparation of a
pathology report are the procedure steps all completed
by pathologists. The responsibility and workload of the
pathologist in completing pathology investigations are the
factors that prove the necessity of valuing the physician’s
labor and explain why pathology is a clinical branch.
Amounts of labor and workload required by pathology
investigations might be different from interventional
procedures performed to obtain tissues or surgeries. The
most important factor evaluated here is the time spent on
the process. In the study, the time spent while costs were
transferred to the activity centers was used as a cost driver.
In this way, it was aimed to reflect employees’ labor to the
When DLC is examined, it is seen that the investigations do
not present a homogeneous distribution in terms of their
bands. DLC averages determined for each band are shown
in Table II. Some of histopathological examinations that are
among the first, second and third band examinations have
higher costs than the average of their band examinations.
Some of the third band examinations raise the average
with a DLC more than 20 TL and prevent homogeneous
distribution. It is seen that the major driver of the increased
cost is microscopy in all examinations. The examinations
that take longer to be reported in comparison to the
other examinations in their own bands increase the DLC.
Therefore, bands of examinations that require more labor
need to be revaluated.
In the study, the material cost of a block was found to be
0.62 TL and staining cost of a slide was found to be 0.81
TL. Ergün et al.7 and colleagues found the material cost
of a block to be 2.79 TL and the staining cost of a slide to
be 0.38 TL in their study. The differences in given prices
might have arisen from different unit prices of materials
used for blocking and staining or from different procedures
included in blocking and staining stage in their laboratory.
Among Pathology investigations, there are minor biopsies
that can be examined in a paraffin block by routine staining
at one end and there are major resection materials for
which a number of specimens must be taken for tumour
stage identification at the other end in terms of cost. Costs
of raw materials and supplies increase as the number of
blocks and sections increases in order to examine materials
sufficiently. The average DMCs of the examinations
according to the HIN bands are listed in Table I. It shows
that while the first and second band examinations have
similar DMCs, the cost increases significantly as the band
number goes up. When DMC is viewed, it is seen that the
first band examinations “femoral head, excluding fracture”
and “colon, colostomy stoma” have higher costs than
the average of the third band examinations; the second
band examination “finger/toe, amputation, excluding
trauma” has a cost almost equal to the average of the third
band; the third band examination “breast partial/simple resection” has a cost nine times more than “bladder, TUR”
examination, which is in the same band as itself. Similarly,
some of the third band examinations (bladder, TUR; bone
fragments) have lower costs than the average of the first
band. In terms of DMC, a homogeneous and balanced
distribution is not seen between the HIN bands.
In cost analysis, PO is the major driver of product cost,
because PO is far higher than DLC and DMC. Thus, the
allocation keys to be chosen to allocate DMC to products
are critical in identifying real costs of products. Since the
main criterion in choosing allocation keys is the amount
of labor performed, the allocation was done in proportion
to the time spent on processes in all activity centers. As the
time spent on processing in the activity and result-reporting
is the same for every product, calculated average time was
fixedly allocated to the products. The activity centers that
the work done is in proportion to the average number of
the blocks and/or slides, the calculated average time was
allocated proportionally with the numbers of blocks and
slides of the products. In this way, it was ensured that every
product has a share of PO pro rata with the amount of labor
When Table III is reviewed, it is seen that the highest
expense participating in PO is the “Indirect Personnel
Costs”. It indicates that production is based on workforce.
Therefore, it will make a healthy allocation to focus on
workforce in allocating costs to products. In the same
table, it can also be seen that microscopic examination
has the highest PO among the activity centers. Because a
significant number of employees spend most of their time
working with microscopes.
The main factor in designating product costs is PO in
the ABC method. The effect of DLC and DMC on total
product cost is considerably less compared to PO. The
ratios of DLC, DMC and PO to the total cost according to
their bands are as shown in Figure 1. As it is seen, PO was
allocated to the fourth band examinations, which require
more labor and workforce with a higher ratio than the first
band examinations, which require less labor and workforce.
DMC ratio increases as the number of examinations, which
require more blocking and sectioning increase, yet its effect
on the total cost is not significant. DLC cannot impose a
significant load on the cost; hence the reason employee
wages per second are low.
Click Here to Zoom
|Figure 1: Allocation of DLC, DMC and PO according to histopathological examination bands.
Table IV shows that the average costs of examinations in
all bands are considerably higher than the HIN tariff. As
for the fourth band histopathological examinations, where the cost significantly increases, the ratio goes up 4.5 times
higher. It is clear that this causes significant losses in major
hospitals where advanced surgeries and procedures are
performed. According to the conventional volume-based
costing analysis conducted during the study in order
to make a comparison, average costs in all the bands are
significantly higher than HIN prices.
In conventional costing systems, volume-based allocation
keys are used to allocate PO, however, this allocation is far
from reflecting the reality since it fixedly allocates PO to all
products. In the study, conventional volume-based costing
was done and prices were listed for comparison (Table
IV). In volume-based costing, PO allocation is done by
focusing on number of products; therefore, the time spent
and the amount of labor performed on examinations are
disregarded. Conventional costing results for each band
examination were also higher than HIN prices as in ABC
analysis (Table IV).
When all examinations were considered together, it was
seen that the costs of 72 of 93 examinations (77.4%) were
higher than HIN prices, whereas 21 of them (22.6%) were
lower than HIN prices. In a similar study, the costs of
88.88% of the third band histopathological examinations
were higher than HIN prices and 11.12% of them were lower
than HIN prices7. For the fourth band, it was found that
the costs of all materials examined were 2 to 6 times higher
than HIN prices and prices specified within the fourth band
in the HIN tariff do not even cover the costs of direct raw
materials and supplies used in the examinations. According to these results, there are significant differences between
Pathology investigation prices specified in the HIN and
the real costs of relevant examinations. And this shows that
specifying service costs without doing a cost analysis can
cause higher or lower pricing compared to actual prices.
SSS and professional associations like the Turkish Medical
Association established pricing rules without using any
data from comprehensive costing studies that demonstrate
the real costs7. A new implementation on stomach,
colon and excisional skin biopsies was introduced in the
HIN published in July 201415. According to the new
regulation, multiple biopsies are invoiced as single biopsies
in the third band. Payments, which cannot cover the cost of
single biopsies after all, became more problematic with the
new regulation. Since the amount of labor performed and
time spent on pathology examinations are pro rata with the
number of biopsies, the cost will increase as this number
In Turkey, the HIN bands of pathology examinations are
specified according to surgical difficulty levels of relevant
procedures. However, pathology examinations are not
always in line with these difficulty levels. A procedure that
is easily performed surgically can be rather difficult for the
pathologist while performing the pathology examination.
The best example for this is skin punch biopsies, which are
on the first band in the HIN pathology examinations tariff.
Although this examination, rated in the first band in the
HIN, is an easy process in terms of taking specimens for the
clinician, it is considered a difficult examination for being
labor-intensive in terms of its pathology examination, requiring a lot of time and frequently needing consultation.
Meanwhile, transurethral resections of prostate and
bladder, which involve similar surgical procedures, were
specified in the second band for prostate and in the third
band for bladder as pathology examinations similar to
their surgical procedure points in the HIN tariff. However,
in routine pathology examinations, although pathological
interpretations of these two materials are similar,
transurethral resections of the prostate have a much higher
volume than the transurethral resections of the bladder;
increasing the number of blocks and slides used in the
transurethral resections of the prostate, thus making the
time spent for the microscopic examination longer and the
procedure costlier than resections of the bladder.
Interpretation of biopsies, which involve taking specimens
from the same organ for different reasons, does not
change the band of the pathology examination. For
instance, incidental finding of the appendix during surgical
procedure is in the first band in the HIN tariff and surgical
procedure performed for appendicitis or appendix tumor in pathology examinations is on the second band in the HIN
tariff. However, the appendix being taken out incidentally
or taken out for appendicitis or appendix tumor does not
make a difference to the pathologist. Tumors can be found
in the appendix taken out incidentally, or there might be
no findings in the appendix that was taken out in search
of tumors; the same procedure steps will be implemented
regardless of the reason it was taken out.
Pathology examinations are different from other laboratory
tests. Since it is a detailed examination of the tissue
specimens, pathology examinations should be considered
as a physical examination. The clinician cannot specify the
type of pathology investigations needed except for some
special tests such as for gene mutation or amyloidosis
during the requesting issue. However, in our country, the
authorisation of requesting specific type of pathological
examination has been given to the clinicians. This situation
is creating problems in practice. It is usually not possible
to predict for every specimen what will be necessary
for proper pathological evaluation before microscopic examination. These problems in practical life should be
solved by government authorities. At the approval stage
of the pathology report, the pathologist could define
the procedure why the tests were performed. This is an
important step and, in fact, could be the solution to these
problems in Turkey.
Findings of the study conducted by Ergün et al.7 were
compared to the Medicare Payment System in the United
States of America, and it was emphasized that the prices
specified for the investigations were high compared to
the country the study was conducted and the costs, hence
the labor costs and the cost of consumables are high due
to mandatory standards for laboratories in that country.
It was emphasized that bone marrow biopsies, which are
priced within the first band in Turkey, are priced within
the third band; amputations caused by benign factors are
priced within the third band; kidney and liver biopsies,
which are labor-intensive and within the second band in
the HIN Tariff, are priced within the fourth band in the
There are significant differences between the pathology
investigation prices specified in the HIN tariff and the real
costs of these investigations. This shows that specifying
service prices without conducting a costing analysis causes
higher or lower pricing compared to the actual prices.
Examinations that take a longer time to be reported
than other examinations in their band increase the cost.
Therefore, banding of these examinations that require more
labor needs to be reconsidered. Preparing SUT tariffs with
the help of guide-books and re-regulating them based on
pathological interpretation will minimise current problems
and provide a more realistic and appropriate pricing.
All of the authors declare that they have all participated in
the design, execution, and analysis of the paper, and that
they have approved the final version. Additionally, there
are no conflicts of interest in connection with this paper,
and the material described is not under publication or
consideration for publication elsewhere.
CONFLICT OF INTEREST
Authors have no conflict of interest to declare.
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