Costing of Public Sector Hospital Services: A Provider's Perspective - A Case Study of four District Headquarter Hospitals under Social Health Protection Initiative Khyber Pakhtunkhwa, Pakistan


In 2015, Pakistan’s Khyber Pakhtunkhwa province launched its Social Health Protection Initiative (SHPI) in four pilot districts with funding from the German government through KfW Development Bank. The SHPI ensures cash-free in-patient services to households identified as poor. In 2016, the provincial government, using its own budget, rapidly extended the approach to cover all 26 districts and a larger share of the poor population. On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH commissioned a costing study to support the provincial government in ensuring the scheme’s financial viability. The costing study was carried out in the headquarter hospitals of the four pilot districts. It aimed at calculating the average costs of specific services, and their composition, so that the prices the insurance provider paid for them could be put on a realistic footing and be standardised across hospitals. 


Applying a retrospective bottom-up micro-costing methodology, the study aimed to calculate the hospital costs for major illnesses in four specialities of the pilot district hospitals: Medical, Surgical, Gynecology/Obstetrics and Paediatrics, for both out- and in-patients, based on records for the year 2015-16. Limitations of the study include the fact that it did not take into consideration additional specialities, nor the aspect of out-of-pocket expenditures. It considered direct and indirect costs, and factors such as average cost per illness, average length of stay and bed occupancy. Challenges for data collection included the manual, still largely paper-based record-keeping and the lack of standardisation between the four hospitals both in record-keeping and in definition of the treatment packages.

Findings and recommendations

Although the four hospitals had similar disease profiles, the average cost of treatment for the same health problem varied widely between hospitals, in some cases as much as by a factor of three. The study showed that cost structures and drivers are conditioned by factors such as the number of human resources and their salary scale, differences in utility costs, and average length of stay per illness. In attempting to provide a baseline for evaluating the cost structure, the study underlined the need for improving data management, including digitalisation at hospital level, and brought home the importance of continuously monitoring costs to the participating health managers. An important recommendation is that the provincial Department of Health standardise the service package including drugs for all hospitals, which in turn will make it possible to standardise costs.