(click to make it larger)


Most healthcare professionals are not aware of the nature of the different types of costs involved in launching a healthcare start-up. This is something of great importance, let's see why. This is the first of a couple of posts that I'm willing to write about this important matter. Let's start by understanding the different types of costs, using a "hospital" as an example to make it more understandable...


Let's imagine a hospital that has many departments (neurosurgery, cardiology, radiology, legal, human resources...), and each department provides many services (coronary bypass, pacemaker implant, heart transplant). Let´s have a look at the structure of costs in one of these departments (see two by two matrix):


(1) Variable Direct costs: All costs that can be specifically traced to the service given, and change in strict proportionality with the volume. An example could be materials used in a neurosurgical procedure (sutures, gowns, antibiotics...).


(2) Variable Indirect costs: Costs that cannot be traced to a single activity but are variable in nature, that is, they do vary with volume. For example, electricity: I know that if I give more services I will spend more, but I cannot measure it (if I were able to measure it, it would be a variable direct cost). Another example: the need of maintaining a health records department for the whole hospital is obvious, and every department uses it. The medical records personnel salary would also be a variable indirect cost.


(3) Fixed Direct Costs: All costs that can be specifically traced to the service given, but do not vary at all with volume. An example could be the neurosurgical navigator (a computer) in the operating room.


(4) Fixed Indirect costs: Costs that cannot be traced directly to a single activity, and do not vary with volume, such as the salary of medical director of the hospital.

More on this in my next post.