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Cost and Management Audit · Audit of Different Service Organisations

Audit of Hospitals and Healthcare Services for CMA Final

Updated 11 October 2026 · Fact-checked

Hospital audit in Cost and Management Audit checks whether a hospital runs economically, efficiently and effectively. You identify cost centres, ascertain cost per unit of service such as cost per bed-day, test billing and revenue controls, and report findings with recommendations. Answer by linking each checkpoint to a risk.

Understand Audit of Hospitals and Healthcare Services

A hospital is a service organisation. It has no stock of finished goods. Its output is patient care, delivered through many departments at the same time. So the audit looks at services, resources used and controls, not at a production line.

Costs are grouped by cost centres. Three groups are common. Revenue (patient care) centres earn billing, such as OPD, IPD wards, ICU, operation theatre, laboratory, radiology, pharmacy and dialysis. Service (support) centres serve other departments, such as laundry, kitchen, housekeeping, biomedical engineering, medical records, maintenance and administration. General overheads include management and statutory costs.

Cost ascertainment starts with direct costs of each revenue centre: doctors' and nurses' pay, consumables, drugs, implants. Then service-centre costs are apportioned using a sound basis: laundry by kg of linen, kitchen by meals served, maintenance by area or machine hours, and so on. Service centre costs may be reapportioned between themselves. The result is the total cost of each revenue centre. Dividing by the right unit of service gives cost per unit.

The audit also covers the revenue cycle: admission, tariff, treatment recording, billing, discounts, insurer and TPA claims, collection and refunds. Leakage is the main risk. Services given but not billed, wrong tariff, unauthorised discounts and unrecovered claims all reduce income.

A management or operational auditor adds performance checks: bed occupancy, average length of stay, theatre utilisation, equipment downtime, drug wastage, and patient waiting time. Findings go in a report to management with causes, effects and recommendations.

Key rules to remember

Cost per occupied bed-day
Total cost of the ward or hospital ÷ Number of occupied bed-days
Use occupied bed-days, not available bed-days, unless the question asks for cost on capacity.
Bed occupancy rate
Occupied bed-days ÷ Available bed-days × 100
Available bed-days = number of beds × days in the period.
Average length of stay
Total inpatient days ÷ Number of patients discharged
Check whether the question counts deaths and transfers as discharges.
Cost per unit of other centres
Cost of centre ÷ Units of service (per test, per scan, per theatre hour, per meal, per kg of linen)
The unit must match what the centre actually delivers.
Bed turnover
Number of patients discharged ÷ Number of beds
Shows how intensively beds are used.
Revenue leakage
Value of services rendered − Value of services billed
Test by tracing treatment records to bills.

How to solve Audit of Hospitals and Healthcare Services questions

Use this method for numerical and descriptive questions on hospital audit.

  1. 1Read the question and decide what is asked: cost statement, controls, audit checkpoints or an operational review.
  2. 2List the cost centres: revenue centres first, then service centres, then general overheads.
  3. 3For numerical parts, collect direct costs, then apportion service-centre costs on stated or logical bases.
  4. 4Pick the correct unit of service for each centre and compute cost per unit, occupancy or other ratios.
  5. 5For control questions, follow the patient cycle: admission, treatment, billing, collection, claims, and name the risk and the test at each point.
  6. 6Compare results with budget, past periods or benchmarks and state the variance with its likely cause.
  7. 7Write findings in three parts: observation, impact in rupees or service terms, recommendation.
  8. 8Close with a short conclusion or recommendation that management can act on.

Quickest way: Patient cycle checklist

When to use it: Use for 14-mark descriptive questions asking for audit checkpoints or controls in a hospital.

  1. Write five headings: admission and tariff, treatment and consumption records, billing and discounts, collection and claims, and support services.
  2. Under each, give one risk, one control and one audit test.
  3. Add stores and pharmacy control: expiry, FIFO, issue against prescription, wastage.
  4. Add equipment: utilisation, downtime, maintenance records.
  5. End with two or three performance indicators such as occupancy and cost per bed-day.

Common mistakes in Audit of Hospitals and Healthcare Services

  • Using available bed-days as the denominator for cost per patient day.

    Students take beds × days without reading whether occupancy is given.

    Fix: Use occupied bed-days for cost per day. Use available bed-days only for occupancy or capacity cost.

  • Treating all departments as one cost centre.

    Hospital looks like one service, so students skip the split.

    Fix: Always separate revenue centres from service centres and apportion the latter.

  • Choosing a wrong apportionment basis, such as area for laundry.

    Students memorise one basis for everything.

    Fix: Match the basis to the cause of the cost: kg of linen, meals, hours, area.

  • Listing controls without audit tests.

    Students recall controls but forget that an auditor must verify them.

    Fix: For each control, state how you will test it, such as tracing a sample of treatment records to bills.

  • Ignoring revenue leakage and insurer claims.

    Cost audit focus makes students stress costs only.

    Fix: Always cover billing, discounts, credit, TPA claim rejections and refunds.

  • Giving observations with no recommendation.

    Students treat the answer like a financial audit.

    Fix: A management or operational audit report must include a practical recommendation.

Worked examples

Example 1

A 50-bed hospital works 30 days in a month. Total cost of the general ward for the month is ₹9,00,000. Occupied bed-days were 1,200. Calculate the bed occupancy rate and the cost per occupied bed-day. The ward has 40 of the 50 beds.

Show the solution
  1. Available bed-days of the ward = 40 beds × 30 days = 1,200.
  2. Occupied bed-days = 1,200, so occupancy = 1,200 ÷ 1,200 × 100 = 100%.
  3. Cost per occupied bed-day = ₹9,00,000 ÷ 1,200 = ₹750.
  4. Audit comment: full occupancy means no spare capacity, so check waiting time and any beds added outside the approved count.

Answer: Bed occupancy is 100% and cost per occupied bed-day is ₹750.

Example 2

A hospital has two service centres, Laundry and Maintenance, and two revenue centres, Ward and Operation Theatre (OT). Laundry cost is ₹1,20,000 and Maintenance cost is ₹80,000. Laundry is apportioned 60% Ward, 40% OT. Maintenance is apportioned 25% Ward, 75% OT. Direct costs: Ward ₹5,00,000 and OT ₹3,00,000. Ward occupied bed-days are 2,000. OT used 400 hours. Find the total cost of each revenue centre and the cost per unit.

Show the solution
  1. Laundry to Ward = 60% × ₹1,20,000 = ₹72,000; to OT = ₹48,000.
  2. Maintenance to Ward = 25% × ₹80,000 = ₹20,000; to OT = ₹60,000.
  3. Ward total = ₹5,00,000 + ₹72,000 + ₹20,000 = ₹5,92,000.
  4. OT total = ₹3,00,000 + ₹48,000 + ₹60,000 = ₹4,08,000.
  5. Ward cost per bed-day = ₹5,92,000 ÷ 2,000 = ₹296.
  6. OT cost per hour = ₹4,08,000 ÷ 400 = ₹1,020.
  7. Check: ₹5,92,000 + ₹4,08,000 = ₹10,00,000 = ₹8,00,000 direct + ₹2,00,000 service costs.

Answer: Ward cost is ₹5,92,000 (₹296 per bed-day). OT cost is ₹4,08,000 (₹1,020 per OT hour).

Exam tips

  • Draw the cost-centre split first. It earns marks even if later numbers go wrong.
  • In MCQs, check whether the denominator is occupied or available bed-days.
  • For descriptive answers, structure by the patient cycle and add a test for every control.
  • Use hospital terms: OPD, IPD, TPA, OT, ICU, so the answer reads as applied.
  • Always end with a recommendation, since this paper rewards decision-oriented answers.

Practice questions from Audit of Different Service Organisations

Audit of Hospitals and Healthcare Services in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Audit of Hospitals and Healthcare Services: frequently asked questions

What are the main cost centres in a hospital?

Revenue centres include OPD, wards, ICU, OT, laboratory, radiology and pharmacy. Service centres include laundry, kitchen, housekeeping, maintenance and medical records. Service costs are apportioned to revenue centres.

Which unit is used for hospital costing?

It depends on the centre. Wards use occupied bed-days, OT uses theatre hours, labs use tests, radiology uses scans, and kitchen uses meals.

How is an operational audit of a hospital done?

You review each function against its objectives, measure efficiency with indicators such as occupancy and cost per bed-day, test controls, and report findings with recommendations.

What is the biggest control risk in hospital billing?

Revenue leakage is the main risk. Services given may not be billed, or may be billed at wrong tariffs or with unauthorised discounts. Tracing treatment records to bills tests this.