Managerial Cost Accounting in Health Care: An Application of Time-Driven, Activity-Based Costing to an Outpatient Clinical Environment
Location
Hager-Lubbers Exhibition Hall
Description
PURPOSE: Unbridled increases in the cost of healthcare in the United States have brought renewed and deserved scrutiny upon the costs of delivering care, but efforts to reduce these costs are misguided because of a fundamental lack of understanding on the part of the healthcare organization as to the actual costs of delivering care. This project attempts to provide a better understanding of the cost of delivering care by applying the Time-Driven, Activity-Based Costing model to a large healthcare organization. SUBJECTS: The subject of the study is the Metro Health Medical Group, a 12-practice outpatient care organization in the West Michigan area. This organization employs 50 physicians, and several hundred support staff, and cares for 130,000 patients in the region. METHODS AND MATERIALS: This study uses data collected from analysis of data from the organization’s electronic medical records system, time studies, interviews, and observations. ANALYSES: The study applies the Time-Driven, Activity Based Costing model, pioneered by Dr. Robert S. Kaplan of Harvard Business School to the unique environment of an outpatient primary care facility. RESULTS: The application of the model provides a means to compute the actual costs for each activity in the process of delivering care. This information is used to determine the cost of caring for specific patients over time, as well as specific populations and specific disease states. This data is also used to calculate capacity utilization and expose opportunities for improved efficiency. CONCLUSIONS: A method to determine the cost of delivering care at the population, patient, procedure, or activity level is requisite to a successful effort to reduce those costs. Time-Driven, Activity-Based Costing can be successfully applied to a healthcare organization, providing meaningful and actionable results.
Managerial Cost Accounting in Health Care: An Application of Time-Driven, Activity-Based Costing to an Outpatient Clinical Environment
Hager-Lubbers Exhibition Hall
PURPOSE: Unbridled increases in the cost of healthcare in the United States have brought renewed and deserved scrutiny upon the costs of delivering care, but efforts to reduce these costs are misguided because of a fundamental lack of understanding on the part of the healthcare organization as to the actual costs of delivering care. This project attempts to provide a better understanding of the cost of delivering care by applying the Time-Driven, Activity-Based Costing model to a large healthcare organization. SUBJECTS: The subject of the study is the Metro Health Medical Group, a 12-practice outpatient care organization in the West Michigan area. This organization employs 50 physicians, and several hundred support staff, and cares for 130,000 patients in the region. METHODS AND MATERIALS: This study uses data collected from analysis of data from the organization’s electronic medical records system, time studies, interviews, and observations. ANALYSES: The study applies the Time-Driven, Activity Based Costing model, pioneered by Dr. Robert S. Kaplan of Harvard Business School to the unique environment of an outpatient primary care facility. RESULTS: The application of the model provides a means to compute the actual costs for each activity in the process of delivering care. This information is used to determine the cost of caring for specific patients over time, as well as specific populations and specific disease states. This data is also used to calculate capacity utilization and expose opportunities for improved efficiency. CONCLUSIONS: A method to determine the cost of delivering care at the population, patient, procedure, or activity level is requisite to a successful effort to reduce those costs. Time-Driven, Activity-Based Costing can be successfully applied to a healthcare organization, providing meaningful and actionable results.