Avant-garde Health’s use of time-driven activity-based costing (TDABC) is helping hospitals more accurately understand the cost of delivering patient care. With insights into cost drivers across the care pathway, leadership can identify inefficiencies and, with data analytics, can drive cultural change based on continuous improvement.
But how does TDABC work outside of academic theory?
TDABC involves measuring the cost of both personnel and supplies used across a cycle of care (see our most recent blog post, “What’s the true cost of care?”, for a broader discussion of TDABC). The idea of applying this unique costing methodology in hospitals and health systems, where costs are traditionally based on claims and charges, was pioneered by Professor Robert Kaplan and his team at Harvard Business School, including Avant-garde Health CEO, Derek Haas.
Key to the process of TDABC is separately measuring personnel and supply costs, which together account for the largest portion of a hospital’s costs to deliver care. In part one of this two-part blog post, we will explore the personnel component of measuring the cost of providing care using TDABC, and show how Avant-garde Health uses TDABC to empower providers with insights into the personnel costs associated with care delivered by its employees.
Avant-garde Health is able to provide sophisticated personnel cost information broken out by phase of care by using information about the cost per minute of each personnel type (the capacity cost rate) and the number of minutes each personnel type is involved with care during each phase of a defined care cycle. The capacity cost rate can be calculated as follows:
Capacity cost rate = Expenses associated with personnel / Available capacity of personnel
Expenses associated with personnel include the position’s salary and fringe benefits. Available capacity of personnel is calculated by subtracting any time taken up by non-clinical work (e.g. continuing education, breaks, etc.) from the total number of minutes that person is available to work per year. Annual expenses associated with that personnel type are calculated from data requested from your finance department and divided by the number of minutes available to generate a cost per minute for each personnel type.
During onboarding, Avant-garde Health performs process mapping and observation for each clinical area in order to build a care map that captures the number of minutes of each personnel type’s involvement with patient care. We then input these maps into our platform, caremeasurement.com. We combine this with case-level EHR data to calculate on a patient-by-patient basis the amount of time different personnel spent with the patient during each phase of care. Importantly, this includes detailed information about procedural care phases (e.g. time from incision to closure in the operating room), the phases of care which often constitute the most expensive minutes during a patient’s hospital stay.
Together this timing information and the capacity cost rates are used to calculate the total cost of care associated with each personnel type during each phase in the care cycle. Avant-garde Health is thus able to offer providers an understanding of total personnel cost on a patient-by-patient basis. After adjusting for differences in patient population and personnel salaries, our platform also empowers you with benchmarks to compare your costs to those of other organizations.
Avant-garde Health’s sophisticated TDABC methodology is an exciting and easily-implemented solution for organizations looking to understand their true cost of care and improve the value of the care they provide. Look out for part two of this post to learn about our detailed and accurate supply costing and benchmarking.
TDABC: Accurately Measuring Supply Costs
May 10th, 2018
This is the second part in a series detailing the elements of time-driven activity-based costing (TDABC) developed out of Harvard Business School. Learn how Avant-garde Health applies this costing methodology to measure supply costs related to the delivery of patient care across the inpatient portion of the full continuum.