Derek A. Haas

Time-Driven Activity-Based Costing in IR

The United States spends more than 17% of its gross domestic product on health care services. Although national health care spending has recently slowed, its burden on the economy continues to be a major challenge that has caused patients, health care workers, and policy makers alike to demand reform (1,2). Current reform proposals focus on expanding access and coverage to the system but do not address the fundamental issue of how to lower actual costs without having an adverse impact on quality and patient outcomes. The most important goal for any health care organization is to provide value to patients. Value in health care delivery, as described by Kaplan and Porter (2), is measured by patient outcomes relative to the costs incurred to achieve those outcomes. Measuring value is complex because outcomes are multidimensional and include clinical, functional, and patient-reported results. Additionally, outcomes also need to be measured over different timeframes. Cost measurement is difficult because care for a medical condition is often performed in many different clinical departments, and, potentially, at multiple different locations and provider organizations. Finally, costs charged to the patient are often different from those charged to the payer or provider. Without a deep understanding of the costs incurred to provide medical care, it remains difficult to constrain

Variation in the cost of care for primary total knee arthroplasties

Background The study examined the cost variation across 29 high-volume US hospitals and their affiliated orthopaedic surgeons for delivering a primary total knee arthroplasty without major complicating conditions. The hospitals had similar patient demographics, and more than 80% of them had statistically-similar Medicare risk-adjusted readmission and complication rates. Methods Hospital and physician personnel costs were calculated using time-driven activity-based costing. Consumable supply costs, such as the prosthetic implant, were calculated using purchase prices, and postacute care costs were measured using either internal costs or external claims as reported by each hospital. Results Despite having similar patient demographics and readmission and complication rates, the average cost of care for total knee arthroplasty across the hospitals varied by a factor of about 2 to 1. Even after adjusting for differences in internal labor cost rates, the hospital at the 90th percentile of cost spent about twice as much as the one at the 10th percentile of cost. Conclusions The large variation in costs among sites suggests major and multiple opportunities to transfer knowledge about process and productivity improvements that lower costs while simultaneously maintaining or improving outcomes.

Drivers of the Variation in Prosthetic Implant Purchase Prices for Total Knee and Total Hip Arthroplasties

BACKGROUND Previous studies have documented wide variation in health care spending and prices; however, the causes for the variation in supply purchase prices across providers are not well understood. The purpose of this study was to determine the drivers of variation in prosthetic implant purchase prices for primary total knee and hip arthroplasties (TKA and THA, respectively) across providers. METHODS We obtained retrospective data from 27 hospitals on the average prosthetic implant purchase prices for primary TKAs and THAs over the 12 months ending September 30, 2013, as well as data on a range of independent potential explanatory variables. Each hospital performed at least 200 primary total joint arthroplasties per year. The multivariate seemingly unrelated regression approach was used to evaluate the impact of the variables on purchase price for each type of implant. RESULTS The average purchase price at the hospital at the 90th percentile was 2.1 times higher for TKAs and 1.7 times higher for THAs than that at the hospital at the 10th percentile. The use of a hospital-physician committee for implant vendor selection and negotiation was associated with 17% and 23% lower implant purchase prices (P < .05) for TKAs and THAs, respectively, relative to hospitals that did not have this collaborative approach. CONCLUSION The use of a joint hospital-physician committee is a potential strategy for achieving lower average purchase prices for prosthetic implants. Policies to increase hospital-physician collaboration may lead to lower average purchase prices in this market.

Dissecting Costs of CT Study: Application of TDABC (Time-driven Activity-based Costing) in a Tertiary Academic Center

RATIONALE AND OBJECTIVES The lack of understanding of the real costs (not charge) of delivering healthcare services poses tremendous challenges in the containment of healthcare costs. In this study, we applied an established cost accounting method, the time-driven activity-based costing (TDABC), to assess the costs of performing an abdomen and pelvis computed tomography (AP CT) in an academic radiology department and identified opportunities for improved efficiency in the delivery of this service. MATERIALS AND METHODS The study was exempt from an institutional review board approval. TDABC utilizes process mapping tools from industrial engineering and activity-based costing. The process map outlines every step of discrete activity and duration of use of clinical resources, personnel, and equipment. By multiplying the cost per unit of capacity by the required task time for each step, and summing each component cost, the overall costs of AP CT is determined for patients in three settings, inpatient (IP), outpatient (OP), and emergency departments (ED). RESULTS The component costs to deliver an AP CT study were as follows: radiologist interpretation: 40.1%; other personnel (scheduler, technologist, nurse, pharmacist, and transporter): 39.6%; materials: 13.9%; and space and equipment: 6.4%. The cost of performing CT was 13% higher for ED patients and 31% higher for inpatients (IP), as compared to that for OP. The difference in cost was mostly due to non-radiologist personnel costs. CONCLUSIONS Approximately 80% of the direct costs of AP CT to the academic medical center are related to labor. Potential opportunities to reduce the costs include increasing the efficiency of utilization of CT, substituting lower cost resources when appropriate, and streamlining the ordering system to clarify medical necessity and clinical indications.

Overall Cost Comparison of Gastrointestinal Endoscopic Procedures With Endoscopist- or Anesthesia-Supported Sedation by Activity-Based Costing Techniques

Objective Endoscopic/colonoscopic procedures are either done with gastroenterologist-administered conscious sedation or with anesthesia-administered sedation with propofol. There are potential benefits to anesthesia-administered sedation, but the concern has been the associated increased cost. Methods To perform this study, we used the time-derived activity-based costing (TDABC) technique to accurately assess the true cost of gastrointestinal procedures done with gastroenterologist-administered conscious sedation vs anesthesia-administered sedation in 2 areas of our practice that use predominantly conscious sedation or anesthesia-administered sedation. This type of study has never been reported using such an integrated approach. This study was performed on 2 different days in June 2015. Results The true cost associated with anesthesia-administered sedation in our practice was associated with only 9% to 24% greater cost when the TDABC technique was applied. Conclusion Gastrointestinal procedures with anesthesia-administered sedation are not as costly when all factors are considered. Using novel approaches to cost measurement, such as the TDABC, allows a total cost measurement approach across an episode of care that existing cost measurements in health care are incapable of.