FREQUENTLY ASKED QUESTIONS (FAQS)
Benefits of TDABC for Health Care
Q: How is Time-Driven Activity-Based Costing (TDABC) useful in health care?
A: TDABC provides accurate and actionable data that improves communication and decision-making. Understanding the cost of providing an episode of care is a vital component of improving the value of that care.
Q: How does TDABC lead to lower costs?
A: Conducting TDABC analyses helps lower costs by highlighting steps in care processes where resources are used inefficiently. This facilitates improvement that can eliminate efficiencies and thereby produce the same or better outcomes at the same or lower costs.
Q: How is TDABC used to drive process improvement?
A: TDABC can aid process improvement in several ways. Among these, developing process maps often helps identify opportunities for improvement. This is because the process map development often helps providers identify redundant steps, bottlenecks, and other opportunities for improvement. Second, TDABC can aid in process improvement by allowing providers an accurate figure for the cost of each step in a process and the total ultimate process cost.
Q: How will TDABC affect health care?
A: TDABC is a key component of an incremental approach to health care reform. By understanding costs, clinicians and managers can make small changes according to identified areas of impact. The cumulative sum of these small improvements will make a significant impact on health care systems throughout the world.
Challenges of TDABC Use
Q: What is the biggest challenge with TDABC?
A: Obtaining support of leaders capable of linking clinical care providers with representatives from finance and other key departments is often the limiting step in TDABC analyses. Attendance at the ISC’s Value-Measurement in Health Care executive education courses is a good way for leaders to understand TDABC and how they can contribute to successful completion of these costing analyses.
Q: Why are so few in the industry using the TDABC cost approach?
A: Current reimbursement methods are sufficiently generous to support inefficiencies. Therefore providers must turn to other incentives to motivate a shift in costing practices.
Medical Conditions
Q: How is the medical condition defined?
A: A medical condition is defined by four criteria:
- a starting and ending point;
- the degree of variation to cover;
- the patient population to be included;
- any exclusion criteria.
Q: What is the best method for selecting a medical condition?
A: When selecting a medical condition to examine via TDABC, the primary consideration should be clinical leadership; buy-in from the clinical project team and leadership is crucial to success of the project. The second important consideration is the numerator of the value equation; To facilitate comparisons across processes, collection of medical condition outcome measures must occur prior to or simultaneously with the TDABC project. The third key consideration is the value equation’s denominator: cost measurement is easier in medical conditions that have more standardized care pathways with fewer areas of patient variation. Therefore, conditions such as osteoarthritis of the knee requiring surgery are easier to define than conditions such as depression, though we have made advances in applying TDABC to chronic conditions.
Q: What if patient volumes for a particular medical condition aren’t high? How can TDABC help identify opportunities for improving value?
A: Although focusing initial TDABC analyses on high-volume conditions is advisable, there is also value in applying TDABC to low-volume care conditions. Since TDABC facilitates comparisons of costs with outcomes managers will be better able to make decisions about whether to expand or limit resources allocated to those low-volume conditions.
Financial Modeling
Q: What information should be included in the financial model?
A: Financial models will include data from process maps (process name; time, probability of occurrence, frequency) and from financial data pulls. Depending on the process, this financial data may include information on space (square footage, depreciation, utilities); equipment (location, cost rate); consumables (purchase price, cost per item); pharmaceuticals; and/or allocated overhead costs.
Q: What is the purpose of the financial model?
A: The financial model combines inputs from process maps, capacity cost rates, and equipment and supplies to allow summation of total resource costs for a given process.
Q: When calculating personnel cost rates, what are the main categories to include for each resource?
A: The major drivers of personnel cost rates are:
Q: What space costs should be considered?
A: It is preferable to think about space costs in a few categories. These include:
- Physician office space
- Clinical rooms
- Waiting rooms and administrative space
- Storage spaces
- Hallways, elevators, bathrooms
Partner Sites
Q: What is the general profile of an HBS TDABC pilot site?
A: Although exceptions are possible, generally pilot sites working with HBS have five key characteristics. These are:
- an ability to measure outcomes;
- a focus on a strategically important condition (i.e. one that drives significant health care spending or one that can be used for cross-site benchmarking studies);
- a local executive champion willing to support the TDABC analysis;
- an interest in scaling TDABC across conditions, locations, and/or care cycles;
- and an interest in using accurate costs to inform bundled payment contracting.
Q: What are the critical success factors for a TDABC analysis?
A: There are four key success factors: executive support, a capable project manager, input from the finance team, and clinical buy-in.
Q: What makes a successful TDABC project manager?
A: One important determinant of project manager success is an ability to identify the best people to ask for particular information. The manager should have strong communication and management skills along with strong existing relationships within the organization. Often these relationships are formed through significant previous experience in the organization in process improvement or outcomes measurement roles. Also useful is potential for the project manager to make a long-term commitment to value measurement. Clinical knowledge is helpful but not necessary. Example job codes for previously successful project managers include “senior analyst” and “junior manager.”