One of the things I have been worried about, and one of the things that could seriously impede the adoption of technology and business practices that could significantly lower the price we all pay for healthcare, is the possibility that ancient, pre-computer cost accounting methods would be “sold” to healthcare.
Unfortunately, I am seeing that popup here and there. This is not good.
Old – or pre-computer – style activity-based costing still hangs around some industries, which may or may not be OK. I do not have a dog in that hunt, as the saying goes. But none of these approaches belongs in healthcare.
There are two flavors of pre-computer activity-based costing. The first is just plain old activity-based costing and the second is known as Time-Driven Activity-Based Costing. The traditional activity based costing method centers around using consultants to do time motion studies of business processes to come up with costs for each activity. Of course, this is hugely expensive, dependent on and subject to human error, and is highly perishable in situations, like healthcare, where change is the norm.
The somewhat newer approach, Time-Driven Activity-Based Costing, is a simpler and less expensive approach that reduces the effort to record all the activities and their various steps. Time-Driven Activity-Based Costing needs only two things: (1) the practical capacity of committed resources and their cost, and (2) unit times for performing transactional activities. The idea is less data and more calculations makes for good enough cost accounting. Sorry, not good enough for healthcare, even though it is loved by academics.
What is missing from these approaches is the fact that healthcare is a data rich environment. There is no need to send in herds of consultants (or even one) with stop watches and clipboards. There is no need to live with small data sets and approximate costs like is done with Time-Driven Activity-Based Costing.
As we outline in our recent Chilmark Insight Report Making Healthcare Affordable: Implementing True Continuous Costing, all of the data needed to assemble a true, accurate bill of materials for every patient encounter is already inside various systems in every provider organization. All that needs to happen is the data needs to be brought into a smallish data warehouse and analyzed using various modern data visualization tools. Actionable variances in costs pop-out like a Jamaican sprinter from the starting blocks. And by using the data that is already being generated inside the provider organization the data is always fresh, up to date, and reflects the changes that are constant in healthcare. The only thing left is for the provider organization to take action.
For healthcare there is no reason to do traditional or Time-Driven Activity-Based Costing. But it is time to get a handle on the data you already have and begin to understand what your true costs are per unit of care delivered.
“…all of the data needed to assemble a true, accurate bill of materials for every patient encounter is already inside various systems in every provider organization. All that needs to happen is the data needs to be brought into a smallish data warehouse and analyzed using various modern data visualization tools.”
Right, but it’s all in the DB and requires the use of SQL reporting, WHICH MOST PEOPLE CAN’T DO.
I can’t – I have to purchase the services of report writers. I can just barely manipulate Crystal Reports, and that’s not the hip reporting to do.
Sue Ann, it is absolutely true that it does take a bit of technology to do this (as outlined in our Insight Report) but it is far cheap, faster, more accurate, and more durable to make the investment in the technology than using the old style approaches to activity based costing.
In this case, perfect can be the enemy of good. I know Chrystal Reports (as a reader of them) and I see a lot of opportunity to do “back of the envelope” mini business cases for change. Borrowing agile development from the software world helps to cast change as a series of small changes. Test, learn, test. We don’t need to look for new problems in health care as the big ones are well known today. And what about asking patients about their experience and going from there?