Keegan BaileyIn previous blog posts, I have discussed how, to fully realize value, healthcare organizations must balance the actual financial costs of care with efforts to elevate care quality and drive collaboration. This prospect is easier said than done, and organizations should be careful not to start slashing budgets wholesale. Taking an intelligent approach to reducing waste and boosting efficiency can help organizations be smart about cost-cutting.

One way to identify cost-reducing opportunities is through time-driven-activity-based costing (TDABC)—measuring the amount and type of resources a patient uses from door to discharge across care settings. In other words, quantifying the equipment, staff, facility, supply and support (IT, administrative) costs involved in treating a patient from the moment he or she enters the organization until discharge from the system (not just a particular facility).

Getting down to this level of granularity will allow organizations to highlight opportunities for improvement. For instance, if an organization ascertains that it takes three people, two IT solutions and 45 minutes to check in a patient, the patient check-in process represents a logical place from both a patient and cost standpoint to begin looking for ways to improve efficiency.

Tracking cost by episode is not a common practice in health care; most organizations look at department-based costs rather than episode-based ones, which may result in misleading estimates of actual costs for individual patients and conditions. However, this type of approach must become more universally accepted if health care is to advance as a business. Michael Porter and Thomas E. Lee underscore this point in a landmark report, The Strategy that Will Fix Health Care, noting thatproviders who use activity-based costing realize savings of 25 percent or more by responding to cost–reduction opportunities—for example, by improving capacity utilization, standardiizng supplies and processes, and better matching of personnel to tasks.

Although making care more collaborative and patient-centered is key to ramping up value, taking an intelligent and data-driven approach to addressing the cost side of the equation also can be beneficial. Organizations that approach the value exercise from both the vantagepoints of both quality and cost will be more successful in delivering better patient care for less money.


Keegan Bailey is vice president, collaborative care strategy, at NextGen Healthcare, Horsham, Pa. Follow him on Twitter.

Publication Date: Thursday, August 14, 2014