While the identification and standardization of health outcomes that better measure value for each medical condition, in long term perspective, have received great attention, cost analysis has shown moderate enthusiasm of the healthcare community. Not many studies can be found presenting integrated results of health outcomes and costs. But, value-based comparisons are not possible if ignoring the cost of delivering healthcare outcomes.

Porter’s concept for Value-Based Healthcare (VBHC) defines value as health outcomes achieved per unit cost, considering the assessment of outcomes and costs for the entire care delivery value chain. In service delivery, value chain captures all processes that are taken to deliver the healthcare outcomes, as so based on an accountable cycle of care for each specific medical condition.

Time-Driven Activity-based Costing (TDABC)

Aligned with Porter’s VBH model, Kaplan and Anderson suggested Time-Driven Activity-based Costing (TDABC) as a process-oriented cost-accounting method which balanced between a valid method and the reasonable resources that are needed for it. By sacrificing precision over the accuracy, this method is less demanding in resources needed to implement cost-accounting when comparing to the traditional activity-based costing methods.

Put simply: it accounts for the cost of a particular supply per unit time.

As proposed by Kaplan and Porter and simply described by Keel et al. (2019)TDABC for healthcare organisations can be implemented in a 7-step approach:

Step 1: Select the medical condition

Step 2: Define the care delivery value chain, i.e. chart all key activities performed within the entire care cycle

Step 3: Develop process maps that include each activity in patient care delivery, and incorporate all direct and indirect capacity-supplying resources

Step 4: Obtain time estimates for each process, i.e. obtain time estimates for activities and resources used

Step 5: Estimate the cost of supplying patient care resources, i.e. the cost of all direct and indirect resources involved in care delivery

Step 6: Estimate the capacity of each resource and calculate the capacity cost rate

Step 7: Calculate the total cost of patient care

This cost-accounting method uses a micro-costing method and requires two key parameters: the capacity cost rate and the time to perform the different activities in the care delivery value chain. Expert interviews, focus groups, process mapping, direct and indirect capacity supplying resources and cost estimates are among the necessary steps towards the cost of patient care.

This accounting method has been coupled to VBHC as reported in many published studies for several clinical pathways. It proved to be a catalysing agent for cost-conscious care redesign, enabling providers to have accurate patient-level costing information. Substantial cost differences between traditional accounting methods and TDABC have been reported, though it has been advocated that the latest can better support the redesign of care pathways; ultimately, this may lead to better decisions in resource allocation.

The variation among different applications of the TDABC method is still a challenge to address. Applications should explicitly report and justify when steps are skipped or modified, otherwise, the validity of the analysis is difficult to assess and comparison among different services is impracticable.

— About the author —

As CEO, Ana Rita is the scientific head of VOH.CoLAB, developing strong collaborative and multidisciplinary networks with companies and academia to implement real-world pilots with the full engagement of practitioners and patients, validating tools and methods and leveraging the healthcare transformation and citizens’ quality of life.


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