Abstract
With the rising cost of US health care, there is increasing emphasis on delivering high-value health care with a high quality to cost ratio. Health care analysts have come to realize that costs are not being accurately measured, which is problematic for identifying how to reduce costs. To quantify value, we must measure outcomes and measure true cost. Time-driven activity-based costing (TDABC) can be used to assign costs accurately. The cost measurement process is broken down into seven steps, which serve as excellent starting points for doing one’s own costing analysis. Opportunities to improve value will arise from TDABC, such as eliminating process variation, improving resource capacity utilization, ensuring the product is delivered at the right location, matching clinical skills to the process, and speeding up cycle time. With this technique, valid comparisons can be made between systems or care cycles, as well as between iterations of a given care cycle. Use of TDABC to estimate true cost will be increasingly important as current reimbursement patterns shift toward value-based reimbursement.
Keywords
Value, Time-driven activity-based costing, Efficiency, Quality, Cost
Outline
What Is Value in Health Care? 70
Health Care Quality Components and How They Are Measured 71
Access: “Make My Care Available and Affordable” 71
Respect: “Respect Me as a Person Not a Case” 72
Safety: “Don’t Hurt Me” 72
Outcome: “Make Me Better” 72
Cost Definition and How It Is Measured 73
Time-Driven Activity-Based Costing 74
The Cost Measurement Process Itself: TDABC Step by Step 74
Challenges of Health Care Costing and Three Myths 77
Conclusion 77
References 77
Health care expenditure has become one of the largest spending items for any nation. Specifically, in developed nations, health care expenditure is not only on the rise, but it is following an unsustainable trajectory. It was been well documented that the United States, in comparison to similar well-developed nations, spends a relatively large percent of its gross domestic product (GDP) on health care expenditure. However, by measures of the quality of health care delivered, such as life expectancy at birth, the United States falls below countries that spend less on health care. Given that the percent of American GDP spent on health care is only projected to rise, American health care systems are recently experiencing pressure to increase the value of health care offered. As a society, we aspire to provide the highest level of quality in health care and, at the same time, ensure that the cost of this health care remains sustainable. One concept ties quality and cost together: value. To aim for high quality at a reasonable cost, the concept of value is key, as it is a metric by which to measure value. How then is value measured? Here we will elaborate on value and how to measure it.
What Is Value in Health Care?
Value in health care is defined as health care quality per dollar spent. “To increase value” is not a euphemism for cost-cutting; rather, it is striving to increase efficiency, or increase the outcome to cost ratio. The problem of the rising cost of health care, which developed countries face, has the potential to detract resources from fundamental government services, such as education, infrastructure, and security. The reasons behind the rising cost are numerous, and a thorough discussion is beyond the scope of this chapter. However, it is important to shed light on some of the main reasons behind this rise. The aging population in developed countries is the primary driver behind the rising health care costs. First, an increased need and demand for health care services comes with increased patient age. Second, there is a gradual shift of the cost of health care from a private organization as the payor to the government as the payor, as patients over 65 years of age are covered by Medicare. On that note, the expansion of Medicaid under the Affordable Care Act has also contributed to shifting from a private to government payor. Third, new technologies and drugs, many of which are used toward the end of life, come at an increased cost. That cost has yet to be justified by higher productivity, higher quality of life, or increased meaningful survival. Finally, incentives offered by health care payors to health care providers are fostering a high-volume environment, rather than a high-value environment.
To manage the value of health care properly, which should be the ultimate aim of any health care delivery system, both components of value need to be measured: quality and cost. Remember, the key equation is value = quality/cost. While there are many attempts at measuring outcomes as a surrogate for quality, measuring cost remains a formidable task in health care. A fundamental cause of the rising cost of health care is the difficulty with measuring cost accurately and precisely. This specific issue will be the primary focus of this chapter. It is not conceivable to reduce cost without understanding the true meaning of cost and how to measure cost in health care. However, we will first touch briefly on quality.
Health Care Quality Components and How They Are Measured
As US health care reimbursement models are moving away from fee-for-service and more toward performance-based reimbursement, providers and health care systems are forced to evaluate the outcomes obtained per dollar spent. Health care quality is a composite of four patient-centered components: access, respect, safety, and outcome.
Access: “Make My Care Available and Affordable”
Access to health care is a multifaceted challenge in the United States. Access can be limited by logistical issues as well as by financial issues. For instance, patients may have challenges making appointments, which often require phone calls to offices staffed by scheduling personnel during business hours. Patients may not be able to obtain an appointment at a time that is convenient for their work or family schedules, as most providers only see patients during business hours on weekdays. They may not be able to obtain affordable or reasonable transportation to a provider’s office, as house calls are nearly nonexistent now (the topic of concierge medicine aside). Limitations in obtaining leave from work to attend appointments, convenience, and flexibility of appointment times, and transportation to providers are major barriers that have not evolved to the degree that has been seen in other public services. For instance, appointments for hair styling often can be made online or by automated phone at any time of day. A hair styling service can be obtained during evenings or weekends, with a variety of locations in a given neighborhood. Health care has not evolved to this level of consumer convenience, and could take cues about increasing access from hospitality and restaurant industries. Finally, the concept of geographically based networks of providers may limit access to health care, as in-network providers may not have the availability or geographic location that is convenient to patients at the particular moment that care is needed. For instance, owing to the lack of a national health care system in the United States, a patient may utilize the emergency room for a nonemergent problem if he or she happens to be traveling away from home and is not physically close to an in-network provider.
Affordability of health care is a complex topic. Concurrent with the absence of a government-sponsored health care benefit that is offered to all citizens, much of American health care is funded through private insurance. Private insurance plans have historically been linked with employment, with large portions of premiums funded by employers as a benefit to employees. The cash amount of employer contribution to the premium is typically of a size that individuals cannot afford. The oddity of this link between an essential need such as health and one’s type or organization of employment may mean that a patient cannot access health care due to a lapse in employment or nontraditional employment. Currently, insurance premiums for self-employed persons or individuals are often prohibitively expensive.
Respect: “Respect Me as a Person Not a Case”
Paternalistic approaches to the practice of medicine (e.g., “The doctor knows best/” “Do what the doctor says.”) have largely fallen out of favor over the past few decades. Society now places importance on informing patients of their health care options and engaging them in medical decision-making. The emphasis on patient satisfaction, and measures of this, such as survey results and rankings, is tied in with respect.
Safety: “Don’t Hurt Me”
Safety is of course paramount to quality, as unsafe conditions or practices can lead to undesired outcomes that add to the cost of the health care episode. Examples of this include hospital-acquired infections and wrong-site surgeries, for which extensive processes and measures for detection and prevention have been instituted to improve safety and thereby increase quality.
Outcome: “Make Me Better”
The outcome of a health care episode is of course the most important aspect, and in some ways encompasses safety, respect, and access. The difficulty of measuring outcomes comes in selecting the primary endpoint that is to be measured, determining how best to measure the endpoint, and comparing results across groups. For example, one outcome of a kidney transplant program is the percent of graft survival 1 year after the transplant. This metric may be easy to measure, but challenging to interpret, as the variability of patient population and health of surviving patients and surviving grafts must be accounted for in order to make meaningful comparisons over time and across institutions.
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