Evaluation and recommendation of implementing time-driven activity-based costing in healthcare

Abstract

Time-Drive Activity-Based Costing (TDABC) is a bottom-up costing approach that involves calculating a unit cost of supplying capacity (Capacity Cost Rate) and estimating time spent performing an activity. TDABC has been implemented in healthcare; however, most of the studies have been conducted at a project or departmental level. A pilot study based on the TDABC principles was performed for proof of concept at UT MD Anderson Cancer Center. In the pilot study, the TDABC cost was first calculated manually and later by software. The goal of this research study was to evaluate the feasibility of devising and implementing an effective / reliable / robust system of cost measuring to provide the true costs of patient care delivery institution-wide in an academic medical center. Chapter one provides a literature review of costing methods and costing in healthcare, a brief introduction of TDABC, and the significance of this study. Chapter two describes and analyzes the pilot study. Chapter three includes the review of conceptual models in the literature and the development of a conceptual model of implementing TDABC institution-wide in healthcare. Chapter four describes the methodology of generating practical and validated recommendations for an institution-wide implementation of TDABC and the final recommendations. Chapter five provides a brief summary of the current study, research and operational implications, as well as limitations and the future research.

The five recommendations generated are listed below: • Gain top management support and horizontal and vertical collaboration, • Educate and motivate staff to have an accurate concept of costing and an awareness of costing at all times, • Understand existing information systems and develop a strategy to collect process, activity, resources and time information effectively and efficiently, • Assess the current condition of the institution and determine the right timing of implementation by top management, • Consider future enhancements with new technology such as a real-time location system