Implementation of Time-Driven Costing in Healthcare

The high level of spending on healthcare in the United States has been under increasing scrutiny for a long time. The realization that growth in health care spending in the US has outpaced growth in inflation, population, and GDP has intensified the concern of the federal government, providers, healthcare consumers, and payers.

The lack of understanding of how much it costs to deliver patient care is central to the problem of increasing health care expenditure. Indeed, most providers and administrators have a managerial accounting understanding of what the cost to the institution or the patient is for medications, disposables, reusables, and staffing necessary for a given procedure.

What is Time-Driven Costing?

Time-driven costing is a methodology that calculates the costs of healthcare resources consumed as a patient moves through the care process. The strategy has become popular among hospital leaders alongside the need to control rising costs and limited resources, like nurses, especially in the wake of new value-based reimbursement models.

Time-driven costing is central to the value-based healthcare platform. The application of Time-driven costing provides a framework to identify process improvements for health care delivery.

To transform the American healthcare delivery system, all participants, including patients, employers, physicians, insurance companies, and the government need to recognize that value should be defined as “a given health outcome per dollar of cost expended”. The time-driven activity-based costing is the underlying foundation of this value-based framework.

Implementation at Montefiore Health System

Despite the potential to manage and determine costs within an organization, implementing time-driven costing in healthcare has been a challenge. Previous attempts, such as those in the 1990s, have failed or only partially succeeded because of the significant resource investment required and the complexity of the healthcare system.

But Montefiore Health System is leading the way with time-driven costing, with the help of modern data analytics.

Almost two years ago, the health system was one of the first to introduce a time-driven costing solution from its cost accounting and financial decision support provider Strata Decision Technology. The solution pulls data from the electronic health record (EHR) system to marry time-keeping and payroll data with clinical information, like the number of cases that came into the ED and what was the emergency severity index (ESI) level.

The health system started to execute a staffing-to-demand strategy to ensure adequate levels of nursing staff and other providers based on past volume and productivity trends, using the combined information. They could start creating staffing models that are much more precise, responsive, and fine-tuned.

Results at Montefiore Health System

As a result, the health system is better at managing its costs and resources, which has been crucial during the COVID-19 pandemic. Like many health systems in early 2020, Montefiore had to shut down most operations to prevent the spread of the novel coronavirus that was infecting thousands of patients a day. During this period, many nurses found themselves practicing in a new capacity as the health system equipped for a surge of COVID-19 patients. The data overall has been instrumental in COVID response, planning, and returning to business.

Despite the ongoing pandemic, those nurses and the health system have been able to get back to more normal operations with the help of a time-driven costing approach. For example, the data has guided hospital management in deciding which practices to reopen under more relaxed social distancing norms and in what order they should be opened. They were earlier utilizing historical margin information to prioritize gearing up in marketing and reallocating resources back to the practices.

After the COVID-19 recovery, Montefiore is aiming to leverage the data coming out of the time-driven costing technology to create a more precise, flexible budget.

Time-driven costing can help to efficiently cost processes, and thus overcome the main challenge associated with current cost-accounting methods. The potential to redesign their care processes in order to deliver better outcomes and lower costs to patients is offered by time-driven activity-based costing to clinicians.

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