Author(s)
Phillip Nulty, MD
Lamont Jones, MD, MBA
Gary Loyd, MD
Japnam Jassal, MS
Ranjani Krishnan, PhD
Martin Holzhacker, PhD
Affiliation(s)
Department of Otolaryngology - Head and Neck Surgery, Henry Ford Health; Wayne State University School of Medicine; Michigan State University Broad College of Business
Abstract:
Educational Objective: At the conclusion of this presentation, the participants should be able to understand the concept of time driven activity based cost modeling and its application to medical processes. They will observe of the application of this cost model to select surgical procedures. Participants will also gain knowledge of the results of cost comparisons between surgeries in various care settings via the use of this cost model.
Objectives: To illustrate the use of time driven activity based costing (TDABC) to analyze tonsillectomy and adenoidectomy (T&A) cost, develop a modular platform to analyze cost of various surgical services, compare costs of T&A in various settings, and identify areas for cost reduction.
Study Design: Single institution retrospective review and cost analysis.
Methods: A process map was created to define activities and personnel involved in T&A. Capacity cost rates for all personnel were calculated. Eight surgeries were reviewed to determine time spent on each activity. Personnel costs were determined using capacity cost rates and activity times then added to equipment costs to determine the total cost. Total cost was compared for two different locations and compared to the total cost calculation from the currently used costing system.
Results: The average TDABC cost of T&A at all locations was $1,621. Cost estimated from the current costing system was $4,380. TDABC cost of T&A was $1,955 in the hospital setting and $1,266 in the ambulatory surgical center (ASC).
Conclusions: TDABC is effective in calculating costs of surgical encounters and is thought to be more accurate than previously used systems. T&A appears to be less costly than previously estimated with higher contribution margin. This has significant implications for application of bundled payments for T&A. The cost differential between hospital and ASC settings allows for identification of areas for cost reduction. Additional T&A encounters will be analyzed from preoperative to postoperative visits to elucidate cost drivers and areas for process improvement.