Costing Healthcare Services in Low-Resource Settings with TDABC Model

 The cost of providing healthcare has not been sufficiently understood, and current approaches for evaluating costs in healthcare delivery, such as the model proposed by World Health Organization (WHO) has significant shortcomings. The TDABC model has received significant attention recently as a realistic tool to measure unit costs in healthcare and may be the right tool for analysts in low resource settings. 

Geography: United States; Focus Area: Measuring healthcare costing by focusing on time-division and unit costs

Costing Approach in Low and Middle Income Countries (LMICs) - Generalizable Conclusions from the HIV Case

Time-driven activity-based costing (TDABC) has been implemented in diverse healthcare scenarios. Chi, Chola, and McBain (2022) at the Center for Global Development (CGD) discuss the costing model for healthcare services in the context of  low and middle income countries having low budget and complex disease burdens. The primary goals in such scenarios are managing scarce healthcare resources in a cost-effective manner to support budgeting and policy, and reimbursing providers in an appropriate manner. However, TDABC can be applied to costing any healthcare services assisted by data collection and analysis tools. 

Costing care in LMIC is complex as treating a patient involves a large number of resources, patients with different conditions may take different paths through a healthcare system and may share resources, patients with same conditions may also take different paths and may require to be treated for the same comorbidities. LMIC may have a certain degree of fragmentation in care delivery, adding to the complexities in costing. TDABC is a recent process-based approach to estimate unit costs. TDABC adopts a micro-costing methodology to identify time spent in resource allocation over a service delivery according to patient perspective. Process mappings are created for every step of the patient journey using information on patient treatment, staff involved, duration, location, and frequency of service utilized overtime.

TDABC resources are mainly available for high-income countries, and the main requirements of LMIC analysts in healthcare costing is the development of data collection instruments. Researchers used the costing for HIV services in clinics and hospitals that may be generalizable to most other healthcare settings. Their approach is based on two parameters i.e. capacity cost care (CCR) (currency per minute expressed as cost of resources divided by practical capacity of resources) and time and motion study (discrete and sequential maps to record the process of patient care). 

Prior to executing the TDABC process, key questions related to the purpose of the data collection, source of data, time and resources required, and the complexity of the service need to be considered. Estimation may be a complex process, resource-intensive, and involve multiple constraints. In any case, the process of costing can be classified into two steps, i.e. data collection and data analysis. In the first step - data collection, the service and the delivery value chain is defined, process maps are created, and time estimates obtained for every process. In the second step - data analysis, the cost of supplying direct and indirect resources for patient care delivery are estimated, capacity of resources estimated, CCRs calculated, and finally, the total cost of patient care is calculated.

TDABC serves as a robust model to estimate the actual cost of services through actual observation of resources used by the patient. The framework is convenient as it allows tracking resource use overtime, and updating existing parameters such as new care pathways and revised capacity. The use of process maps unravels strengths and weaknesses of the existing system, allowing analysts to identify appropriateness of steps in the in care delivery process, medication prescription, provider involvement, patient-provider relationship, and care demands in relation to different types of patients. Answering these questions improves efficiency of the healthcare system to standardize the care delivery process, streamline resources, and remodel care delivery.

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Costing in Low Resource Settings (Haiti) with TDABC Model

Healthcare costs in LMIC differ by a hundred-fold ($4000 per person in large global economies i.e. OECD countries versus $40 per patient in low-income countries). Lower income countries have a 40 times greater burden of infectious disease, calculated per capita. Approximating skills and aggregating costs is not an estimate of actual consumption of resources. In low-resource settings, when the actual cost of patient care is omitted, it may not be possible to improve efficiency, reduce care costs, and relate patient outcomes with costs of care. Low-resource settings may often suffer from the problem of treating costs and reimbursement as two sides of the same coin, which incentivizes care providers to over-utilize services with high reimbursement, ignoring services that offer high-value to patients. The choices increase the cost of services to patients, providing little value.

The existing costing framework is the WHO-CHOICE framework which uses a cost aggregation approach in a bottom-up model, assigning individual costs to infrastructure, human resources, or other services for a plan, policy, or programme. However, it does not have a mechanism to monitor resource utilization and time over the lifecycle of a specific medical condition, and providing insufficient data for value-based reimbursement models. 

On the other hand, McBain and team analyzed the TDABC model in 2016 in low resource settings that require judicious use of resources for individual patients as well as patient populations. Optimal resource allocation requires understanding the costs of healthcare delivery for effective and efficient care delivery. Researchers explain that in the TDABC model, patients flow through the system, and “human, equipment, and facility resources” are estimated. The approach does not rely on assumptions and minimizes heterogeneity in expenditure. Modeling and streamlining healthcare delivery establishes strong connections between resource allocation and health outcomes.

The TDABC model has been utilized in high income countries, leading to significant cost savings. Calculating patient-level costs for a medical condition over a cycle of care enables transformational reform payment systems and care delivery. Implementing TDABC in low-resource settings has several advantages - comparing costs of two procedures, comparing results obtained with other bottom-up models of costing, measuring additional costs associated with high-risk factors (such as age, substance abuse or obesity), estimating relative resource capacity allocated, optimizing the system over the cycle of care for higher efficiency and better care outcomes, and link resource utilization with possible improvements in patient health.

The two main barriers to implementation of TDABC in low-resource settings has been lack of standardized tools, and a higher level of technical expertise and resources. Researchers proposed a TDABC model for low-resource economies, which they implemented across five health centers to understand patient-level costs, process improvements, financing strategies, and predictive analytics. Due to high costs of staff, it may be judicious to focus on high-cost high-volume conditions. In certain cases, logistic barriers may make it difficult to implement the model. Further, TDABC does not indicate the ideal cost of care (a cost estimate that indicates adequate care, such as cost associated with the physician spending enough time in consultation to be regarded as productive and efficient). Besides, low-resource settings may make it difficult to capture indirect costs, and estimating cost of resources when they are engaged from multiple organizations. 

Positive outcomes of the implementation included reduction in variation in conditions, understanding deficit in resources (such as underprescription), identifying staff time allocations for certain activities, understanding distribution of care across a network (such as task-shifting service delivery to community health, increasing patient access to care), forecasting costs and projecting year on year expected costs, examining heterogeneity in costs in different facilities, reassessing variations in supply chain (such as medication stock outs), and performing a valuation of price of health services. 

Therefore, in spite of the variation, inefficiencies, and estimation challenges in low and middle income settings, it becomes essential to deliver value-based care. The time-driven activity-based costing (TDABC) model is a plausible framework for low and middle income countries (LMICs) to standardize and improve processes and increase efficiency in care delivery. In such scenarios, universal care coverage can be achieved by understanding the burden of disease and applying a universal costing approach, leading to optimal financial planning. 

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Keywords

indirect costs, health outcomes, cost of care, cost savings, low and middle income countries, high volume, LMIC, time-driven activity based costing, TDABC, fragmentation

References

Chola, L., McBain, R., & Chi, Y-Ling. (2022). Costing Healthcare Services Using Time-Driven Activity-Based Costing. Center for Global Development.

McBain, R. K., Jerome, G., Warsh, J., Browning, M., Mistry, B., Faure, P. A. I., Pierre, C., Fang, A. P., Mugunga, J. C., Rhatigan, J., Leandre, F., & Kaplan, R. (2016). Rethinking the cost of healthcare in low-resource settings: the value of time-driven activity-based costing. BMJ Global Health, 1(3), e000134. https://doi.org/10.1136/bmjgh-2016-000134

Understanding Kaplan and Anderson's TDABC Costing Model

Value-based healthcare is closely related to positive health outcomes. Value is often measured as a ratio of patient outcomes and cost associated with a condition. The time-driven activity-based costing (TDABC) project measures patient-reported outcomes in the form of a three-tier model, allowing healthcare organizations to manage costs and improve quality of outcomes, and therefore, value of care.

Geography: United States; Focus Area: Healthcare costing model for improved care quality and outcomes

The time-driven activity-based costing model (TDABC) was initially proposed by Kaplan and Anderson in 2003 as a costing model for organizations that factored resource spending, process design, and the complexity of individual channels, customers and orders based on data from existing ERP and CRM systems. TDABC is different from activity-based costing as it mitigates inherent problems of the latter, such as an inability to capture complexity of operations, high cost of building and maintenance, and long-drawn implementation process.

How TDABC Addresses Deficiencies in the Activity-Based Costing Method

Building traditional activity-based models requires managers to assign the costs of department resources to products and consumers who use them. The approach works for small settings but not large scale projects on an ongoing basis. Oftentimes estimates of product, process, and customer costs become inaccurate because of infrequent updating (Kaplan & Anderson, 2004). As a consequence, cost drivers are perceived as inaccurate, which steers attention away from addressing the problems of inefficiency in processes, unprofitable products and customers, and excess capacity. More problems arise in response to complexity in operations (added resource requirement, more detailed activities).

The TDABC model simplifies these problems, as managers get the opportunity to estimate resource demand for each product, transaction, and customer, rather than associate costs to activities initially, and then to products or customers. This approach estimates cost-drivers accurately by estimating unit times for transactions, even when they are complex or specialized (Kaplan & Anderson, 2004).

The first step in the TDABC approach is to estimate practical capacity of resources as a percentage of their theoretical capacity (by applying a value such as 80%-85%). While it is a common method to measure the capacity of resources in terms of time, other units may also be used such as cost per megabyte or cost per cubic meter. The next step is to estimate the unit times of activities. The cost per time unit of resource supply is calculated (through surveys, interviews, or other instruments), as an approximate value. These estimated values are multiplied to obtain cost-driver rates. These rates are used to assign costs to customers when transactions occur. The rates tend to be lower than costs estimated using the traditional ABC method, and may be applied to individual transactions or customers, or other pricing strategies (Kaplan & Anderson, 2004). 

TDABC costs are calculated and reported on an ongoing basis. Reports are used to understand business activities and the time spent on these activities, review unused capacity for successful decision-making. The final step is to update the model that reflects current operations, add more cost drivers (that may change due to changes in resources supplied or efficiency of activity as a result of technology, process reengineering, or quality programs) and activities by estimating unit time. Finally, time equations are incorporated to reflect the impact of activity and order on processing time. 

Typical TDABC Implementation for Value-Based Healthcare 

The TDABC model has undergone several improvements over time. In a typical TDABC project, the value-based healthcare (VBHC) team defines goals. In the project starter kit prepared by Harvard Business School, outcomes are measured in three tiers (survival and degree of functional status, recovery and complications during treatment, and long-term health sustainability). Patient reported outcomes serve as benchmarks for the process of treatment (Harvard Business School, 2020). The phases of the TDABC process spans across three phases: preparation, data definition, access, and analysis, roll out. During the TDABC project, the care delivery value chain (CDVC) is defined for a specific medical condition, process maps are prepared, time estimates obtained for each process, the cost of supplying healthcare resources to patients is estimated, the capacity of each resource estimated and capacity cost rate calculated, and finally, the cost of patient care is calculated. 

Keel and team (2017) further elaborate that organizations and department boundaries are not considered, instead, all processes along the care continuum are captured for the specified medical condition. Providers receive bundled payments for each CVDC, which promotes accountability. Linking outcomes to costs makes it possible to improve care as providers compete on the basis of value. Although considerable research is directed to define outcomes for a medical condition, more emphasis needs to be placed on developing a standard for calculating costs, thereby controlling costs. Researchers observed the application of TDABC across healthcare settings to either influence reimbursement policy or realize operational improvements. TDABC was adopted to accurately capture the cost of care at any level of care and complexity with simplicity and efficiency.

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TDABC Typical Sequence of Steps

In the studies analyzed, TDABC consisted of seven steps: selecting the medical condition i.e. interrelated patient circumstances including comorbidities and complications addressed in a coordinated way, defining the CDVC, develop process maps for every activity in care delivery, estimating time for every process, estimating costs of supplying care resources i.e. direct costs, indirect costs, capacity, and capacity cost rates, and finally, calculating the total costs of patient care.

TDABC made the calculation of total costs through the use of multiple time drivers, reduced resource waste, redundant human resource, waiting times, and non-value added steps. TDABC was suitable to manage complex costing, making it compare costs and reimbursement. As a result, it was possible to reward physicians and administrators based on their performance, and support the goals of VBHC. 

Calculating capacity cost rates (CCRs) was simpler than calculating ABC. A number of factors influence the cost of patient care, such as constraints due to organizational boundaries, using different methods to define components (process maps, time estimates, or resource allocation), and not allocating support resources as per model requirements. Finally, certain aspects of TDABC implementation may be simple and others more complex. TDABC is not a replacement for an existing system, rather a method that needs to be gradually incorporated into existing functional systems for reliable and stable processes in healthcare costing to create value.

Therefore, the model proposed by Kaplan and Anderson improves upon the activity-based costing method by introducing a key factor i.e. time in the analysis. The TDABC model continues to gain widespread adoption in costing healthcare systems for value-based care. In future, analysis derived from implementing the model is likely to feed into policy systems that optimizes processes, costs, and reimbursement.

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Keywords

value-based healthcare, care delivery value chain, healthcare costing, Kaplan and Anderson, time-driven activity based costing, TDABC

References

Harvard Business School. (2020). The Time-Driven Activity-Based Costing (TDABC) Starter Kit. In Harvard Business School. Harvard Business School. https://www.isc.hbs.edu/Documents/pdf/2020_TDABC_Project_Starter_Kit.pdf

Kaplan, R. S., & Anderson, S. R. (2004). Time-Driven Activity-Based Costing. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.485443

Keel, G., Savage, C., Rafiq, M., & Mazzocato, P. (2017). Time-driven activity-based costing in health care: A systematic review of the literature. Health Policy, 121(7), 755–763. https://doi.org/10.1016/j.healthpol.2017.04.013