At the Becker's Hospital Review Annual Meeting in Chicago on May 10, Michael J. Goldberg, MD, MBA, of NorthShore University HealthSystem, explored endoscopy suite activity-based costing as an integral means of quality improvement. Dr. Goldberg began by addressing the growing trend of falling reimbursement, which must be addressed by creating a more cost effective strategy. Traditional medical accounting has considered all costs as overhead, but activity based costing takes a more detailed approach.
Activity-based costing is not a new concept. It was first developed in the early 1900s and was applied to the healthcare market of the 1990s. "It faded with the rejection of managed care, but managed care is coming back with a vengeance," said Dr. Goldberg. Activity-based costing and management allows for a firmer grasp on costs, which is essential in the healthcare market of today.
Activity-based costing is built on the basis of products or services that consume activity, which includes both time and money. The first step is building an activity map and creating an activity analysis. Costs are assigned into general categories, such as labor, material and overhead, and then broken down further into subcategories. Identify anything that is a cost driver, anything that changes the price of an activity, and focus on those areas.
Within an endoscopy unit, creating an activity map and classifying cost drivers is not difficult. A GI activity map will begin with the referral and scheduling process and move through processing, procedure, recovery, scope cleaning and finally billing. Within each category different roles and materials constitute costs. "It is important to identify activities that generate significant costs," said Dr. Goldberg. Keep mapping and analysis simple. Complex systems are expensive and difficult to maintain.
Once activity-based costing has been implemented, it can be used to solve cost driven problems. "For example, poor patient preparation for colonoscopy can lenghthen procedure time by an average of 30 minutes," said Dr. Goldberg. This adds $30.90 to a procedure. If an endoscopy unit does 10,000 procedures in a year, $300,000 could have been saved. Assign a nurse to speak with patients the day before a procedure to ensure they understand instructions and arrive prepared.
Activity-based costing provides a road map for a unit's financial future. It can estimate total costs of treating patient populations and specific conditions, calculate the total cost of a cycle of care and can be applied towards standardization. Activity-based costing is designed to manage costs. It offers critical aid in providing cost effective, high quality care in a healthcare system that is increasingly being value driven.
Activity-based costing is not a new concept. It was first developed in the early 1900s and was applied to the healthcare market of the 1990s. "It faded with the rejection of managed care, but managed care is coming back with a vengeance," said Dr. Goldberg. Activity-based costing and management allows for a firmer grasp on costs, which is essential in the healthcare market of today.
Activity-based costing is built on the basis of products or services that consume activity, which includes both time and money. The first step is building an activity map and creating an activity analysis. Costs are assigned into general categories, such as labor, material and overhead, and then broken down further into subcategories. Identify anything that is a cost driver, anything that changes the price of an activity, and focus on those areas.
Within an endoscopy unit, creating an activity map and classifying cost drivers is not difficult. A GI activity map will begin with the referral and scheduling process and move through processing, procedure, recovery, scope cleaning and finally billing. Within each category different roles and materials constitute costs. "It is important to identify activities that generate significant costs," said Dr. Goldberg. Keep mapping and analysis simple. Complex systems are expensive and difficult to maintain.
Once activity-based costing has been implemented, it can be used to solve cost driven problems. "For example, poor patient preparation for colonoscopy can lenghthen procedure time by an average of 30 minutes," said Dr. Goldberg. This adds $30.90 to a procedure. If an endoscopy unit does 10,000 procedures in a year, $300,000 could have been saved. Assign a nurse to speak with patients the day before a procedure to ensure they understand instructions and arrive prepared.
Activity-based costing provides a road map for a unit's financial future. It can estimate total costs of treating patient populations and specific conditions, calculate the total cost of a cycle of care and can be applied towards standardization. Activity-based costing is designed to manage costs. It offers critical aid in providing cost effective, high quality care in a healthcare system that is increasingly being value driven.