Activity-based costing for clinical paths. An example to improve clinical cost & efficiency

How much does this medical service or surgical procedure cost the hospital to provide? What is the most efficient clinical pathway that maximizes the quality of patient care while minimizing costs? More and more hospitals are discovering that they don't have solid answers to these critically important questions. In an age of managed care and capitation, however, it is imperative for management to know if the patient care services they provide are making or losing money-and by how much. This article discusses how a powerful new tool called activity-based costing (ABC) can be used to help hospitals accurately determine patient care costs. We show how to build a model that combines both clinical and financial data to measure how efficiently the operation allocates human, material and capital resources to provide its services. The modeling approach described in this article can be used to better analyze a wide range of important operational and financial issues, including: How to efficiently allocate resources, and what resources will be needed as patient demand changes-ideal for operational management and planning; How efficiently activities and processes are performed to meet patient needs-effective for measuring performance and improving quality; Determining clinical pathway profitability-essential for understanding where you're making or losing money; Cycle time, throughput and the impact of resource capacity constraints-critical for meeting patient demand; Costs of idle capacity-important for using resources more efficiently. We will illustrate with an example how this modeling technique can be used to develop and implement efficient clinical pathways.