discussion document may 2007 - healthstatistics / frontpage

Microsoft PowerPoint - 07-05-31 ActivityBasedCosting.ppt [Compatibility Mode]Discussion document May 2007
Costing … and why “activitybased” costing?
•Knowing the total costs in a hospital as well as the total income is required to calculate the profit. It doesn’t tell us, however, why there was a profit, or indeed how the profit could be changed
•The idea behind activitybased costing is to understand the cost of each activity in a hospital. Done right, this can help us decide both why there was a profit, and how it could be improved.
– We can calculate the cost of individual an individual patient: it is the sum of all the costs of the activities associated with the patient, e.g., time spent in the operating theatre, time spent on the ward, lab tests performed. This tells us why there was a profit (or loss)
– We can calculate how much the cost would have been if e.g., the operation had been shorter, or the patient had stayed in hospital for a different length of time, or received different lab tests. This gives us a clue how to change the profitg g p
•Doing perfect activitybased costing can be incredibly timeconsuming and costly. This is because there are thousands of activities in a hospital that could all be recorded in detail. This stops many people from doing activitybased costing.p p g y g
•However, there are fast, userfriendly, flexible and modular ways of implementing activitybased costing. This can make it very worthwhile in the shortterm, and allows the hospital to learn and refine accuracy over time, without buying new IT systems. In addition, there is now a requirement from ADaccuracy over time, without buying new IT systems. In addition, there is now a requirement from AD Finance for all hospitals to do activitybased budgeting from 2008.
1 Source Health Statistics analysis
6 easy steps to calculate the cost of a specific patient simplified
Determine Total Cost
Define cost types
In di
2000 1200 200 600 2.90 1.62 0.34 0.94 5.16 2.66 0.57 1.92 200 40 100 ER 500 emergencies 0.68 0.40 0.08 0.20 1 0.68 0.40 0.08 0.20 300 20 200 Ward 1000 bed days 0.52 0.30 0.02 0.20 4 2.08 1.20 0.08 0.80 200 80 180 Operating theate 400 operating hours 1.15 0.50 0.20 0.45 2 2.30 1.00 0.40 0.90÷ = × = 100 20 40 Lab 5000 lab tests 0.03 0.02 0.00 0.01 3 0.10 0.06 0.01 0.02 400 40 80 Outpatient 1000 attendances 0.52 0.40 0.04 0.08 0 0.00 0.00 0.00 0.00
Do this once only Do this for every patient
Source Health Statistics Analysis 2
A few principles make activitybased costing more efficient and powerful
Description Implication
• U lt ( l t) li
• Make pragmatic use of judgments, e.g., in allocating cost types to cost centers
Description Implication
Userfriendly • Clinicians can understand and use it
• Keep it simple (low number of cost types and cost centers)
• Works with small providers with very basic costing, as well as complex hospitals with sophisticated systems
Flexible • Use guiding principles rather
than exquisitely detailed rules, e.g. how to allocate indirect costswith sophisticated systems
• Is able to evolve and refine costing over time
costs
• Provide for multiple levels of sophistication, e.g., which activity metrics to use
Modular • Is benchmarkable across
organisations (even if very different underlying costing systems) and over time
y • Use a consistent “cost matrix”
which doesn’t change over time
3
• Stable principles • Stable principles
Define total cost CommentsInclude
• Include all operating costs to with clinical services should be included on an accrual basis
Operating cost
yes
• In large teaching centers this can be challenging to do accurately. A pragmatic and transparent solution could be to
Teaching no
– identify individual staff members who are involved in teaching and estimate the percentage of time spent on teaching.
– For overheads a simple overhead percentage could beFor overheads a simple overhead percentage could be used
• Apply same principles as for teachingResearch & Development
no
• Capital, projects, end of service benefits should be excluded and treated on a cash basis
Development
4
Cost Type Doctors Nurses Other staff
Drugs & Devices
Consum ables
Variable Variable Fixed Fixed Fixed
•It is important to keep the highlevel cost types simple and limited to a smalltypes simple and limited to a small number
•Each main cost type may be broken into more detail, but this detail may be very , y y different for different providers.
•The main thing is that the cost ledger can be aggregated to these cost types
5 Source: Health Statistics analysis
Allocate cost types to cost centers
Cost Center\Cost type
Doctors Nurses Other staff
Ward • Often, there will be no hard data available • Allocating
ICU/CCU
• Expert judgement, may be a good start
indirect costs to cost centers always involves judgement
• A first
• A first approximation might be to allocate according to
able to allocate these costs directly toEndoscopy
Cardiology
Radiology
measurements in a second iteration
• This will become the most important part of the allocation (2/3
the overall direct cost
directly to individual patients
Emergency Room Severity of case Attendance
Outpatient Consultation minutes First/FollowUpp / p
Ward Weighted ward hours Days of stay
ICU/CCU Weighted hours Hours
Deliveries
Renal Dialysis Weighted Dialyses Sessions
Endoscopy Procedure minutes Weighted procedures Yes/No
Treatment
Radiology Weighted procedures Yes/No
Laboratory Weighted procedures Yes/NoDiagnosis
Laboratory Weighted procedures Yes/No
* For cost type Drugs & Devices within each cost center, ideally use actual costs not activity loading
Source Health Statistics analysis
Cost centers Relative importance rationalep of high quality activity measurement
Emergency Room Low High volume activityg y g y
Outpatient Low High volume activity
Ward Medium Intermediate cost, nursing intensity varies by patient
/ICU/CCU High High cost, big differences by patient
Operating theatre High High cost, big differences by patient
Delivery room Medium Intermediate cost, which varies by patient
Physiotherapy Low High volume low cost
Renal Dialysis Low Generally small cost base within hospital
Endoscopy Medium Intermediate cost which varies by patientEndoscopy Medium Intermediate cost, which varies by patient
Cardiology Medium Intermediate cost, which varies by patient
Radiology Low Standardised high volume low cost
8
Laboratory Low Standardised high volume low cost
* For cost type Drugs & Devices within each cost center, ideally use actual costs not activity loading
Source Health Statistics analysis
Cost matrix with activity metrics Cost Center\Cost Doctor Nurses Other
ff Other O i
g cost Devices ables staff
costs indirect costs
Emergency Room Severity of case Attendance
O t ti t Consultation minutesOutpatient Consultation minutes First vs FollowUp
Ward Weighted ward hours Days of stay
ICU/CCU Weighted hours
/ Hours
Operating theatre Cutting minutes DRG reference
Delivery room Delivery room minutes Number of deliveries available, otherwise as
all other Cost Types
Endoscopy Procedure minutes Weighted procedures (YesNo)
Cardiology Procedure minutes Weighted procedures (YesNo)
R di l Weighted procedures
9
Cost matrix, AED 000's Provider
Date
Cost Center\Cost type Doctors Nurses Other staff Drugs & Devices
Consumabl es
10