Applying time-driven activity-based costing to chronic diseases

ABSTRACT:

In a time of unprecedented increasing pressures on cost control and budget constraints for healthcare organizations, the literature is devoting particular attention to innovation in costing techniques, in line with the New Public Management principles promoting the use of advanced performance measurement and accounting systems to drive a more efficient, effective, and accountable public sector. More specifically, researchers have discussed the feasibility and advantages of activity-based costing (ABC) and – more recently – time-driven ABC (TDABC) in providing more accurate and managerially relevant cost information, yet technical drawbacks and clinicians’ resistance toward management accounting innovations may make the actual implementation of these new costing techniques rather challenging. In addition, extant research has mainly focused on the application of such costing tools to single departmental units, procedures, or services as well as on acute conditions treated in hospital settings. In contrast, empirical studies applying TDABC to the overall treatment of patients affected by chronic diseases in primary care settings are absent. This gap is particularly problematic given that the ever-growing prevalence and incidence of chronic diseases worldwide represents, indeed, one of the major causes of today’s cost crisis in the healthcare sector. Starting from these premises, this paper discusses the peculiarities and challenges of costing chronic patients treated in primary care settings according to a process-oriented approach. This is accomplished by developing a novel approach for applying the TDABC methodology to the full cycle of care of type 2 diabetic patients treated in a multi-professional primary care center of an Italian LHU. The results demonstrate the feasibility of the developed costing approach as well as its various advantages over more traditional costing systems. Several practical implications for both healthcare organizations and policy-makers are discussed.

KEYWORDS: Time-driven activity-based costing, New Public Management, Chronic diseases