What is time-driven activity based cost accounting and how does it help your practice understand the cost of seeing a patient?
One of my favorite questions to ask is “how much does it cost to see a patient?” I know it's a generic question, but it is a starting point for today’s medical practice. Understanding the cost of doing business is essential with value based and other payment models emerging.
The simple way to start is to identify total visits (all E&M codes) for a period and divide by total expenses (typically without the physician). If you have 6,250 annual visits as a solo provider and your total costs are $365,761, the cost per visit is $58.52. You can then decide to break this down further for new patients vs. established patients. Or you could chose to identify costs per total relative value unit, tRVU.
There are other options as well. Eventually you will want to break the cost idea into smaller, workable parts.
One of the most interesting approaches is to identify how much it costs for each category of care provided in the patient visit cycle (e.g., check in, triage, provider time, follow up, and check out). You can look at the cost associated with the triage area: Vital signs, questions on prescriptions, documentation for the visit, and the like. Let’s assume that it takes 10 minutes for this to occur.
If you are paying the medical assistant $15.00 an hour and there is a $2.00 additional cost per hour for benefits, the total cost per minute needs to be calculated. At 2,080 hours worked per year, the total cost at $17.00 per hour would be $35,360. The total minutes worked would be $124,800. The cost per minute is $0.28. The cost for triage is $2.80 just for time. Add in the direct cost for supplies and allocate costs for space and equipment, and it adds up.
If this process is done for each category of service in the cycle you gain a better understanding of the cost for the visit. Once this is understood, you can begin to ask if there are activities done at the time by the right individual and is it worth the cost of doing that activity. Further, is it best to do that activity at that time.
This approach is called time-driven activity based cost accounting (TBABC). It may seem like a lot of work but in our experience an exercise of this nature creates an awareness that results in improving the management of the patient visit cycle. The improved management of that flow produces several options for management to consider.
First, the support is more efficient for the provider which allows the provider to spend more valuable time with the patient, either relationship building or specific to the treatment plan development. More efficiency may lead to seeing one additional patient per day for that provider, which will net at current Medicare rates additional income of ~$18,000 with very little expense. Better control of staff time leads to reduction in overtime. Better control of all times contributes to all getting out of the office on time, which leads to a better work-life balance.
Step one is to accept that there is a need to understand the cost of providing service to the patient. Once a basic understanding is arrived at, taking a page for other industries, utilizing TDABC, as initially complex as it may seem is an effort that produces some important results.