BUSI 323 Week 5 Group Discussion Board Forum 3 Example

Group Discussion Board Forum 3: Measuring the Cost of Care

BUSI 323 Financial Analysis and Management in Healthcare, Group Discussion Board Forum 3

Thread by [Student Name]

The clinic, its figures and the classmates are composites; the textbook, Scripture and the peer-reviewed articles cited are real.

I chose the prompt on measuring the cost of a service. Last spring, a payer offering our primary care clinic a bundled payment for diabetes care asked what a routine diabetes follow-up visit costs us. We could say what we charge and what we are paid, but not what it costs. Cleverley and Cleverley (2018) separate costs that can be tied to a particular service, called direct costs, from indirect costs such as administration and facilities, which must be allocated. Our accounting system allocated overhead in proportion to charges, which meant a visit's "cost" rose whenever we raised prices, even though nothing about the work changed. Worse, services with low charges but heavy staff time, such as patient education, looked almost free, while procedures with high charges absorbed far more overhead than they actually used.

Time-driven activity-based costing offers a better approach. Shakya et al. (2025) reviewed 32 studies that used the method, most often in cancer and diabetes care, and found it applicable across the continuum of care and useful for identifying the true cost of care and wasted resources. The method is simple in principle: map each step of the visit, estimate how many minutes each person spends and multiply by the cost per minute of that person's time and space. The cost per minute comes from dividing each role's total cost, including salary, benefits and a share of space, by the minutes that role is actually available for patient work.

For one visit, we mapped five steps: check-in (6 minutes of front desk time), rooming and vital signs (12 minutes of medical assistant time), the physician encounter (20 minutes), education with a nurse (15 minutes) and billing. For billing, we borrowed a published estimate: Tseng et al. (2018) found that at a large academic system, billing and insurance work for one primary care visit took about a quarter of an hour and cost roughly twenty dollars. Using our salary and space costs, the visit totaled about $148, of which the physician's time was less than half. The nurse education step, which our charge-based system had treated as free, cost about $19.

Proverbs advises knowing well the condition of one's flocks and giving attention to one's herds (English Standard Version Bible, 2001/2016, Proverbs 27:23). A manager who does not know what a visit costs cannot know whether a payment is fair. We used the figure to negotiate a bundled rate that covers nurse education, which the payer had initially left out, and we now review the map once a year as staffing changes.

Reply to Bethany

Bethany, you described your hospital's use of cost-to-charge ratios to estimate service costs for its budget and pricing decisions. The approach is common in hospital finance departments because the data are easy to get from the Medicare cost report, but it inherits every distortion in the chargemaster. If a hospital marks up imaging more than nursing care, for example, a cost-to-charge ratio will make imaging look more expensive to provide than it is and nursing care look cheaper, which can lead managers to cut the wrong services when budgets tighten and protect the ones that are truly costly. Busschaert et al. (2025) reviewed 59 time-driven costing studies in cancer care and found the method promising for identifying costs and opportunities to improve value, though most studies were single-institution and many did not follow the full seven-step method. Shakya et al. (2025) found that time-driven costing helped reveal resource waste that conventional allocation hides. Together, these reviews suggest starting with one high-volume service rather than redesigning the whole cost system at once. A pilot on a single outpatient service would cost little, involve a handful of staff interviews and give your finance team a concrete comparison to show leadership.

Proverbs says that wisdom builds a house and that knowledge fills its rooms with treasures (English Standard Version Bible, 2001/2016, Proverbs 24:4). Could your hospital pilot time-driven costing for one outpatient service, such as infusion visits, and compare the result with the cost-to-charge estimate to see how far apart the two estimates turn out to be?

Reply to Malik

Malik, thank you for a practical question. You asked whether your health system should buy costing software, since leadership has been offered a demonstration and wants a written recommendation from the finance department by the end of the quarter. It is a reasonable question, because manual costing takes many hours of staff interviews, direct observation and spreadsheet work. Software can certainly help, especially in a large system with many sites. Etges et al. (2024) compared manual time-driven costing studies with those using dedicated software and found that technology-based implementations analyzed many more cases using real-world patient-level data, extending the method's reach far beyond what manual studies, which averaged a small number of cases, could cover. Busschaert et al. (2025), however, found that study quality was often low, so software alone does not guarantee good design, accurate time estimates or useful conclusions. In my view, the tool helps most after managers know which questions to ask and which services matter most to the organization's finances. A system that buys software first may end up with very detailed numbers about services that no one needed to examine closely, while the high-volume services that drive its margins remain poorly understood for another year.

Jesus' parable of the talents shows a master giving greater responsibility to a servant who had managed a small sum well (English Standard Version Bible, 2001/2016, Matthew 25:21). Would a small manual pilot on two or three high-volume services help your system decide, by showing leadership exactly what the method reveals before committing to an expensive multiyear software contract?

References

Busschaert, S. L., Werbrouck, A., De Ridder, M., & Putman, K. (2025). The application of time-driven activity-based costing in oncology: A systematic review. Value in Health, 28(4), 643-651. https://doi.org/10.1016/j.jval.2024.11.003

Cleverley, W. O., & Cleverley, J. O. (2018). Essentials of health care finance (8th ed.). Jones & Bartlett Learning.

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Etges, A. P. B. D. S., Jones, P., Liu, H., Zhang, X., & Haas, D. (2024). Improvements in technology and the expanding role of time-driven, activity-based costing to increase value in healthcare provider organizations: A literature review. Frontiers in Pharmacology, 15, 1345842. https://doi.org/10.3389/fphar.2024.1345842

Shakya, S., Bohingamu Mudiyanselage, S., Robinson, S., Randall, S., & Gao, L. (2025). Time-driven activity-based costing and its use in health economic analysis: A systematic literature review. Applied Health Economics and Health Policy, 23(6), 989-1004. https://doi.org/10.1007/s40258-025-00988-3

Tseng, P., Kaplan, R. S., Richman, B. D., Shah, M. A., & Schulman, K. A. (2018). Administrative costs associated with physician billing and insurance-related activities at an academic health care system. JAMA, 319(7), 691-697. https://doi.org/10.1001/jama.2017.19148