CORR Insights(®): Time-driven Activity-based Costing More Accurately Reflects Costs in Arthroplasty Surgery.

Abstract

R ecent studies [7, 9] have conclusively demonstrated that hospital administrators and physicians in the United States often are flummoxed by a relatively simple question: ‘‘How much will my [insert name of procedure] cost?’’ Any reasonable person should be outraged, perplexed, and infuriated. Call your local Wal-Mart and ask them for the cost of any item. You will get answer within seconds. Go online and you can quickly find the cost of a roll of toilet paper, a new car, or a round-trip bus ticket to Peoria, IL, USA. Yet most of us are unable to provide our own patients with reasonable cost estimates for the tests, procedures, and products we prescribe every day. Akhavan et al. [1] used a rigorous accounting method (Time-driven Activity Based Costing [TDABC]) to examine the cost of TKA and THA procedures. The authors then compared the costs ascertained using TDABC with the traditional accounting method used by virtually all US hospitals. Not surprisingly, the authors found that methods matter. Specifically, the authors found that TDABC methods yielded ‘‘cost’’ estimates for TKA and THA that were approximately 45% lower than traditional accounting methods (USD 10,000 per case). These results have a number of important implications. First, the results provide an explanation for recent research studies that indicated hospitals were unable to provide credible estimates of prices for many of the most routine services that they provide [2, 12]. If hospitals’ internal accounting systems are fundamentally flawed and inaccurate as Akhavan and colleagues suggest, it is no wonder that hospitals are unable to provide accurate pricing data to consumers [5]. We cannot excuse our healthcare system for dysfunctional accounting systems and its inability to know costs and provide prices, but this does at least provide an explanation for the problem at hand. Second, the results have implications for hospital leadership when This CORR Insights is a commentary on the article ‘‘Time-drive Activity-based Costing More Accurately Reflects Costs in Arthroplasty Surgery’’ by Akhavan and colleagues available at: DOI: 10.1007/ s11999-015-4214-0. The author certifies that he, or any member of his immediate family, has no funding or commercial associations (eg, consultancies, stock ownership, equity interest, patent/ licensing arrangements, etc) that might pose a conflict of interest in connection with the submitted article. All ICMJE Conflict of Interest Forms for authors and Clinical Orthopaedics and Related Research editors and board members are on file with the publication and can be viewed on request. The opinions expressed are those of the writers, and do not reflect the opinion or policy of CORR or the Association of Bone and Joint Surgeons. This CORR Insights comment refers to the article available at DOI: 10.1007/s11999-0154214-0. PC is supported by a K24 award from NIAMS (AR062133). This work is also funded in-part by R01 AG033035 from NIA at the NIH. P. Cram MD, MBA (&) Division of General Internal Medicine, Toronto General Hospital, 200 Elizabeth Street, Eaton 14th Floor, Toronto, ON M5G 2C4, Canada e-mail: peter.cram@uhn.ca CORR Insights Published online: 27 May 2015 The Association of Bone and Joint Surgeons1 2015