Measuring Value of Health Care: The Importance and Challenges of Measuring True Cost

With the rising cost of US health care, there is increasing emphasis on delivering high-value health care with a high quality to cost ratio. Health care analysts have come to realize that costs are not being accurately measured, which is problematic for identifying how to reduce costs. To quantify value, we must measure outcomes and measure true cost. Time-driven activity-based costing (TDABC) can be used to assign costs accurately. The cost measurement process is broken down into seven steps, which serve as excellent starting points for doing one's own costing analysis. Opportunities to improve value will arise from TDABC, such as eliminating process variation, improving resource capacity utilization, ensuring the product is delivered at the right location, matching clinical skills to the process, and speeding up cycle time. With this technique, valid comparisons can be made between systems or care cycles, as well as between iterations of a given care cycle. Use of TDABC to estimate true cost will be increasingly important as current reimbursement patterns shift toward value-based reimbursement.