ORIGINAL ARTICLE CLINICAL PRACTICE MANAGEMENT

Improving Efficiency Using Time-DrivenActivity-Based Costing Methodology

Laura C. Tibor, MBA, BEnga, Stacy R. Schultz, BAa, Ronald Menaker, EdD, MBA, CPAa,Bradley D. Weber, MBAa, Jay Ness, BSa, Paula Smith, RN, MSNa, Phillip M. Young, MDa

Abstract

Purpose: The aim of this study was to increase efficiency in MR enterography using a time-driven activity-based costing methodology.

Methods: In February 2015, a multidisciplinary team was formed to identify the personnel, equipment, space, and supply costs ofproviding outpatient MR enterography. The team mapped the current state, completed observations, performed timings, and calculatedcosts associated with each element of the process. The team used Pareto charts to understand the highest cost and most time-consumingactivities, brainstormed opportunities, and assessed impact. Plan-do-study-act cycles were developed to test the changes, and run chartswere used to monitor progress. The process changes consisted of revising the workflow associated with the preparation and adminis-tration of glucagon, with completed implementation in November 2015.

Results: The time-driven activity-based costing methodology allowed the radiology department to develop a process to more accuratelyidentify the costs of providing MR enterography. The primary process modification was reassigning responsibility for the administrationof glucagon from nurses to technologists. After implementation, the improvements demonstrated success by reducing non-value-addedsteps and cost by 13%, staff time by 16%, and patient process time by 17%. The saved process time was used to augment existingexamination time slots to more accurately accommodate the entire enterographic examination. Anecdotal comments were captured tovalidate improved staff satisfaction within the multidisciplinary team.

Conclusions: This process provided a successful outcome to address daily workflow frustrations that could not previously be improved.A multidisciplinary team was necessary to achieve success, in addition to the use of a structured problem-solving approach.

Key Words: TDABC, time-driven activity-based costing, MR, enterography, efficiency

J Am Coll Radiol 2017;-:---. Copyright � 2016 American College of Radiology

INTRODUCTIONAs health care organizations continue to experiencedeclining reimbursement, increased complexity, andincreased accountability for delivering affordable, high-quality care, leaders must explore all available methods ofcost containment and process streamlining. Radiologydepartments must position themselves appropriatelyto react to the impending shift from fee-for-service tovalue-based payment models. According to Lee andEnzmann [1], “to measure and identify areas for providingand improving integrated diagnostic information,radiology must engage clinicians and managers to map

aDepartment of Radiology, Mayo Clinic, Rochester, Minnesota.

Corresponding author and reprints: Laura C. Tibor, MBA, BEng,Department of Radiology, Mayo Clinic, 200 First Street SW, Rochester,MN 55905; e-mail: tibor.laura@mayo.edu.

The authors have no conflicts of interest related to the material discussed inthis article.

ª 2016 American College of Radiology1546-1440/16/$36.00 n http://dx.doi.org/10.1016/j.jacr.2016.11.014

the processes and associated costs of episodes of patientcare.” Time-driven activity-based costing (TDABC) wasdeveloped as an alternative to traditional activity-basedcosting models historically used throughout industry andvarious organizations. In definingTDABC,Kaplan et al [2]stated, “TDABC enables providers to measure accuratelythe costs of treating patients for a specific medicalcondition across a full longitudinal care cycle. It usestwo proven management tools: process mapping fromindustrial engineering and activity-based costing from ac-counting.” In the health care setting, value-streammappingand other process analysis tools are frequently used, butthey do not typically account for the cost component.

The purpose of this article is to inform physicians andadministrative leaders how TDABC can be used toidentify specific time and cost values for all steps in agiven health care event. Unlike the historically usedactivity-based costing method, which accounts only for

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capturing costs on the basis of certain activities, TDABCleverages the per-unit time allocation for every step of agiven process. By identifying non-value-added activities,opportunities exist to reduce or eliminate those activitiesthat may lead to decreased costs and increased processefficiency. An example of TDABC application and out-comes are outlined in this report.

Mayo Clinic radiology leaders requested the divisionof MRI to apply TDABC to a specific abdominal MRIexamination, MR enterography, that was perceived to befraught with non-value-added steps and duplicated workeffort, presenting an opportunity for overall processimprovement. A review of existing workflow maps iden-tified opportunities for the staff to work differently. In theoriginal workflow, nurses were contacted by the MRIscanner technologist when glucagon administration wasneeded. The nurse would prepare the medication and goto the scanner to administer it to the patient. Because ofother responsibilities, the nurse may have been busy withother patient care–related tasks during the time thetechnologist identified that glucagon was needed, creatinginterruptions for the nurse and inadvertent potential de-lays in glucagon administration. Timing of the glucagoninjection for MR enterography is important because itcan affect image quality.

Historically, the department had struggled to keep thecost of providing MR enterography less than the Medi-care reimbursement rates. The core objective of the MRIteam was to decrease the overall cost to provide MRenterography while decreasing the overall process time.This examination had previously been analyzed using avalue-stream map and a swim-lane diagram. Althoughthose two methods helped clearly illustrate the processflows, actual per-step costs were not previously assigned.By identifying the amount of time required for eachprocess step, the radiology finance team was able to applyaccurate cost-per-unit amounts to the process steps. Theadded layers of information quickly allowed the team totarget key opportunity areas to reduce cost, reduce pro-cess time, and simplify the entire patient experience.

METHODSA multidisciplinary team consisting of clinical assistants,registered nurses (RNs) and licensed practical nurses(LPNs), radiologists, schedulers, technologists, and aprocess improvement coach met to review the existingvalue-stream map and swim-lane diagram of the currentstate of MR enterography. The team developed acurrent-state high-level swim-lane diagram that illustratedeach process step by role (Fig. 1). Then, observations and

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data collection provided the necessary process times andstaff participation percentages for each process step.Manual timings were completed on randomly selectedpatients, and median times were used.

CostingNext, a personnel cost was generated for each step in theswim-lane diagram. Personnel cost was determined bythe median number of minutes involved, the type ofemployee involved, and the percentage of time that stepwas executed by each type of employee. A midrange salarywas used for each different type of allied health employee(clinical assistant, RN, LPN, intravenous technician, andMRI technologist) and resident, and a top-level salary wasused for each radiologist process step (consistent withinstitutional guidelines). Total personnel costs includedsalary, benefits, and supervisory overhead. The personnelcapacity (minutes) was calculated using the available daysper year for each different job category (total days lessweekends, holidays, vacation, and training) and theavailable productive minutes per day. These two com-ponents, total personnel costs and personnel capacity,were used to determine a rate per minute for eachdifferent job category, which was then applied to eachswim-lane diagram step.

Equipment costs were calculated on the basis of theannual straight-line depreciation of every piece ofequipment used in an MR enterographic examination. Astandard annual maintenance cost was also included. Theequipment capacity (minutes) was based on the numberof days available (less weekends, holidays, and daysunavailable because of maintenance) and the number ofproductive minutes available per day. This equipmentcost per minute was then applied to the number ofminutes for the actual examination.

Space costs were determined by the total squarefootage of the space used for an MR enterographicexamination, as well as the type of space being used forthe examination. Three different types of space, withdifferent rates per square foot, were included in theanalysis (storage, office, and imaging). The space capacityand rate per minute were calculated using a similarmethod as for the equipment.

Supply costs (eg, syringes, medication, linen) weredetermined by nurses and technologists working withradiology supply chain management. The team developeda list of items and determined the cost and frequency of usefor each item used in the examination. All of these costcomponents (personnel, equipment, space, supplies) wereadded together to calculate a total cost per examination.

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Fig 1. Current-state swim-lane diagram. Figure 1 illustrates the current-state process steps to provide care for a patient un-dergoing an MR enterographic examination. Each process step shows the median time required for the resource to provide thatcare and the frequency with which the step occurs. aIV ¼ intravenous therapy; bRN ¼ registered nurse; cEMR ¼ electronicmedical record; dLPN ¼ licensed practical nurse.

ImprovementUpon completion of the costing process, Pareto analysesbased on cost and time were performed to identifyopportunities for improvement (Fig. 2). The TDABCoversight group reviewed the swim-lane diagram, Paretoanalyses, and comments from the observers and subjectmatter experts before developing the improvement plan.One suggested improvement that had the potential toaffect multiple process steps was to change the workflow tohave the MRI technologists administer the glucagon,which was within their scope of practice. Physicians,nurses, and other allied health providers would then be ableto work at the top of their licensure, optimizing the use oftheir knowledge [3]. A future-state swim-lane diagram wasdeveloped with this suggested improvement (Fig. 3).

Plan-do-study-act cycles were developed to determinewhether changing theworkflow for glucagon administrationwould reduce the overall time the patient was in the scanroom. The team hypothesized that this would result in areduction of scanner cost, space cost, and radiologist waiting

Journal of the American College of RadiologyClinical Practice Management n Tibor et al n Time-Driven Activity

time for the completed examination, andwould increase thetechnologist process time for preparing and administeringthe medication. Successive plan-do-study-act cycles weretested with great success. An implementation and trainingplan was developed by the RNs and MRI technologists,and the new process was implemented within 4 months.After implementation, observations and timings of the newprocess were performed on a random sample of patients.Process observation timings were averaged to comparepre- and postimplementation metrics. Figure 3 illustratesthe new process times on the basis of the observed median.

RESULTSThe TDABC methodology allowed radiology to developa process to more accurately identify the cost of providingan MR enterographic examination. The process changereduced the overall time the patient was in the scan roomand successfully reduced the overall scan time withoutadding an incremental full-time equivalent. The baselinetotal time for the staff to provide the examination was a

3-Based Costing

Fig 2. Pareto chart of process time (current state). Figure 2 shows the Pareto analysis performed on the process step times, whichhelped the team identify the largest opportunity areas. aRad. ¼ radiologist; bRN ¼ registered nurse; cIV ¼ intravenous therapy.

median of 198 min. By modifying the workflow to allowmedication preparation and glucagon administration tobe completed by the MRI technologist, several cascadingpositive impacts resulted.

The staff total process time decreased from a median of198 to 165 min (a 16% reduction), and the patientin-process time decreased from a median of 102 to 85 min(a 17% reduction) (Fig. 4). Time savings resulted for theradiologist, resident, and fellow at a 22% reduction; thetechnologist at 18%, and the LPN at 17% (Table 1).The radiologist, resident, and fellow time decreasedslightly because of the reduced wait time and was notedto be variable because of observations completed ondifferent radiologist, resident, and fellow teams. Theoverall radiologist, resident, and fellow time includesthe resident and fellow interpretation, radiologistinterpretation, and teaching and feedback. Further studywould be required to understand the impact of thechanges in relation to the variability in provider teams.

Additionally, the scanner time required was reduced,affecting space and equipment costs. The largest costsavings came from the space and equipment time reduc-tion, resulting in a decrease of 21%. In total, this projectled to a 13% reduction in the cost to provide an MRenterographic examination. Future data collection willensure that improvements have been sustained over time.

Anecdotal comments were captured to validateimproved multidisciplinary staff satisfaction. Staff were

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quoted as follows: “It is so nice for the patient, much lesswaiting” and “It is very helpful for simplifying workflowand streamlining our exams.” This process provided asuccessful outcome for daily workflow frustrations thatcould not previously be improved. The change was madepossible during this project because the TDABC meth-odology brought together multidisciplinary personnel in asafe environment to discuss how to reduce the cost of theprocess. The TDABC methodology allowed the team touse data to identify the process inefficiency, and thefinancial impact heightened the desire to change.

LIMITATIONSThree primary limitations identified throughout theTDABC process may affect replication in other organi-zations or practice areas. These include time commit-ment; the availability of skilled personnel resources toaccurately assess current state, actualize TDABC, andimplement new methodologies to support sustainedchange; and the organization’s not-for-profit status.

Full appreciation of the benefits of TDABC requiresdedicated time and personnel resources with the skillsnecessary to conduct a detailed outline and analysis ofworkflow, including space, equipment, personnel, sup-plies, and time. It is important to note that a significantcomponent of the work had already been completed, aresult of prior quality projects focused on the MRIabdominal practice. Current value-stream and workflow

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Fig 3. Future-state swim-lane diagram. Figure 3 illustrates the future-state process steps to provide care for a patient undergoing an MRenterographic examination. Four major process steps have been removed or altered to streamline the process. aIV¼ intravenous therapy;bRN ¼ registered nurse; cEMR ¼ electronic medical record; dLPN ¼ licensed practical nurse.

process maps were already available to use as a startingpoint. Without this prior work, time and resourcecommitment would have been increased.

A significant amount of time was dedicated to teammeetings with stakeholders to understand the TDABC

Fig 4. Impact on staff and patient times. Figure 4demonstrates the outcomes achieved from theimplementation on both staff and patient process times.

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methodology and sequentially analyze and assign cost toeach facet of the process. This effort involved specialty re-sources, including systems engineers, improvement spe-cialists, and financial analysts, as well as nurse, radiologist,and technologist expertise. Once the workflow process wasconstructed and the improvement target identified, addi-tional resources were required to develop and implement acomprehensive training plan andmonitor sustained change.The team did not gather quantitative patient experiencedata but rather relied on patient process time reduction.

Another potential limitation of the TDABC processrelates to the organization’s not-for-profit status andassociated buy-in from users who may not see immediatefinancial outcomes-related benefits. Leaders in not-for-profit organizations may have less ability to dedicatesignificant resources to support TDABC methodology asa means to reduce health care costs.

Despite these limitations, the radiology cohort rec-ognizes the significance and benefit of assessing practiceand workflow to proactively address and reduce healthcare–associated costs. The focus on practice redesign to

5-Based Costing

Table 1. Percentage impact change by cost component

ResourcesTime (min)

(Median Before)Time (min)

(Median After) % Time Change % Cost ChangePersonnelScheduler 2 2 — —

Lobby clinical assistant 2 2 — —

Room clinical assistant 3 3 — —

RN and IV technician (RN assessment) 23 22 �6% �4%LPN 23 19 �17% �15%Scanner clinical assistant 8 8 — —

Radiologist/resident/fellow 57 44 �22% �14%Technologist 80 65 �18% �19%Personnel total 198 165 �16% �14%

Space and equipment �21%Supplies and medication —

Total 198 165 �16% �13%Note: Table 1 identifies the required time, in minutes, before and after the changes were implemented for each of the personnel resources. It alsoshows the percentage changes in both time and cost before and after the implemented changes. IV ¼ intravenous; LPN ¼ licensed practicalnurse; RN ¼ registered nurse.

respond to marketplace economic pressures is an expec-tation for the organization. “As health care providerscope with pricing pressures and increased accountabilityfor performance, they should be rededicating themselvesto improving the value they deliver to their patients:better outcomes and lower costs” [2].

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TAKE-HOME POINTS

- Understanding costs is necessary to thrive in acompetitive, increasingly global marketplace inwhich consumers and purchasers are attempting tooptimize the health care value they receive.

- Health care leaders, as stewards of their organizations’resources, will want to use approaches that identifyand eliminate, or replace, low or minimal value-added activities, using methods such as TDABC.

- TDABC can be used to identify specific time andcost values for all steps in a given health care event.

- The TDABC methodology allowed radiology todevelop a process to more accurately identify andreduce the cost of providing an MR enterographyexamination.

ACKNOWLEDGMENTSThe authors thank Robert S. Kaplan, PhD, HarvardTDABC methodology, and Richard A. Helmers, MD,critical care consultant, Mayo Clinic Arizona. The au-thors also thank Andrea Moran for her help in editing themanuscript.

REFERENCES1. Lee CI, Enzmann DR. Measuring radiology’s value in time saved. J Am

Coll Radiol 2012;9:713-7.2. Kaplan RS, Witkowski M, Abbott M, et al. Using time-driven activity-

based costing to identify value improvement opportunities in healthcare.J Healthc Manag 2014;59:399-412.

3. Kaplan RS. Improving value with TDABC. Healthc Financ Manage2014;68:76-83.

Credits awarded for this enduring activity are designated “SA-CME” by the AmericanBoard of Radiology (ABR) and qualify toward fulfilling requirements for Maintenance ofCertification (MOC) Part II: Lifelong Learning and Self-assessment. Scan the QR codeto access the SA-CME activity or visit http://bit.ly/ACRSACME.

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