Editor’s Spotlight/Take 5: Time-driven Activity-based Costing More Accurately Reflects Costs in Arthroplasty Surgery

M argaret Thatcher famously once said, ‘‘The problem with socialism is that you eventually run out of other people’s money.’’ Were she an economist today, she might say the same thing about healthcare. The lack of information regarding hospital costs can range from the infuriating, where a patient receives a ‘‘facility fee’’ of USD 600 for routine radiographs performed in a hospitalowned clinic, to the inscrutable, as in Rosenthal’s recent study [4], in which fewer than 20% of hospitals contacted in a telephone survey were able to provide a price quote for a routine THA. A common response to this complaint is that the costs of a complex procedure are impossible to estimate. However, Bernstein and Bernstein [1] performed a similar survey asking hospitals for prices for an electrocardiogram and for parking: 19 of 20 hospitals could quote a price for parking, while only three could do so for the electrocardiogram. A major factor in this lack of transparency is a reliance on outmoded methods of cost analysis. Traditionally, healthcare systems have used a ratio of cost to charge as a baseline. The inaccuracies associated with cost to charge ratios are old news. In 1995, Shwartz and colleagues [5] compared the ratio of cost to charges to a cost system based on relative-value units, which was the most accurate measure then available. They found that for more than one-third of patients, the two cost estimates differed by more than 15%. They also found that when hospital-based ratio of cost to charges were used, a 15% or greater error occurred 45% of the time. Therefore, a major impediment to controlling expenses in the hospital setting is that in many cases, we simply do not know how much care actually costs. In this month’s Spotlight study, Akhavan and colleagues use time-driven activity-based costing (TDABC) to look at every work action associated with performing a total hip or total knee in their institution. Briefly, activitybased costing began as a business and manufacturing tool in the 1990s, in which a department might survey employees to estimate the percentage of time and effort they spent (or expected to spend) on various activities, and then assign the department’s resource expenses according to these percentages. This approach worked well for small groups, but became extremely Note from the Editor-In-Chief: In ‘‘Editor’s Spotlight,’’ one of our editors provides brief commentary on a paper we believe is especially important and worthy of general interest. Following the explanation of our choice, we present ‘‘Take Five,’’ in which the editor goes behind the discovery with a oneon-one interview with an author of the article featured in ‘‘Editor’s Spotlight.’’ The author certifies that he, or any members of his immediate family, has no 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 comment refers to the article available at: DOI: 10.1007/s11999-015-4214-0. P. A. Manner MD (&) Clinical Orthopaedics and Related Research1, 1600 Spruce Street, Philadelphia, PA 19013, USA e-mail: PManner@clinorthop.org Editor’s Spotlight/Take 5 Published online: 30 October 2015 The Association of Bone and Joint Surgeons1 2015