To measure the cost of a cycle of care with Time-Driven Activity-Based Costing (TDABC), you follow seven steps: define the medical condition, map the care delivery value chain, estimate the time each activity takes, cost each resource, calculate practical capacity and capacity cost rates, total the cost across the cycle, and expose unused capacity and improvement levers. This is the method Kaplan set out for healthcare, and a first care line typically takes a focused team 6 to 10 weeks.
Below is a practitioner walkthrough. We use a primary hip replacement as an illustrative care line throughout; any numbers are illustrative and chosen to show the mechanics, not drawn from a specific provider. Read it alongside our Value-Based Health Care pillar for the wider context on why this matters.
Step 1 – Define the medical condition and care line
TDABC in healthcare measures cost over the full cycle of care for a defined medical condition, not per department and not per visit. So the first decision is scope: which condition, for which patient population, over what time boundary?
For our example, the care line is a primary hip replacement for osteoarthritis in an adult patient, and the cycle runs from the first orthopaedic consultation, through surgery and inpatient stay, to the end of rehabilitation roughly one year later. Defining clear start and end points matters: get this wrong and you either truncate the cycle (and undercount cost) or let it sprawl (and never finish). Pick a high-volume, well-understood condition for your first attempt.
Step 2 – Map the care delivery value chain and build process maps
Now chart the patient’s actual journey. The care delivery value chain lists every clinical and administrative process the patient passes through, in sequence: pre-operative consultation, imaging, anaesthetic assessment, surgery, recovery, ward stay, physiotherapy, outpatient follow-up.
For each process you build a process map that names every resource involved: which staff (by type, not by name), which equipment, which facilities, which consumables. The map should reflect what really happens, captured by walking the pathway and talking to the clinicians who deliver it, not what a protocol document says should happen. This map is the backbone of the entire model; everything downstream attaches to it.
Step 3 – Estimate the time each activity consumes (time equations)
For every step on the process map, estimate how many minutes of each resource it consumes. A pre-operative consultation might use 20 minutes of orthopaedic surgeon time and 10 minutes of nurse time. The surgery itself consumes surgeon, anaesthetist, theatre nurse and operating-theatre minutes.
Where complexity varies, replace a single average with a time equation: a base time plus increments for the factors that genuinely drive it. For a hip replacement, theatre time might be a base figure plus added minutes for a revision rather than a primary procedure, or for a high body-mass-index patient. Time equations are what let one model handle real-world variation without exploding into thousands of separate activities, the failure mode that sank conventional Activity-Based Costing in hospitals.
Step 4 – Estimate the cost of supplying each resource
Independently of patients, calculate the total annual cost of each resource that appears in your maps. For a clinician this is fully loaded compensation plus a fair share of the support costs that make their work possible: supervision, IT, space, equipment, administration. For a machine such as an MRI scanner it is depreciation, maintenance, space, and the technician time required to run it.
The principle is to capture the true cost of making each resource available, including the overheads conventional accounting either ignores or smears across departments with arbitrary percentages. This is where TDABC’s accuracy is won or lost.
Step 5 – Calculate practical capacity and the capacity cost rate
Divide each resource’s annual supply cost by its practical capacity, expressed in minutes, to get a capacity cost rate (cost per minute).
Practical capacity is the time a resource is genuinely available for patient-facing work, set at roughly 80-85% of theoretical capacity. The reduction accounts for holidays, training, meetings, breaks, and the simple reality that no one is productively occupied every paid minute. Using practical rather than theoretical capacity is not a rounding choice; it is the deliberate mechanism by which TDABC isolates the cost of unused capacity instead of hiding it inside the rate. A surgeon costing, say, 300,000 EUR a year fully loaded against perhaps 90,000 practical minutes yields a capacity cost rate; you repeat this for every resource.
Step 6 – Total the cost across the full cycle
Now combine steps 3 and 5. For each resource a patient uses, multiply the minutes consumed (from the time equations) by that resource’s capacity cost rate. Add the cost of consumables and implants directly. Sum across every step of the pathway, from first consultation to final rehabilitation session.
The result is the true cost of treating that patient for that condition across the whole cycle of care. Run it across a representative set of patients and you have an average cost for the care line and, just as valuable, an understanding of how and why cost varies between patients. For the first time the denominator of the value equation sits on the same footing as the outcomes you already measure.
Step 7 – Reveal unused capacity and improvement levers
The model is not the deliverable; the decisions it unlocks are. Because TDABC was built on practical capacity, it shows directly how much of each resource is used versus supplied. Idle theatre time, an underused scanner, a bottleneck where patients queue for one scarce resource: these become visible and quantified.
The improvement levers follow naturally. Rebalance the care team so expensive clinicians spend their minutes only where their expertise is required. Smooth scheduling to lift utilisation toward practical capacity. Standardise high-variation steps. Reconsider where care is delivered. Each lever can be tested in the model before anything changes in the hospital, and each connects an operational change to a euro figure and, ultimately, to value. Keeping that model live rather than static is exactly what platforms such as CostCTRL are built to do.
What to expect
A first cycle of care, scoped to a single well-defined condition, typically takes a focused team 6 to 10 weeks: a week or two to define and map, several weeks to gather times and resource costs, and a final stretch to build, validate and interpret the model. The first care line is the steepest; the second and third reuse most of the resource costs and capacity rates and move far faster.
That first model is also the strongest possible proof of concept. It produces a defensible cost for a real pathway, a map of where money and capacity actually go, and a prioritised list of improvements, the exact denominator that Value-Based Health Care has been missing. To understand how this fits the broader value agenda, start with our Value-Based Health Care pillar.