Everyone talks about Value-Based Health Care. Few have measured the cost.
The value equation is outcomes divided by cost. Outcomes have standards, such as the ICHOM sets. The cost side is the gap. We close it with TDABC, the method Kaplan and Porter have recommended since 2011.
Value is what matters to the patient, divided by what it cost.
Most VBHC programmes measure the numerator and estimate or ignore the denominator. A systematic review of cost measurement in VBHC found that half of studies relied on reimbursement or charges rather than real provider cost. Reimbursement reflects what was billed, not what was consumed.
Source: systematic review of cost measurement in VBHC, PubMed 36600363.
The biggest barrier to VBHC is not lack of knowledge. It is the gap between knowing and doing.
Outcomes are measurable, cost is not
Traditional hospital accounting uses averages and allocations. It knows the average cost of a bed-day, not what a specific patient consumed across their cycle of care.
Reimbursement is not cost
DRG and claims data tell you what was billed. They cannot tell you what a cycle of care actually consumed, in people, equipment and time.
Fee-for-service inertia
Incentives still reward volume. Without the real cost per cycle, it is hard to build the value-based payment models that would reward the result.
Source: 2025 Frontiers scoping review on VBHC. Value-Based Purchasing and TDABC were the most frequently reported funding models.
TDABC is the engine. Outcomes without cost is half an equation.
In 2011, in Harvard Business Review, Kaplan and Porter published "How to Solve the Cost Crisis in Health Care". The method they proposed was Time-Driven Activity-Based Costing. It gives the accurate, transparent cost of treating a medical condition across a complete cycle of care.
TDABC needs only two: the capacity cost rate of each resource and the time equations of each activity. From there, the cost of any cycle of care is the sum of each resource time, at its cost per minute.
Because it starts from practical capacity, not theoretical capacity, TDABC reveals the unused capacity that averages hide. That is where the improvement levers appear: idle room time, operating blocks, imaging equipment.
Where time and cost accumulate across the care cycle.
Kaplan's seven steps to measure cost in health care.
The seven-step TDABC approach applied to a medical condition and a complete cycle of care. It is the methodology we use, adapted to the reality of public and private providers.
A defensible cost number, and the team that knows how to keep it.
Measured cost per cycle
The real cost per cycle of care for one high-impact condition, in 6 to 10 weeks.
Map and equations
A process map and the time equations your team owns.
Unused-capacity curve
The unused-capacity curve, showing where cost is paid for and not used.
Defensible number
A defensible cost number for pricing, contracting and value-based reimbursement conversations.
CostCtrl platform
CostCtrl to keep the model live: capacities, cost per cycle and unused capacity over time.
Independent. We do not sell outcomes or reimbursement. We sell the cost and its reliability. It is the half of the equation most programmes leave undone, and it is the only one we work on.
TDABC has already been applied to dozens of care lines.
Illustrative: cumulative margin by care line, reimbursement vs real TDABC cost.
In Portugal, the Value-Based Health Care context is advanced by initiatives such as VOH.CoLAB and APAH. Illustrative examples, cited by their reference. We do not invent numbers.
For those who need the cost side to be real.
- 01Hospital CFOs and administrators who need a defensible cost per cycle for the board or the regulator.
- 02Clinical directors of care lines who want to know the real cost of what their team delivers.
- 03Public and private providers preparing value-based contracts or payments.
- 04Any team starting or running a VBHC programme that needs the denominator of the equation to be real.
What people ask before starting.
What is Value-Based Health Care (VBHC)?
Why is cost the missing link in VBHC?
Why is reimbursement not the same as cost?
Why is TDABC the recommended method to measure cost in VBHC?
How long does it take to measure the cost of a care line?
Do you sell clinical outcomes or reimbursement?
Who is this approach for?
How does CostCtrl keep the model live?
Sources
Canonical works behind this method. Each opens in a new tab.
- PaperWhat Is Value in Health Care?Porter, M. E. (2010). New England Journal of Medicine 363.Defines value as outcomes per cost, framing why patient-level cost matters.
- BookRedefining Health Care: Creating Value-Based Competition on ResultsPorter, M. E. & Teisberg, E. O. (2006). Harvard Business School Press.Foundational book on value-based competition on patient results.
- PaperHow to Solve the Cost Crisis in Health CareKaplan, R. S. & Porter, M. E. (2011). Harvard Business Review 89(9).Seminal case for TDABC over charge-based costing in patient care.
- PaperCost measurement in value-based healthcare: a systematic reviewLeusder, M., Porte, P., Ahaus, K. & van Elten, H. (2022). BMJ Open 12(12).Reviews 215 studies; finds TDABC the optimal value-based-healthcare costing method.
Bring one care line. We will give you its real cost.
No deck, no follow-up sequence. A senior partner. Thirty minutes. Free. NDA on request.
Proof
A dialysis unit. A €349K deficit made visible, then cut to €52K. Published in the APDH hospital magazine, not a marketing claim.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
Workshops
Bring the method into the room.
One working profitability model, built from real data, that you take home at the end.
Reserve a seat
Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published