Activity-based cost analysis: A method of analyzing the financial and operating performance of academic radiology departments

PURPOSE: To develop a methodology for an activity-based cost (ABC) analysis in an academic radiology department, to test the hypothesis that the busin ess of academic radiology can be separated into three distinct businesses-c linical activity, teaching, and research-and to determine the effect of the current teaching paradigm on clinical productivity. MATERIALS AND METHODS: Forty-seven key departmental activities were defined and distributed among the teaching, research, and clinical businesses. Ind ividual radiologists determined the time spent in each of these activities by completing a detailed log of every activity performed during 2 weeks. Al l departmental revenue and costs were assigned to each activity in each of the three businesses. RESULTS: The methodology provided a successful understanding of the relativ e costs of each of the businesses of teaching, research, and clinical activ ity. It also provided the departmental costs of performing the separate act ivities typical of each business. Key findings included the following: Facu lty spends 72% of time in clinical activities, research is the most expensi ve service per direct activity hour, and clinical reads (23%) are the singl e largest departmental cost element. CONCLUSION: ABC analysis can separate academic radiology into three busines ses-teaching, research, and clinical-and provide a detailed understanding o f the cost structure of each. This analysis identifies opportunities for im proved quality of service, productivity, and cost within each business.