Everyone is concerned about the rising cost of healthcare. Unfortunately, and somewhat ironically, no one knows the true and total costs of healthcare services.
The question, of course, is how can you manage costs if you don’t know what services cost. There is a certain absurdity to this but that’s the way things are in some aspects of healthcare.
Here’s an example of the impact of information about cost.
I used to order vitamin D lab tests on lots of patients. I thought the vitamin D test cost about $3 to $4. I learned from a newspaper article that vitamin D tests cost over $50. In response to this information, I cut back on ordering vitamin D lab tests by over 95%.
I still talk to my patients about the need for supplemental vitamin D, but I don’t order this costly test for everyone.
As you can see, knowing the cost of healthcare services is essential in order to manage system costs.
My wish list includes information about what each service costs. If I had this list, then I would share this information with my patients. Patients deserve to know what their services cost.
The question is why don’t we know what healthcare services cost? Part of the answer lies in not wanting to know and another reason is because we don’t know how to properly calculate the costs.
New thinking is pointing us in the direction of calculating total costs based on time and activity based costing methods. This is work that Robert S. Kaplan is promoting. Kaplan is the originator of activity based costing methods.
And with a new financial crisis looming, tax revenues will most likely decrease as will the capital available to pay for healthcare costs. Hospital and clinic budgets will shrink. Staff will be let go. Service levels will fall.
This is an unfortunate downward spiral. The response will likely be to cut global budgets without focusing on those services, such as case management, that generate the most value for consumers.
The time is right to provide all those working in the healthcare system and all of those consuming healthcare services with information about heathcare costs and value that is delivered.
The costs of various services might even be on the internet so that everyone can look up the costs of services and use the built in calculator to understand the total costs of the care that is provided for healthcare consumers.
I bet that we could cut the healthcare system costs by at least 20 to 30% by providing everyone in and outside of the healthcare system with this information about costs.
A recent publication in Strategy + Business, Transforming Healthcare by Joyjit Choudhury (Issue 64, Autumn 2011, page 26) states that in the U.S. between 30 to 40% of the healthcare budget is waste. There is likely comparable waste levels in Canada as there is in other developed economies. Knowing the costs of services will help to markedly reduce waste.
Might be a good time to try a small experiment to see how providing cost information to providers and consumers impacts total cost and the delivery of value. That’s the challenge.