Important Principles for Understanding Costs in Health Care
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Total cost = price of service ($) x number of services providedTotal cost for MRIs = cost of each MRI x number of MRIs for your customers |
What if you are in charge of buying coffee for the office? You have a machine and each cup costs the company $2. If you provide an unlimited number of k-cups there is no limit to how much you will have to spend (fee for service) method for reimbursing providers for each unit of service provided. If you put out a certain number per day you will limit the number of cups (volume), but you may not have an equitable distribution across co-workers (rationing) equitable distribution of limited resource. You could charge your co-workers a small fee per serving (cost sharing). How do you best allocate your resources (funds to buy coffee) across the group?
Now let's go to health care. You are an insurance company and you would like to spend less on MRIs next year. How do you save money? You lower the cost (price) by negotiating a better rate with an MRI vendor. Maybe you have to enter into an exclusive contract or promise a certain patient volume. You could charge patients for each test that reduces the insurance company's cost. Bottom line is that you pay less per test. You lower the volume by not paying for as many MRIs. You could require a (prior approval) requirement that provider seek approval from insurance company before providing health care services to ensure that payer will cover the expense process. Some providers may not order as many MRIs if your process is a hassle. You could increase the patient portion of the bill (cost sharing). Some patients may not be able afford this and skip the test. You could just not cover MRIs for certain diagnoses.
If you want to save money for health services you need to use less expensive services (pay less, or a cheaper service) or you can use fewer services. Think about access. Does expanding access save money? Not at the start. If you give people insurance they will likely use services.
2. Whose cost are you talking about?
Providing health insurance may save money for the newly insured. Maybe he or she now has coverage for something that used to be an (out of pocket expense) amount of money that patient pays for health care services excluding premiums. This is individual cost.
If you start to provide coffee at work you could save money for your co-workers because they will no longer go across the streets and pay for a cup. This is an example of (cost shifting).
3. Is cost all about money?
Not at all, but that will be our focus when we talk about costs this semester.
In real life there are time costs (buying coffee at the market, making it, walking to the shop) that may make one of these options more or less attractive. Maybe the shop coffee is better than what you can make. It is more expensive, but it could have more value for your dollar if you factor in taste.
We are only talking about financial cost so you are spending more if you don't make the coffee yourself. You are spending more if you don't limit how much 'free' coffee your co-workers can drink.
In health care the non-financial cost can be priceless: time, transportation, decreased work productivity, missed work, pain, quality of life, even death.
Future Direction
Can we increase access to care without increasing cost to the system? Not in the short term, but there could be longer-term payoffs.
Can we increase quality without increasing costs to the system? Hopefully, yes. This is a growing interest area for providers and researchers. How to we get the most value from our heath care resources.
There is a recognized need for change. The system is fragmented. Costs continue to rise. Overall, increased costs are not leading to improved health outcomes.
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The IOM consensus report (2012) Best Care at Lower Cost: The Path to Continuously Learning Health Care in America highlights the challenges to our current system, and also describes some solutions. This following infographic presents the committee's goals for the AHCS. |
