![]() ![]() Since providers misunderstand their costs, they are unable to link cost to process improvements or outcomes, preventing them from making systemic and sustainable cost reductions. It is a well-known management axiom that what is not measured cannot be managed or improved. Poor costing systems have disastrous consequences. But reimbursement itself is based on arbitrary and inaccurate assumptions about the intensity of care. They often allocate their costs to procedures, departments, and services based not on the actual resources used to deliver care but on how much they are reimbursed. Cutting payor reimbursement does reduce the bill paid by insurers and lowers providers’ revenues, but it does nothing to reduce the actual costs of delivering care. When politicians and policy makers talk about cost reduction and “bending the cost curve,” they are typically referring to how much the government or insurers pay to providers-not to the costs incurred by providers to deliver health care services. Making matters worse, participants in the health care system do not even agree on what they mean by costs. Instead of focusing on the costs of treating individual patients with specific medical conditions over their full cycle of care, providers aggregate and analyze costs at the specialty or service department level. To put it bluntly, there is an almost complete lack of understanding of how much it costs to deliver patient care, much less how those costs compare with the outcomes achieved. Perverse incentives also contribute: Third-party payors (insurance companies and governments) reimburse for procedures performed rather than outcomes achieved, and patients bear little responsibility for the cost of the health care services they demand.īut few acknowledge a more fundamental source of escalating costs: the system by which those costs are measured. ![]() The aging of populations and the development of new treatments are behind some of the increase. ![]() Other countries spend less of their GDP on health care but have the same increasing trend. health care costs currently exceed 17% of GDP and continue to rise. ![]()
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