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Reforming how we think about health care costs could reform health care

Two Harvard Business School professors have outlined a new methodology for measuring the cost of delivering care that makes the patient – rather than the procedure or hospital department – the unit of measure.  In the words of the authors:

 “Value in health care is measured in terms of the patient outcomes achieved per dollar expended.  It is not the number of different services provided or the volume of services delivered that matters but the value.  More care and more expensive care is not necessarily better care.”

The article examines how the following three assumptions  – or myths – have confounded the accurate assessment of health care costs:

  • Charges can be used as surrogates for provider costs.
  • Hospital overhead costs are too complex to allocate accurately.
  • Most health care costs are fixed costs.

The cost measurement system developed by the authors is outlined in seven steps with a clinical example and flow chart included to help illustrate the process.  A brief sidebar from the University of Texas M.D. Anderson Cancer Center explains how the cost measurement process was implemented as a pilot and the successes achieved.

Source: Kaplan, Robert S., and Porter, Michael E.  How to solve the cost crisis in health care.  Harvard Business Review.  89(9):46-52, 54, 56-64, September 2011.  Available for preview and/or purchase at http://hbr.org/2011/09/how-to-solve-the-cost-crisis-in-health-care/ar/1.

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