Calculating the True Cost of Care

As hospitals and health systems move into value-oriented payer contracts, they will need to be able to determine the actual costs of the care they provide.

This article first appeared in the December 2014 issue of HealthLeaders magazine.

Figuring out how to calculate the true cost of care in relation to patient outcomes will be critical to success for provider organizations as the healthcare industry shifts toward value-based reimbursement models.

To prosper within the new environment of bundled payments, risk-sharing arrangements, and population health management, hospitals and health systems will have to be able to analyze cost by patient, physician, and diagnosis in order to develop cost-effective, evidence-based clinical protocols and to drive as much waste as possible from their care delivery network. Yet, getting a handle on the cost of care has traditionally been very difficult for providers to do.
 
'Astounding' lack of knowledge
"When you take a step back and look at it, I think it is absolutely astounding that the healthcare industry in general doesn't know the true cost of the care they are giving patients with a given condition," says Robert Pendleton, MD, associate professor of medicine at the University of Utah and chief medical quality officer at University of Utah Hospital and Clinics in Salt Lake City. University of Utah Health Care operates 770 licensed beds and had $1.04 billion in patient revenue in 2013.