Show Me the Money (I)

In the popular movie Jerry Maguire, the character named Rod Tidwell played by Cuba Gooding, Jr. got down to the basics when he chanted: “Show me the money.” Everyone talks about money in healthcare, particularly rising costs. Believe it or not, no one knows the true costs of health care services.

When you use the phrase “total cost,” you imagine a person writing a list of all the individual cost components for an item or a service, adding them up, and that is the total cost. The cost of a sweater is the sum of the costs of yarn, dye, design, labor, insurance, marketing, packaging, and distribution.

The so-called costs quoted for health care are not measured as above. They are allocated. [link to p=8] Many years ago, accounting in medicine ceased to bear any relationship to reality. Aspirins may be “costed” at $2.00 a pill, but that is the charge, not the cost. It is ridiculously high not because the hospital is trying to make an obscene profit. Aspirins are $2.00 each to cover real costs for which there is no money, like compliance with regulations or mandated care that is not funded.

When congress passed HIPAA (Health Insurance Portability and Accountability Act), the result was an additional cost to all hospitals, doctors, and nurses estimated close to a billion dollars. The providers must comply but there are no funds to pay the costs of compliance. Therefore, they raise prices (charges) on items that are reimbursed, like aspirins, to cover the required-by-law expenditures for which there is no reimbursement.

When a hospital provides emergency care (required by law) for motor vehicle accident victims who have no insurance (the majority), the result is a large dollar outlay with no payment. This financial loss required-by-law must be made up somehow or the hospital will quickly go out of business.

Virtually everyone who talks about costs in healthcare is discussing either charges (bills) or national expenditures. The true cost of your hernia repair or your heart surgery is a big unknown. And no one ever, ever discusses value [link to p=22] (cost/benefit).

“Cost” does not mean in healthcare what it means everywhere else.

System MD

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