Most businesses understand the cost of everything that goes into what they sell – such knowledge is essential for setting prices. But medical centers often only know what they are paid by insurers, but those payments don’t necessarily align with their actual costs. For instance, how much does it cost to allow a patient one minute’s time in an MRI machine or to be in the operating room for an hour?
A recent New York Times article discusses a project being managed by Dr. Vivian Lee of the University of Utah. Dr. Lee has been working to determine what costs hospitals actually bear. Using a computer program with two hundred million rows of costs for items like drugs and medical devices, the hospital now knows its cost per minute in the emergency room along with a host of other things.
The effort has attracted the attention of institutions like the Mayo Clinic. It appears that knowing what things cost impacts one’s ability to contain costs. While costs at comparable academic medical centers has increased by an average of nearly three percent a year over the past several years, at the University of Utah, costs have been declining by half a percentage point per year.
