There are a lot of calls for transparency in health care pricing. Before we can even discuss it, we need to clarify the terms that we use. These terms need to be defined each and every time someone writes about it if necessary.
Cost is a term commonly tossed around, but cost relates to someone, and it’s not always clear who. Does it cost the hospital or the patient? May I suggest a schema? Others may choose to define terms differently, but whenever you see these terms, make sure someone is defining them as they are being used.
Cost
Defined as the dollar amount required to supply a service or product, without profit. Any provider of a product can usually give you their costs, which would be raw materials, labor, building, utility, insurance, and machinery costs proportionally allocated for the number of widgets produced.
Hospitals and health systems find this number hard to calculate sometimes, but given a year’s history, it shouldn’t be too hard to figure out. You may want to keep this number extremely confidential, but let’s all be honest and actually calculate this number.
Charges
Defined as what you billed for a procedure. For hospitals, this is the dollar amount on the chargemaster for the item or procedure. Rarely if ever is there any association with the cost (as defined above) of the item. But this is what appears as the “ask” from the provider. This charge, however, is going to always be higher than reimbursement by any payer. This number should be available to anyone who asks.
Reimbursement
Defined as what you get paid by any payer. This can vary widely depending on your contract, and in many cases, part of this is due from the patient as a co-pay. Keep in mind that reimbursement is always lower than charges, thus leading to the game of “always keep your charges higher than the reimbursement for any procedure.” This can stay confidential between the provider and the payer.
Price
Having defined the terms above, how does the word “price” fit? I would like to define price as what you would charge an uninsured patient who walks into your facility and needs services. Typically, this is the charge, but I would submit that charges are artificially inflated to always stay ahead of reimbursement, often by a very wide margin.
Price to me should have some relation to cost as defined above. For example, cost plus a reasonable margin (profit). Price to me should also not reflect prestige points, meaning you’re not allowed to ask for a bigger profit because you have a big name.
This is for the rare patient with money but no insurance who is paying cash. This should be a published number and asked for only to an uninsured patient of means, and should have no relation to what is asked for in reimbursement from insurers (though honestly it is doubtful it will ever be lower than that).
Value
Finally, let’s talk about value. This is the hardest and the easiest item to define. Easy because it is defined as value=price/quality. Hard because defining quality is so sensitive and unique to every person.
Convenient free parking with nice artwork defines quality for a lot of people. For me, quality means process and outcomes, infection rates, readmission rates, and oh, yes, how the facility looks and the staff treats me. But I’ll weight the first three higher and pay for parking and grumpy staff if my chances of a good outcome are better.
Can we all agree on these definitions when we talk about cost, charges, reimbursement, and price in health care? And when someone asks you how much it costs, ask them what they mean?