What are a hospital's costs?

<i>The group began with head and neck cancer, treatment of which turned out to involve 160 processes requiring measurement. To assess outcomes, it asked patients which they thought were most important. Head and neck cancer patients wanted to be able to talk and to swallow. (Survival, which many doctors had thought was a top priority, was not something patients raised; many assumed they would survive.)</i><p>That parenthetical note is perhaps the clearest illustration I&#x27;ve ever seen in my life on the communication and expectation gap between experts and non-experts.

I work in the healthcare industry and have a good friend who works at a major hospital. You know what I&#x27;ve learned?<p><i>Hospitals have no clue what it costs them to serve an individual patient.</i><p>The lowest level where they understand costs is at the service level (e.g. ER, cardiac lab, stroke center). It&#x27;s one of the reasons why you see all the wonky prices from hospitals: they just &quot;create&quot; prices for individual procedures until it covers their aggregate costs. It doesn&#x27;t really matter to the hospital if procedure A is $1K and procedure B is $5K. As long as A<i>rate + B</i>rate &gt; costs, they are fine with it.

After working in healthcare myself for a while, I&#x27;ve always wanted to see it be a service that was paid for by the customer directly (at least hypothetically). This concept of not knowing costs would be completely unacceptable in any other industry, but it seems that people are reluctant to price things partly out of a fear of being able to do cost-benefit analysis on care and thus on human life. Direct billing would force hospitals and other care givers to be able to give cost estimates up front, and then market forces would help bring costs down as providers would compete and patients could shop around. I&#x27;m aware that this might not be optimal in all situations (eg emergency care), but runaway costs and opaque cost-benefit relationships are not helping things.<p>I remember hearing that 20% of total healthcare costs are spent in the last 2 weeks of people&#x27;s lives, and perhaps having more transparent costs would help avoid these costly, frequently unpleasant, and ineffective interventions.<p>Of course, transitioning to this would be impossible overnight, but it&#x27;s an interesting thought experiment. There would still be the option for catastrophic insurance, but otherwise it would be interesting to see market forces play a role.

One of the difficulties of improving the overall healthcare system is there are very few ways of making systematic improvements. This article talks about a single hospital. They demonstrated a method which works, but this only improves one hospital. For a real change to occur this would need to be repeated at a large number of hospitals on a hospital by hospital basis. The US healthcare system is incredibly fractured with large regional variances. The question is how to improve the system as a whole not on a piece by piece basis.