By Pamela J. Gallagher

Hospitals and health systems have spent the past decade responding to patient and government demands for increased price transparency, and the demand only continues.  While the healthcare industry has made strides in ensuring patients know the cost of their care up-front, consumer expectations are growing to include that hospitals should be able to explain how their costs are determined.

The bottom line is that we cannot accurately tell patients—our customers—how much they are going to pay for a service at our hospital if we do not know the exact cost of that service.  We cannot help patients make wise decisions for their care and the costs associated if we cannot break down the price of their physician, the cost associated with the difference in the quality of materials used for a procedure, or the financial considerations of the various types of anesthesia available to them for surgery, to name just a few examples. 

Part of the business of healthcare is knowing what your costs are. From my perspective, too many hospitals do “quasi-cost accounting.”  We need to do better than offer our best guess and hope we can negotiate a higher reimbursement from insurance companies that will cover the costs of services provided.

Hospitals benefit from accurate costing.

Patients aren’t the only ones who benefit when hospitals have a clear understanding of the cost of a service; hospitals benefit as well. As we seek to respond to customers’ demands for quality care at a lower cost, we must understand our services' actual cost to find sustainable ways to lower the cost of providing care.

In the U.S., over $700 billion of healthcare spending is considered waste, according to Health Catalyst.  Hospitals’ lack of understanding about how much it costs to provide patient care, and “a lack of knowledge about how those costs compare with the outcomes achieved,” leads to increased cost to hospitals.

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