In the United States healthcare system, price transparency is a complex topic that has spurred countless debates. One critical sub-topic of cost of care that is rarely discussed in mainstream sources, is the difference between cost and charge. Particularly in the surgical and anesthesia services setting, this distinction is crucial for understanding how costs of care are calculated and subsequently presented to patient populations.
Cost of care indicates the specific expenses that a healthcare system incurs in delivering care. Cost of care can either be calculated from a top-down or bottom-up costing approach1. In this sense, healthcare administrators essentially break up the total cost of say, a procedure into the sum of its parts. Then, each subsection can be calculated by resourcing the personnel and supplies that are required for each step. For surgery, this is inclusive of all stages of the perioperative cycle, including pre-operative preparation of the patient, sterilization and decontamination of all surgical instruments, and acquisition of the anesthesia necessary for the specific procedure. Moreover, the cost for housing a patient in the wards is also calculated on a per-bed basis, with allocations for the floor space, accommodations, housekeeping, and meals service. The surgery itself is comprised of many costs, such as all required instruments, and the compensation of surgical staff, which may be fixed or variable depending on the circumstances. Post-operative costs will include the bed fee, as well as any recovery medications or physical therapy that is mandated by the lead physician. Each of these costs are summed into a global cost per procedure, which can further be separated into the total cost per minute in the OR.
However, cost is very different from charge. Most patients will only see the charge for their procedure, which is in many cases billed to a third-party insurance provider. The charge is not necessarily equal to the cost of the procedure. Rather, the charge has been computed by leveraging a forecasting model that allows the hospital to recoup their costs in a time-sensitive manner, given the potential for administrative delays from the insurance side. Therefore, charges are often an increase from the cost of a procedure, noting these factors.
Referencing the distinction between cost and charge, patient advocates have urged the government to provide a pathway for hospitals to disclose charges in a public forum. The Centers for Medicare and Medicaid Services provided a solution. The 2019 Inpatient and Long-Term Care Hospital Prospective Payment System Rule extends previous requirements of the ACA, by requiring hospitals to publish lists of their standard charges for all procedures and related pharmaceuticals online2. This list, known as the charge master of the hospital, was previously only shared internally among healthcare administrators. This transition will require time on the parts of hospitals, but will greatly expand healthcare price transparency between providers and patients.
Healthcare policy in the U.S. will continue to refine how healthcare is calculated, charged, and managed. In 2019, great strides shall be made towards patients’ understanding their own healthcare processes, contributing to a more transparent healthcare experience for all.
1. Macario, Alex. “What Does One Minute of Operating Room Time Cost?” Journal of Clinical Anesthesia, vol. 22, no. 4, 2010, pp. 233–236., doi:10.1016/j.jclinane.2010.02.003.
2. Centers for Medicare & Medicaid Services. “2018ASPFiles.” CMS.gov, 30 Nov. 2018, www.cms.gov/medicare/medicare-fee-for-service-part-b-drugs/mcrpartbdrugavgsalesprice/2018aspfiles.html.