Reducing Costs

Just finished reading a blog post that includes the comment:

The cost of medical care can be calculated by adding up the cost of each unit of care, multiplied by the cost per unit. If an appendectomy costs $8,000 and you need to perform 100 appendectomies a year, the total cost would be $800,000. To add up the total costs of all care you have to calculate this for each procedure, office visit, X-ray, drug, etc., and add them together. Once you understand this concept, it’s easy to figure out how to cut the total cost. You reduce the payment for each service, or you reduce the number of (unnecessary) services used in a given year, or both.*

If you assume that the cost of a unit of service is constant then of course the total cost is simply cost per delivered service times the number of services. Part of health care reform is to change the unit of cost per required service. There are a number of articles that document changes in healthcare processes that can produce significant savings by reducing the cost to deliver a unit of service (and hence to cost to the patient) or the number of required units (and hence the total cost.)

One examples of reducing costs that will reduce the average cost per procedure is described in Reducing the Risks of Complexity Some procedural changes that are simple in concept but not-so-simple in implementation:

In December, 2006, the results were published in The New England Journal of Medicine. Within the first three months of the project, the infection rate in Michigan’s ICUs decreased by sixty-six per cent. The typical ICU cut its quarterly infection rate to zero. Michigan’s infection rates fell so low that its average ICU outperformed ninety per cent of ICUs nationwide. In the first eighteen months, the hospitals saved an estimated hundred and seventy-five million dollars in costs and more than fifteen hundred lives. The successes have been sustained for almost four years.

Another: “For many patients, but not all, RCs [retail clinics] are cheaper (on the order of 30% cheaper), faster even without an appointment, and more convenient (up to 18/7).” A thirty percent savings on some procedures for some patients using lower cost solutions reduces the average cost per unit of service. When doctors substituted office visits in lieu of house calls they simply implemented a lower cost way of providing services that allowed them to deliver more units of service per day and thereby reduce the cost per unit and retain or improve their take home income.

Reducing the average cost (price paid) per unit of service for existing providers is not the only way to reduce health care costs. Better processes and new ways of delivering services can reduce the cost to the doctor of providing services which allows for a lower cost to the patient/payer without reducing the doctor’s take home income.

It won’t be easy but there is growing evidence that today’s health care delivery is not as efficient as it can be. We need to find opportunities to reduce the cost of providing services while maintaining or improving outcomes. Those savings can be passed on to patients.

*For every complex problem, there is a solution that is simple, neat, and wrong. H.L. Mencken


2 responses to “Reducing Costs

  1. I enjoy this site, it is worth me coming back

  2. I don’t know If I said it already but …Excellent site, keep up the good work. I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say I’m glad I found your blog. Thanks, 🙂

    A definite great read..Jim Bean

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