Question

In healthcare Cost can carry different meanings in the health care delivery system depending on the perspective one takes. What are some different meanings of the cost of health care presented through the textbook? Which one do you prefer? Why?

Answer 1

Let's take a look at what the phrase "health care costs" really means. It turns out, everybody uses the term to mean something different. Politicians talk about costs in reference to federal and state spending on health care. When hospital administrators and physicians talk about health care costs, they are usually referring to their costs of production, the money they spend on the resources needed to care for patients. Business leaders use the term health care costs when what they really mean is the price of insurance, or the amount they spend on their employees' health care insurance plans. Meanwhile, everybody bemoans out of pocket costs, the amount patients must fork over at the doctor's office and pharmacy counter over and above whatever portion of the bill their insurance covers.

In the interests of clear communication, we propose three distinct definitions for three words: cost, price, and spending. We'll start with cost. The simplest and most sensible use of "health care costs" is in reference to the cost of production of health care services. In order to give a patient a CT scan, a hospital has to have purchased a scanner. It must also pay a technologist to perform the scan and a radiologist to read it -- to say nothing of paying for the hospital building itself, chairs in the waiting room, a receptionist at the information desk, and the parking lot outside, all of which are components of the cost of a scan.

Price is how much the hospital pays for the scanner, or how much an insurer pays the hospital for the patient to get the scan. In the U.S., prices for everything from a CT scan to an office visit to a stay in the ICU are higher than anywhere else in the world. Even within the U.S. and within the same community, different hospitals can charge wildly different prices for the same service.

To make matters worse, prices for medical goods and services have little to do with their true value in terms of improving health. To take just one of any number of examples, elective angioplasty (surgery to reopen narrowed blood vessels in the heart) doesn't prevent heart attacks or reduce angina (chest pain) any better than drug treatment alone, and you already need to be on drug treatment in order to get the surgery. Yet the price of angioplasty is tens of thousands of dollars higher than drug therapy. If we were paying for value in healthcare, two equally good options would fetch about the same price.

The last term is spending, probably the most important of the three. The easiest way to define it is the total number of dollars paid for a particular group of people over a set period of time. The most common example is total national health care spending over a year, which last year amounted to $2.7 trillion. You can also talk about spending on a particular type of service, say all CT scans delivered over the course of a year. In that case, the amount we spend depends upon both the price we pay for a scan, and the number of scans we get, or price times quantity

The actual costs of providing services related to the delivery of health care, including the costs of procedures, therapies, and medications.
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