What do the treatments and services provided by a hospital system actually cost?
This is the question Vivian Lee, MD, PhD, CEO of Salt Lake City-based University of Utah Health Care set out to answer, according to The New York Times. In other industries, such a question likely wouldn't even exist, for most businesses know the cost of everything involved in producing goods and services — the essential information for setting prices. However, in healthcare, the answer is not so simple.
As the healthcare system inches toward value-based care and shifts to reimbursement models more closely tied to quality and outcomes, hospitals have to figure out exactly what it costs to provide care and how to reduce spending while improving outcomes. To achieve this, Dr. Lee initiated a project that has already helped University of Utah Health Care reduce costs by 0.5 percent a year, compared to the average national growth rate of 2.9 percent per year for academic medical centers, according to the report.
At the center of the University of Utah Health Care's effort is a computer program with approximately 200 million rows of costs for items including drugs, medical devices, a physician's time in the operating room and each staff member's time, according to the report. The software, still a work in progress, also tracks outcomes, such as number of inpatient days and readmissions. A drop-down menu compares each physician's costs and outcomes with others' in the same department.
Using this information together with data on the cost of labor, supplies and labs, University of Utah Health Care has been able to cut down excess expenses and improve numerous clinical practices to improve efficiency and efficacy of care, according to the report.
Michael Porter, PhD, an economist and professor at Harvard Business School, called the health system's achievement "epic progress," according to the report. He and a colleague visited University of Utah Health Care and concluded it is one of a select few in the healthcare industry to properly measure the cost of care.