Cost and Reimbursement as Determinants of the Quality of Diabetes Care: I. Direct Cost Determinants

Abstract

The quality of diabetes care in the United States has become an important focus of concern among voluntary health organizations and managed care programs.1 A variety of initiatives designed to improve diabetes care delivery are now in progress. Each advocates guidelines or procedures that will alter the performance of providers in rendering diabetes care. The suggested changes are possibly associated with increased costs to providers of rendering diabetes care, as we have previously noted.2 We have also suggested that diabetes care is a high-cost service with a low profit margin because of the intensity of services required based on patient need.3 Therefore, an important question that has not been analyzed previously is whether the cost structure of diabetes care and patterns of reimbursement for it substantially influence the quality of diabetes care. These questions should be assessed in light of current suggestions and guidelines proposed for diabetes care. Whether performed for a small office or a multiple-provider organization, basic cost analysis for a health care group is the same. As in most other businesses, the organization will have direct costs and indirect costs and fixed costs and variable costs (Table 1). This discussion is devoted to an analysis of direct costs. Indirect costs will be analyzed in a subsequent issue. Direct costs are composed of fixed costs and variable costs. Fixed costs include expenses such as the cost of space and capital equipment. With one exception, these costs do not vary with increasing patient load. (The exception is that higher rates of use of equipment may increase the rate of depreciation or cash reserve set aside to purchase replacement equipment in the future.) Variable costs include personnel, consumable supplies, …