Pediatrics and the Dollar Sign: Charges, Costs, and Striving Towards Value

Abstract

coordination, overtreatment, administrative complexity, pricing failures, and fraud and abuse, what is the involvement of the child healthcare delivery system? How should pediatricians think about saving money when child health accounts for less than one tenth of total spending on one quarter of the American population – and when total waste on “administrative complexity” may exceed every dollar devoted to efforts to improve the well-being of children? Itisinteresting,therefore,that twostudiesinthis issue of AcademicPediatricscallattentionto thedollarsign:Teufel et al 3 evaluate the costs ofinpatient pediatric care related to health information technology and Lu and Zuo 4 estimate hospital charges associated with potentially preventable pediatric hospitalizations. These seemingly unrelated articles highlight the challenges we face with financial issues and raise several additional questions related to identifying waste and improving value. Tobegin,wehaveanimprecisenotionof“cost”inhealth care. We rarely consider direct versus indirect, fixed versus variable, marginal, or opportunity costs. We often use charges as a proxy for cost, with Lu and Zuo 4 using them directly and Teufel et al 3 using them indirectly by way of cost-to-charge ratios. Charges, however, are artificial figures that imprecisely express relative utilization of resources. A charge of $500 for a laboratory test tells us nothing about the actual costs of performing that service, let alone about doing one more of those tests (marginal cost) or about the appropriate price for it. To truly advance theirefficiencyof care,healthsystemsneed robustand reliable cost accounting systems and greater transparency around costs and prices. 5