Cost: Measurement and Data Sources

Given that most consumers spend days comparing prices before selecting and purchasing a new appliance or car, it seems only reasonable that consumers should have access to the same type of comparative data when purchasing health care services or procedures. Unfortunately, consumer access to cost information is limited. In fact, even doctors and staff in hospitals and clinics are often unaware of how much consumers are charged for services or procedures. Cost transparency, especially to the average consumer, is most useful when paired with specific health plan benefits because it enables informed point-of-care decisions. However, this is only one lever; the others—variation, pricing, and payment reform—require collective or community-wide data and action. 

Cost is driven by both utilization and price per unit. Cost is usually unclear because providers charge for health care based on what the payers—usually health plans—will pay, instead of what the procedure costs providers to produce. These negotiated rates, known as “allowed amounts,” would be the truest measure of cost if they were reported publicly.[1] Most plans and providers are unwilling to share allowed amounts, as they feel this information is proprietary; some go so far as to claim that sharing this information will actually drive up costs.

Administrative claims data are the source of cost (allowed amounts) data. Reliable cost reporting is entirely dependent upon the quality of the administrative claims data source. Many data sources are riddled with quirks and inconsistencies, such as missing data fields, which can impede efforts to produce accurate reporting. Organizations that store, prepare, and supply data must have a thorough understanding of both the content and limitations of a data source and must be able to communicate these features to organizations working with the data. In turn, the organizations working with the data must have a strong knowledge of the data in order to design analyses and ensure precise results that are key to understanding the issues the broader community must address.[2]

In an effort to advance cost transparency, Minnesota Community Measurement has joined forces with the Network for Regional Healthcare Improvement (NRHI) and four other regional health improvement collaboratives in a seminal project to test the concept of measuring total cost of care across regions. The project, which is funded by the Robert Wood Johnson Foundation, represents the first time that standardized cost information will be available across several communities, enabling a robust comparison of the total cost of care.

As systems move away from paying for services toward paying for value, providers need to consider the value of the care they offer. Delivery systems can use value information to identify efficiencies as they prepare for new payment models, such as bundled care. Purchasers will be able to use the information to determine where they see the best value in care. Employers will be able to inform and educate their employees to understand that there are variations in costs and resources for procedures, services, and medical devices. Consumers want to be able to comparecare based on value so that they can make an informed decision about their health care.