These past few years have seen a lot of coverage on healthcare costs. But a majority of these articles just confuse the issue. Some of the reasons healthcare costs are elusive do not include: 1. Hospitals are hiding something. Or 2. There isn’t enough data. Instead, the real reasons behind the difficulty are: 1. Healthcare is complex. 2. Fragmentation. And, most importantly and pervasively, 3. Data governance. Until data governance becomes a priority, healthcare organizations will not be able to get clear answers for their healthcare costs.

1. The Real Reason Healthcare
Costs Are Elusive ― DAN UNGER

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Healthcare Costs
There has been a lot of press over
the last few years about healthcare
costs. Most of these articles refer to
one of three things:
1. Increasing costs
2. Variability in (or the flat out
absurdity of) “costs” for
procedures/medications
3. Lack of price transparency

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Healthcare Costs
Some of the coverage, including Steven
Brill’s 2013 article in TIME, “Bitter Pill:
Why Medical Bills Are Killing Us,” and
his 2015 book “America’s Bitter Pill,”
has done a great job calling out
deficiencies in healthcare pricing or
cost, but it has completely and utterly
confused the masses on what cost is.

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Healthcare Costs
There are a few ways of looking at cost
depending on who you are and what
kind of story you are trying to spin:
1. Cost to the Patient
This is often the infamous charge
master for uninsured patients. Or it’s
the negotiated rate for insured patients.
(Side note: in a hospital setting the
negotiated rate is often 60 to 80
percent less than the charged amount.)

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Healthcare Costs
There are a few ways of looking at cost
depending on who you are and what
kind of story you are trying to spin:
2. Cost to Insurers
This is what most people refer to
when they discuss the use of claims
data for costing. It is what the
insurance company pays out to
healthcare providers.

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Healthcare Costs
There are a few ways of looking at cost
depending on who you are and what
kind of story you are trying to spin:
3. True Cost of Providing Service
This is how much a health system
spends to give a patient a new knee
(or provide any medical service)
regardless of how much it charges or
gets paid by insurance.

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Healthcare Costs
The first two views on costing are
simply estimates that use charge or
payment data to approximate costs but
have very little relation to the true cost
of the services provided (especially at a
patient or procedure level).
This differentiation is extremely
important because the ability for
providers to understand and use
accurate cost data is paramount to
bending the cost curve in healthcare.
It starts with these providers.

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Healthcare Costs
If a hospital system doesn’t know
how much something truly costs, it
will struggle mightily to take on risk
or expose accurate price estimates.
But it simply won’t survive if the
health system’s leaders can’t make
intelligent decisions when it comes
to risk-based contracts (although
I’m a believer that healthcare is “too
big to fail” in the U.S.; that’s a
separate topic).

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#1—Hospitals Are Hiding Something
Nope. Hospitals are just as confused
as patients. Tracking costs is a skill
they haven’t had to worry about
historically.
Hospitals have been able to avoid
sophisticated cost management for so
long because they have survived by
relying on volume to drive profitability
at a global level.
BOGUS REASONS

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#1—Hospitals Are Hiding Something
Declining inpatient volumes, decreasing
reimbursement, evolving payment
models, and a push for price transparency
are going to force this change.
Until the industry can globally define and
standardize “value” as it relates to medical
services, consumers won’t be able make
meaningful healthcare decisions.
BOGUS REASONS

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#2—There isn’t enough data
Many believe even with the flux of data from
EMRs, we just don’t have what we need to
cost accurately. That’s flat out wrong.
The more we get into EMRs, the more we
find that there is plenty of useful data.
EMRs weren’t set up for ease of costing, but
they are a rich source of information that can
be used to measure cost.
BOGUS REASONS

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#2—There isn’t enough data
That doesn’t mean we have all the data
needed to cost out healthcare.
Fragmentation in healthcare and the
unknown costs of services provided outside
a hospital’s four walls is a critical deficiency.
We need a better understanding of the great
work that nurses do and the time involved so
we can identify high-cost/low-value activities
and improve processes.
BOGUS REASONS

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#2—There isn’t enough data
We also lack detailed or useful insights in
physician clinics. Due to differences in
workflow, cost structures, etc. there is less
useful data in the clinic setting.
As volume shifts to the outpatient world, we
must gain deeper insights into these
operations, costs, and processes so we can
better align with the goals of expanding
access, improving care, and increasing
patient satisfaction.
BOGUS REASONS

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#1—Healthcare is complex
We are dealing with people here—the
drivers behind healthcare utilization are
far more complicated than almost any
other industry.
Capturing all the nuances between
cases without burdening healthcare
providers or patients is a challenge.
There are so many variables involved,
both controllable and uncontrollable.
LEGITIMATE REASONS

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#1—Healthcare is complex
Still, with the data available, solid
costing processes, and some simple
statistics we still should be able to tell
someone 25th, 50th, and 75th percentile
costs for a specific procedure or
diagnosis with reasonable accuracy.
In general, healthcare truly is an
extremely difficult beast to cost.
LEGITIMATE REASONS

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#2—Fragmentation
It’s hard to comprehend how
fragmented healthcare is.
Going in for a surgery could result in
costs from one, two, three, four, or
even five separate organizations.
Hence, patients get a dozen bills from
five different places.
LEGITIMATE REASONS

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#2—Fragmentation
It’s plausible for each of the
respective provider organizations to
be able to cost out their individual
pieces of the puzzle, but imagine the
coordination required to understand
the TOTAL cost for that encounter
across all these organizations?
That’s what providers have to do if
they are part of a bundled payment
initiative.
LEGITIMATE REASONS

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The Real and Not-so-real Reasons for Elusive
Healthcare Costs
#3—Data Governance
Now these legitimate reasons are
not to be overlooked. They are very
real barriers to accurate costing, but
in my mind the most significant and
least discussed/understood
challenge is data governance.
LEGITIMATE REASONS

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The Real and Not-so-real Reasons for
Elusive Healthcare Costs
#3—Data Governance
According to TechTarget’s Essential
Guide on Search Data Management,
data governance is the overall
management of the availability,
usability, integrity, and security of the
data employed in an enterprise.
A sound data governance program
includes a governing body or council,
a defined set of procedures, and a
plan to execute those procedures.
LEGITIMATE REASONS

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The Real and Not-so-real Reasons for
Elusive Healthcare Costs
#3—Data Governance
The secret’s out. It’s kind of
embarrassing to admit, but the real
reason cost in healthcare is so elusive
is something as simple as this.
Not a lack of data, not the complexity
of healthcare but the lack to govern
our own data—something we control.
LEGITIMATE REASONS

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The Real and Not-so-real Reasons for
Elusive Healthcare Costs
#3—Data Governance
Without data governance, we will
always be stuck with:
a) A very generic, and likely
inaccurate, set of costs, or
b) An army of people working around
the clock to clean up all of the data
so it’s somewhat usable and
nobody actually doing anything
useful with the data.
LEGITIMATE REASONS

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The Challenge of Data Governance
Data governance is especially
troublesome in healthcare for a
couple of reasons.
1. The massive consolidation in
healthcare combined with high
adoption of EMRs over the last
few years has forced rapid
integration of multiple IT systems.
Given the pain and high cost of
conversion it’s easy to see why
many healthcare organizations
didn’t address data governance as
well as they would have liked.

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The Challenge of Data Governance
Data governance is especially
troublesome in healthcare for a
couple of reasons.
2. This hasn’t been a priority for
most health systems. Even in
organizations with a single EMR
and general ledger it’s obvious
they weren’t thinking about data
governance across IT systems
during implementation and
beyond.

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Addressing Healthcare Cost with Data Governance
So where does an organization start?
Here are a handful of specific data elements that
require diligent governance for effective costing:
#1—EMR data to general ledger crosswalk:
Who in the organization knows which pieces of data
from your EMR and departmental sources align with
which cost centers?
This might seem simple, but there’s more to it than
meets the eye when getting into very detailed
and precise costing that uses more than
just charge data.

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Addressing Healthcare Cost with Data Governance
So where does an organization start?
Here are a handful of specific data elements that
require diligent governance for effective costing:
#2—Supply Chain
Does the organization have a centralized source of
truth for supply chain costs? Are the correct items
available in the EMR and easily linked back to
accurate supply chain data? Does the organization
have standard units of measurement across the
health system so everyone enters the same unit
of measurement for drugs for ease of
costing and comparative analytics?
And the list goes on…

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Addressing Healthcare Cost with Data Governance
So where does an organization start?
Here are a handful of specific data elements that
require diligent governance for effective costing:
#3—Personnel (including physicians and other providers):
This is a really difficult one to manage, but necessary to
have more direct and precise labor costs and link
individual efforts to cost and quality outcomes.
The organization should be sure to broadly link
employees from payroll to the EMR and
other departmental sources.

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Addressing Healthcare Cost with Data Governance
So where does an organization start?
Here are a handful of specific data elements that
require diligent governance for effective costing:
#4—Patient
Does an organization want to get a holistic view of
patient and episode costs across the system?
Well, it better have an Enterprise Master Patient
Index (EMPI)—and preferably an upstream process
to address the issue rather than a downstream
“fuzzy logic” assignment.

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Addressing Healthcare Cost with Data Governance
Now there are plenty of other areas that
impact cost and cost analytics such as
standardizing transactional systems,
personnel training for consistency in
data entry, diagnosis, payer, etc., but
the list above is what we have identified
as highly related to improved accuracy
and ease of costing.

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Addressing Healthcare Cost with Data Governance
We won’t solve the cost problem in
healthcare until we take data
governance seriously–and it needs to
come from the top down.
The good news is that it’s in our
hands to solve this, and there are
health systems out there that have
proven it can be done. Now is the
time to suck it up and clean up shop.
It will be painful and difficult to unwind
the years of negligence, but it must be
done. So, what’s stopping us?

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For more information:
“This book is a fantastic piece of work”
– Robert Lindeman MD, FAAP, Chief Physician Quality Officer

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More about this topic
7 Essential Practices for Data Governance in Healthcare
Dale Sanders, Strategy, SVP
Demystifying Healthcare Data Governance: An Executive Report
Dale Sanders, Strategy, SVP
Healthcare Data Stewardship: The Key to Going from Information Poor to Information Rich
Eric Just, Technology, VP
Master Data Management in Healthcare: 3 Approaches
Brian Eliason, Vice President of Technical Operations,Jason Burke, Technical Director
Pete Hess, Chief Data Architect, VP
3 Phases of Healthcare Data Governance in Analytics
Mike Doyle, Sales, VP
Link to original article for a more in-depth discussion.
The Real Reason Healthcare Costs Are Elusive

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Dan Unger joined Health Catalyst in April 2014. He came to Health Catalyst after
working at Accretive Health where he managed a team that worked with the
Intermountain Medical Group to improve revenue cycle processes and reduce
operational costs. Prior to Accretive, Dan worked as a consultant at Equation
Consulting (a physician economics consulting firm) and as a pricing and
profitability analyst at JP Morgan Chase. He graduated from the University of Arizona with
degrees in Finance and Entrepreneurship and received his MBA in International Finance
from the Thunderbird School of Global Management.
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