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

The days of healthcare professionals ignoring the word “dollar” are over as we face universal calls for our $2.7 trillion health care system to be financially sustainable and not waste an estimated $558 billion to $1.263 trillion per year. Referring to six “wedges” of waste discussed by Berwick and Hackbarth as failures of care delivery, failures of care 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?

It is interesting, therefore, that two studies in this issue of Academic Pediatrics call attention to the dollar sign: Teufel et al evaluate the costs of inpatient pediatric care related to health information technology and Lu and Zuo 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.

To begin, we have an imprecise notion of “cost” in health 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 using them directly and Teufel et al 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 their efficiency of care, health systems need robust and reliable cost accounting systems and greater transparency around costs and prices.

Both studies also reveal how important it is to consider trade-offs (opportunity costs). Although Lu and Zuo estimate that $1.96 billion in pediatric hospital charges might be preventable – translating to less than $1 billion in costs (approximating half of charges) – they provide no estimate of the expense for prevention. What would it take to stop hospitalizations of children with asthma and pneumonia? Is it the same dynamic as for adults with congestive heart failure, where high-quality ambulatory care can prevent expensive admissions and readmissions? If not, saving dollars in pediatrics may be more challenging. For the analysis of health information technology, although we can compare different hospitals, we have no information on the impact of the technology on opportunity costs (or savings) at the hospitals with the technology in place and no information to guide how the technology affected direct, indirect, fixed, or variable costs at the hospitals.

In addition to our challenge with costs and its nuances, we also have difficulty expressing value – or quality per unit cost. This is where the Teufel et al article is noteworthy. In their analysis, they calculated modestly higher costs per case in hospitals with electronic health records, although differences were seen across the type of hospital. The promise of health information technology is to improve value over ordering medical therapy with pens and paper. Perhaps costs were higher for those particular hospitalizations, but what about over a longer time span or over multiple domains of care? Although the evidence is mixed to date, we should be optimistic that value will be improved with use of health information technology (HIT), just as other industries have been able to overcome transitional challenges of IT implementation. Justifiably, the authors call for continued governmental support of HIT as the cost-benefit may be different for children than for adults. Moreover, HIT as currently in place or even described as advanced (“Level 3”) in the study is necessary but not sufficient to decrease costs: clinicians need even more robust decision support and clinical pathways with embedded financial information than often currently available to achieve this high aim.

When considering the cost of an intervention, we must acknowledge when higher quality care is delivered or when it leads to savings elsewhere, which make it of greater value. A myopic view of costs alone would lose that point. A study of patient-centered medical homes incurring greater costs demonstrates this clearly. For pediatrics, the issue may be even starker: aside from a smaller group of medically complex children for whom the patient-centered medical homes or other care coordination efforts could reduce spending, how much savings can we expect for healthy children who incur fewer costs? Are there enough dollars to be saved to satisfy a budgeter who is concerned only about dollar signs? It may be that the horizons are too vast for limited cost-benefit analysis to inform quarterly corporate, annual governmental financial cycles, or Congressional Budget Office narrowly defined scoring rules. The direct medical and indirect social costs of preventing the health and cognitive impairments from lead poisoning, for example, are large. The benefits span over so many domains and over so much time that we struggle to demonstrate the value in the present day to those setting budgets in political capitals and corporate suites. Evaluators may need broader and longer horizons over which to measure costs and benefits, and pediatric clinicians should increase their knowledge and comfort in having discussions that include dollar signs.

Certainly, we have opportunities in pediatrics to reduce costs or eliminate waste, but as advocates for children, we must ensure that it is done properly and always from the vantage of improving value. We need better signals of how much savings is actually possible for pediatrics with true representations of costs and trade-offs. We have our “wedges of waste,” but we should remember that the total amount is smaller, the challenges may be greater, and trade-offs may be more numerous. Pediatricians can no longer ignore the dollar-sign, but rather must embrace it as a way to enhance the delivery of high-value care that promotes the well-being of children and their families.