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Costs
Unlike prices for other goods, most medical prices are overstated to cover
related
expenses for education, research, community outreach, and care for patients
who
cant pay. Health economists use three methods to determine the direct costs of
medical care5:
Adjusted charges: Adjusted charges for U.S. hospital care are usually
ratio (see Section 8.1). The actual cost of hospital services is, on average,
only about 60 percent of billed charges. The cost of some services, such
while for ER and obstetric services, actual costs may be as much as 125
percent of billed charges. Per-unit costs are always estimates and are subject
to interpretation.
Cost accounting: Cost accounting for CBA uses the same principles as
time, space, supplies) are estimated from direct observation, and their
costs are estimated using prevailing wages, prices, and so on. An overhead
services.
hospital when they need only custodial care could be extrapolated from
While direct costs are almost always counted when determining the price of
medical care, most medical care creates secondary treatment costs, which arent
always counted. In screening for colon cancer, for example, the largest cost
might
not be the screening test itself but the additional laboratory work done on those
who never had the disease but whose initial tests indicated a false positive.
Similarly,
much less than the cost of postoperative admission to a nursing home for weeks
of recovery because he cant climb the stairs of his apartment. With surgery, its
death, which are worse than the condition being treated. The point is that most
medical care (and other human attempts to do good) involves many secondary
or unintended effects that must be included to ensure that the cost accounting
The time patients lose and the pain they suffer often outweigh direct medical
costs. Its common to value patient time at the average wage rate for all
employed workers. Pain, suffering, anxiety, and death are most appropriately
might not consider a particular patients point of view and his or her specific
pain and time costs, which could explain why people dont take advantage of
for their time and inconvenience. For example, while there is a tremendous
need for organ donations, the physicians who must obtain the families
consent are the ER doctors, neurosurgeons, and internists present at death who
find it burdensome to speak with the families and try to get them to agree to
donate their loved ones organs. Taking time to explain the issues, dealing with
emotional distress, and facing frequent refusals are costs for which they obtain
no direct benefits. Such hassle costs are a disincentive that greatly reduces
the number of organs made available for transplant. Similarly, the requirement
a hassle cost on the primary physician and leads, predictably, to a lower number
make it look as if managed care plans ration the number of services to reduce
costs and make profits. However, its important to remember that the services
forgone are those that the patients physician was unwilling to write a letter or
make a phone call to support and, therefore, are unlikely to have been
considered
critically important.
Isnt health priceless? Some patients and physicians protest that its impossible
to measure the priceless benefits of medical care with the crude yardstick of
money. Regardless of whether people think its right or proper, their actions place
a dollar value on human life when they make a decision to provide or deny
treatment.
to a cardiac care unit for 10 days, the physician affirms through his or her actions
that living another 6 months in a nursing home is worth more than $15,000.
Immediately discharging this patient with instructions to take four aspirin every
6 hours affirms the physicians belief that its not. Our actions place a dollar
value
on life, even if we choose not to recognize this fact. We live in a world of scarce
resources and must make decisions within these limitations. We use money to
not. Perhaps the most important role of economists in the CBA of health care is
The task of putting a value on human life is difficult, to say the least. Its
relatively easy to tie specific dollar amounts to goods and services that are
traded in the market, such as medical care, work time, drugs, and transportation.
value on life and death or pain and suffering. Because theres no organized
market like the New York Stock Exchange for postoperative pain and mortality,
economists must find a way to reflect the value that people place on
these events. By choosing to buy a car that is less expensive but less safe than
another, a person is making an implicit trade between money and the risk of
dying. People also make this trade when buying smoke detectors, choosing
to accept a more dangerous job assignment for higher pay, refusing to fill a
prescription because it costs too much, and flying to a distant facility to get
the best possible treatment for a rare disease. In other words, people buy and
sell health all the time, but they dont do so in an organized market like the
New York Stock Exchange. Economists dont put a value on life or illness;