Price Adjustment Medical Costing

End of Life Care Programs

By Dean G. Smith PhD and the Accounting Workgroup

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An alternative to traditional medical resource costing is ‘price adjustment’.  In an international context, this method compares the monetary estimates of resource used, after adjustment for price level differences between countries and over time to standard current values.  In order to attempt comparisons of different cost estimates, analysts must be at least certain as to what items are included in costs and whether costs are being based on opportunity costs, charges, or average costs.

Medicare Cost-to-Charge Ratios

In the US context, the price adjustment approach underlies the use of Medicare Cost-to-Charge Ratios (CCR).  Costs are estimated using the CCR approach by multiplying the number of units of each procedure billed by its Medicare charge and CCR and then summing these costs.  Some health care organizations have begun to invest in sophisticated, computerized cost-accounting systems (CAS) that are capable of providing procedure-specific cost estimates, usually based on relative value units, but these systems often rely on billing data to obtain service units.

The Studies

A couple of studies have used a combination of CCR and CAS to estimate costs (costs to the institution – costs to Medicare are the Medicare charges). In both studies, the CAS was for hospital costs only, with Medicare reimbursement (not institution costs) being used for professional services by using relative value units and a conversion factor from the Medicare Fee Schedule.


To overcome the issues of inaccurately (or non-transparently) measuring resource units, it has become more common in clinical trials (a distinct sub-set of possible study methods) to develop case report forms to capture all study end points, including medical service use.  These studies then translate medical service use into costs using standard charges or costs, or a series of representative data sets of charges or costs, to the resource units. These methods have become so common that all submissions to the British Medical Journal are required to document methods using a 35-part form that includes items such as: part 16) Quantities of resources are reported separately from their unit costs; part 17) Methods for the estimation of quantities and unit costs are described; part 18) Currency and price data are recorded; and part 19) Details of currency of price adjustments for inflation or currency conversion are given.

Following these guidelines, a Michigan-based study is collecting data through a resource use data collection form and applying to standard costs per unit of service to produce costs for a RWJ-sponsored palliative care program.

Not the Usual Medical Care

There are a few studies on the costs and cost-effectiveness of end of life programs or the impact of serious illness on patient’s families.  Those studies that do evaluate end of life care programs are usually small in scope, compare the end of life program (e.g., as in hospice) to “usual care,” or have no comparison group, or do not evaluate the costs of the program.


Criticisms of studies of only one medical resource/cost item often surround the total costs of care – suggesting that the use of focused studies may not be well received.  In fact, even studies that capture the total costs of medical care services are criticized for not capturing the indirect costs – family expenses on end of life care are substantial and are not factored into most cost-analysis studies. Very few studies try to capture all costs to enable adjustments of costs for selection processes that may influence resource use.

Editor’s Note: Accounting workgroup members:

1 Stephen Seninger PhD: Professor, Bureau of Business and Economic Research, University of Montana, Missoula, MT

2 Ira Byock, MD: Director, Promoting Excellence in End of Life Care, Practical Ethics Center, University of Montana, Missoula, MT

3 Carol D’Onofrio,DrPH: Research Director, Sutter Visiting Nurse Association & Hospice, Piedmont, CA

4 Jennifer Elston-Lafata PhD: Director, Center for Health Services Research, Henry Ford Health System, Detroit, MI 

5 Joe Engelhardt PhD: Research Coordinator, Life Institute VA Medical Center, Albany, NY

6 Carol A. Lockhart PhD: Project Director, Phoenix Care, Hospice of the Valley, Phoenix, AZ

7 Steven H. Miles MD: Professor of Medicine, Center for Bioethics, University of Minnesota, Minneapolis, MN

8 Herbert A. Rosefield: Corrections Care Consultant, Volunteers of America, Raleigh, NC

9 Anne M. Wilkinson PhD:Senior Health Policy Analyst, RAND, Arlington, VA

10 Barbara Volk-Craft RN, MBA  Program Manager: Phoenix Care, Hospice of the Valley, Phoenix, AZ

11 Dean G. Smith, PhD  Professor and Chair, Department of Health Management & Policy, University of Michigan, Ann Arbor, MI


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One Response

  1. Amino launches free, online healthcare cost comparison tool

    Amino, a San Francisco-based startup that has built a free, online direct-to-consumer tool for finding a doctor, has added a cost estimator module to its offering. To begin with, the feature will calculate costs for 49 procedures and treatments, though more will be added over time. It includes 500,000 doctors nationwide and 129 health insurers.

    The company uses claims data, algorithms, and human statisticians to calculate costs and quality scores. For the Cost Estimator, they analyzed $860 billion dollars in claims, comprising hundreds of millions of claims.

    A number of healthcare price transparency tools have been offered over the years, including some very high-profile businesses like Castlight Health. But Amino CEO David Vivero says Amino stands out because other tools are so often offered by providers, insurers, and employers. A free tool on the Internet is going to more effectively reach consumers where they are, he believes. In addition, Amino’s tool pairs cost transparency with quality transparency.

    “It’s not really transparency if it’s hidden behind all sorts of password protections and portals and it’s so difficult to find that you can’t really gain access to the information,” he said. “So the first thing we do that’s very different is that we’re going direct to consumers and making this information available to everyone on the web for free. … The second thing that we do is we integrate our cost information into a very useful companion product. It incorporates cost and experience information and some quality measures, and you can book an appointment directly from the app. So the experience for us is not just about cost and cost transparency, but about integrating that with the overall patient experience and putting it in a place where consumers go to consume it.”

    That’s not just a guess, Vivero said. Amino did market research to find out how consumers who do comparison shopping for healthcare behave.

    “We interviewed 1,500 or so consumers and we asked them ‘Have you price shopped in the past year?’,” he said. “Forty percent of people said that they did. Well, what was interesting is that 60 percent of those people went to the internet to try to find this information. Only 8 percent went to an employer-sponsored portal, which is typically where healthcare transparency has been marketed these past few years.”

    Amino doesn’t have a native app, but its website is optimized for mobile viewing. Vivero said it was important that the tool be accessible from the doctor’s office itself, where patients often need to make treatment decisions.

    “if you can search Facebook or Instagram from your doctor’s front desk, on your phone, you can pull up our app as well, he said. “So what’s great about the convenience and the distribution of Amino directly to consumers is that you can have this conversation with your doctor in the waiting room or in the consult room as they’re giving you a list of recommendations. And as such, our hope is that we can help people prevent out-of-network referrals that really cost them a lot of money, but also [help people] incorporate the idea of cost and quality into a discussion with their doctors.”

    The tool is designed to be able to show both overall costs and what’s often more relevant to the consumer: their out-of-pocket costs. While it’s most accurate for a consumer who has all the details of their health plan, including how much of their deductible they’ve used, the cost transparency tool will give estimates even if the user only knows the name of their plan. Users can see costs displayed on a map, so they can make decisions about how far they’re willing to travel to save on a given procedure. And different doctors are color-coded green, yellow, and red based on their price relative to the region average.

    Amino is still developing its business model, but Vivero says he’s committed to never include advertising or allow a provider to buy a more prominent ranking. Instead, they plan to embrace a freemium model wherein they will introduce bonus features that users can pay for. The search tools will remain free.

    “We haven’t monetized the site yet. There’s not the same pressure to do that because it’s such a long term bet that we and the investors are making,” Vivero said. “The goal is to build a product and a set of features that consumers trust and recommend and flock to for their healthcare decision-making because it lets them know that they’re making the best possible choice. Based on that relationship we think there’s numerous services that we can introduce into the marketplace, so we’ll be doing that over time.”

    Jonah Comstock


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