OC Reilly Blog: Why This Inexcusable Inconsistency in Health Care Costs?

By Bill O’Connor, President and CEO, OC Reilly Inc.

A recent article in The New York Times exposed and bemoaned the vast differences in hospital billings submitted to Medicare.  The article cited specific instances, such as one Dallas-based hospital billing $14,610 to treat a simple case of pneumonia, while another hospital in the same city billed more than twice that amount for the exact same care.

Officials quoted in the article from government, the health care industry, academia and economics all pointed to varying causes for these ongoing and egregious discrepancies in billing to Medicare.  Summarized and stated most simply, health care remains an industry where the only consistent is inconsistency.

From my perspective of many years working with health care providers regarding their bottom lines, the virus of inconsistency holds just as true when it comes to finances and cost control.  I’ve found that the well-known business adage, “If you can measure it, you can manage it,” holds the key to success. 

In this industry, spending assumptions can be off-base, sometimes by a large degree.  It becomes difficult to manage expenses effectively when not starting from a foundation of verified, validated facts.  Only when you have a clear picture of your spending, can you begin to determine how to control it the best way possible. 

Here’s an example of what I mean.  Because medical professionals are not economists or accountants, health care providers can incur unnecessarily high expenses when ordering medical equipment.  When the sales representative earns more on a hip replacement than the surgeon or the hospital, something’s very wrong.  You would be shocked at how many times that very thing happens.  These transactions and contracts must be conducted based on verified and validated information – but even more than that, they require the perspective of professionals who have worked as vendors and who can negotiate fair deals.

In another instance, a hospital system estimated it spent about $10 million on medical equipment maintenance and management each year.  An initial audit performed by our team at OC Reilly discovered that the actual spend totaled roughly double that amount – with the enormous discrepancy due to decentralized decision making and record keeping.  When no one is properly keeping score, these unnecessary and wasteful variations in spending can occur.

The proper level of awareness and perspective, coupled with a firm foundation of factual information, provides the best means of reducing – and even eliminating – the wildly fluctuating rates of billing, payment, and overall financial performance so prevalent across the health care landscape today.

Copyright 2013 OC Reilly Inc.