The Distinction Between Cost and Charges

TLDR

Recent research on hospital service efficiency often uses patient bills as a proxy for cost, despite the lack of direct cost measurement. The study argues that actual resource consumption should be used as a measure of cost due to differences between economic cost, accounting cost, and patient charges. Using charges as a proxy can mislead conclusions about economic efficiency because charges poorly reflect true economic cost.

Abstract

The literature on economic efficiency in providing hospital services has been growing recently. Often such literature examines the costs of providing services at varying volumes of treatments per location per year. However, instead of measuring cost directly, these studies use patient bills (charges) as a proxy for cost. Charges may bear little resemblance to economic cost, and use of charges as a proxy for economic cost may lead researchers to draw unwarranted conclusions about economic efficiency. Because of the differences between economic cost, accounting cost, and charges to the patient, actual resource consumption should be used as a measure of cost.