Understanding Total Cost of Care

The United States spends approximately twice as much on healthcare as other affluent countries and despite various efforts, those costs continue to rise year over year. The rising costs are unsustainable and at some point, potentially in the not so distant future, have the potential to collapse the system as we know it.

Understanding what goes into total cost of care, how to calculate it, and how to make a positive impact on it are the first steps to changing the trajectory of the curve.

According to government released data, at over $4.3 trillion, the United States has one of the highest costs of healthcare in the world. There are many factors that play into this high cost including our increasingly large aging population, the prevalence of chronic disease within our populations and the rising costs of drugs, services and administration in the industry.

Total cost of care looks at healthcare costs holistically by looking at how health care costs are managed across populations and conditions. By better understanding how and what makes up our health care costs we can create better efficiencies while driving better results and outcomes. Additionally, total cost of care is a crucial component of shared savings programs, as the goal of these programs is to have a positive impact on rising costs.

When calculating total cost of care, it is common to break down claims data into specific cost and utilization categories, quantifying both how much something costs as well as how often it occurs. When combined this allows you to see the costs on a per member, per month (PMPM) basis by category.

For example, if you wanted to decide whether it made more sense for your practice to do a patient outreach around heart disease or diabetes you might take a look at the total cost of care for each population and use that to identify which has the potential to make more of a difference. To do so you would gather all claims data, organize by per unit costs and utilization costs, and then synthesize them into a PMPM cost for each population. Leveraging this data can better inform decision makers on where to allocate their limited resources.

The detailed formula provided by CMS can be found here: https://qpp.cms.gov/docs/cost_specifications/2021-12-13-mif-mspb-clinician.pdf

Value-based Care Programs

Value-based care, as an initiative, was put in place primarily to drive down total cost of care without compromising the quality of care for patients. The idea is that if we provide better, more preventative care to patients and close care gaps sooner, we can save money on the costly, and unnecessary, hospitalizations that occur as a result. Being able to calculate and act on total cost of care is a crucial part of this dynamic.

As one leg of healthcare’s “Triple Aim” (improving patient care; improving population health outcomes; and reducing the total cost of care), it is imperative to the healthcare system as a whole for everyone to understand and operate accordingly. The future of healthcare is in our hands!