Why healthcare organizations should stop measuring the wrong things the wrong way

Apr 01, 2015

In almost any commercial organization, the knowledge of the cost of a product or service is essential to take the right strategic decisions. Furthermore, without knowing the true cost of your product or service you are not able to determine at which price you should offer it to the market in order to break even or to gain a profit.

Strangely enough, in an industry that counts for 11% of our GNP in Belgium, the healthcare industry, I have never run into a healthcare organization that has true knowledge of the cost of care they are providing to the individual patient. Sure, they do have figures on the organization as a whole, and even on a departmental level, but never on the cost of providing care to the individual patient.

The excuse

The excuse that is often used by the healthcare industry is that costing on an individual patient level is presumed impossible (because too difficult), since every patient requires a unique individual treatment. Consequently, every treatment is different and thus has another cost.

I underwrite the thesis that every patient is unique and requires a potentially different and individual care path. But my personal experience in creating costing insights for healthcare organizations on an individual patient level, do not comply with the thesis that costing on an individual patient is impossible. On the contrary and I fully agree with Robert S. Kaplan and Michael Porter on their thesis in their Harvard Business School article: “We are measuring the wrong things the wrong way”.

The main problem

The healthcare industry simply does not measure what matters to costing to an individual patient level. It measures and reports on what influences the reimbursement of the care provided. Reimbursement, however, does not reflect the cost of care, but reflects how much a healthcare provider is reimbursed for the care he provided.

We all know that reimbursement, in many cases, is no longer tied to the cost of providing care. However, healthcare organizations are focused on reimbursement, in order to keep themselves sustainable in the current financial system. Not on costs. As such, their current data capturing and reporting systems are focused on reimbursement. This explains why relevant patient (treatment) data are not captured: healthcare organizations are not incentivized to capture these data relevant to costing.

A secondary problem

Although healthcare organizations make huge efforts to capture the right reimbursement data, data quality and consistency is a huge issue. Data is often captured in different systems, requiring multiple inputs, and consequently resulting in errors. I have experienced this issue multiple times in the studies we have made. To name a few: patients differently identified in various systems, medical procedures performed on the same patients differently categorized over multiple systems, pharmacy prescriptions not matching the final invoice records, etc. An exercise in master data management could resolve these issues.

Do not forget about quality of care

Calculating cost is one thing, optimizing the quality of care on an individual patient level is another one. And both of them should be done simultaneously. It is easy to minimize the cost of care when abandoning the objective of quality of care. But ultimately, that is not something we should strive for. Not from an individual perspective, and not from a societal perspective.

Instead, what we should aim for is the consistent capturing of the quality of healthcare provided to any individual and relate this back to the costs incurred for the specific treatment. Only the combination of both, and the analysis of those data over the full population, can show us the optimized treatment (both on costs and quality of care) for any specific medical condition.

How to capture the true potential

Our experience with data quality and availability of data in healthcare organizations strengthens us in the idea that these organizations would hugely benefit from an exercise in master data management. This, along with the structured capturing of data that are necessary to perform a costing exercise on an individual patient level together with a consistent monitoring of the patient outcome levels (the quality of the care provided) would provide the information healthcare providers need to contain costs and manage performance in a professional way for the benefit of the patient, the healthcare providers and ultimately you and me, as substantial financial contributors to our healthcare system.


I am convinced that having this information available in a consistent and transparent way can preserve our excellent healthcare system for the next generations to come at an affordable cost and can contribute to even more quality. Isn‘t that a concern we all should have?