Costs, Value, and Variation

Abstract

Estimated benefits and costs of healthcare services are inherently imprecise. While direct variable costs can be easily tallied, fixed costs and indirect costs are less easily attributed. Meanwhile, most medical services have modest effects on mortality, and improvements in quality of life are difficult to estimate; therefore, estimated benefits are imprecise. Variation is inherent to medical practice for multiple reasons: it is an applied science with substantial uncertainty in underlying evidence that relies on skilled-but-imperfect practitioners and includes multiple intermediaries pursuing their own ends. Still, understanding sources of variation can be a useful way to guide quality improvement efforts.

Keywords: Costs and cost analysis; Health care costs; Small-area analysis; Value-based purchasing.