Posted: March 24th, 2023

Cost Defined

Costs, charges, and payments are three concepts in health care financing, which have different meanings and use in healthcare settings. However, these terms are used wrongly and even interchangeably. Therefore, it is important to define the terms to differentiate how they are used in health care settings.

The term cost refers to the expense that a health care organization incurs in providing patient care. The direct costs include room and board, nursing, supplies, and drugs, while indirect costs entail infection control, medical records, administrative fees, maintenance, equipment, and compliance with regulations. Bai and Anderson (2015) confirm that understanding the cost of healthcare is an essential factor in ensuring transparency. According to the authors, patients should be charged for care depending on the cost. Charges are the individual listed prices of services and items that the hospital provides. The charges include the prices for tests, procedures, supplies, and pharmaceuticals, among others.

The charging system evolves and varies from one hospital to another. The term payment refers to the amount that a patient pays for a particular service. It is worth noting that payments are made from different sources, including private insurance, through Medicare and Medicaid, and the out of pocket payment (Pourabdollahian & Copani, 2014). The government, private insurers, and patients pay the hospital for care.

The three concepts are used in sequence. For instance, the hospital incurs the cost of paying an operating room. Patients attending the hospital are charged for surgical procedures conducted in the room. Following the operation, patients pay for the service using their private insurance. Therefore, the three concepts do not refer to the same process, but they are interlinked in healthcare financing.