The Distinction Between Cost and Charges

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.