It's Everywhere
Everyone’s definition of efficiency is “Resources expended per unit of service provided.”
And every industry struggles with measuring the numerator and defining the denominator. At last week’s DePauw Discourse on “Sustainability and Global Citizenship,” speakers from professors to polluters struggled particularly with how to measure the numerator in the efficiency equation. For example, Kay Pashos (Duke Power) and Greg Watson (MA Technology Collaborative) agreed that electricity from coal was cheap. Others argued that it’s cheap because there is no charge for dumping pollution into the atmosphere. NOX, SOX, Hg, and particulates produce negative effects at the other end of the smokestack, but those costs are not measured and not included in the cost of power from coal. Electricity from coal is only efficient if you can fairly allocate all the costs of burning coal. How do you account for mercury pollution such that tuna is no longer safe to eat? How much does it cost to treat the childhood asthma caused partly by coal fired power plants? You cannot consider the process efficient if you pile up debt for future generations. Should the costs of burning coal be allocated back to the power companies as the health consequences of smoking are charged to tobacco companies?
Solar energy is widely regarded as expensive, but there is no smokestack. All of the costs are contained in the solar panel. And how do you determine the cost per kilowatt hour when the costs are all up front. There is no boiler to feed; no maintenance. The power output depends on sunshine input. How do we measure future sunshine?
Similarly, in healthcare, we have trouble measuring costs. Most accounting systems are not set up to allocate costs to particular procedures. The institution charges what it can, and Medicare pays what it will. No one cares about the exact price, because there is no price competition--no comparison shopping. No one vies to be the low cost provider for, say, inguinal hernia repair. Patients don’t know and have little or no choice if they did know. And what is the cost? When my wife had ambulatory surgery, I took the week off to take care of her post op. Where is that cost in the efficiency equation?
Just because we have a daunting task is no excuse not to try. There are some efforts to induce hospitals to disclose costs for procedures. But would this be charges for the uninsured? Or negotiated fees for BC/BS? Or Medicare payments? Medicare, for it’s part, pays widely different fees to different providers in the same area for the same procedure. Will the real fee please stand up. How is the poor patient supposed to navigate this accounting nightmare?
Both healthcare and electric power need rewards for efficiency. Both also need accurate measures of costs in order to measure efficiency effectively.
And every industry struggles with measuring the numerator and defining the denominator. At last week’s DePauw Discourse on “Sustainability and Global Citizenship,” speakers from professors to polluters struggled particularly with how to measure the numerator in the efficiency equation. For example, Kay Pashos (Duke Power) and Greg Watson (MA Technology Collaborative) agreed that electricity from coal was cheap. Others argued that it’s cheap because there is no charge for dumping pollution into the atmosphere. NOX, SOX, Hg, and particulates produce negative effects at the other end of the smokestack, but those costs are not measured and not included in the cost of power from coal. Electricity from coal is only efficient if you can fairly allocate all the costs of burning coal. How do you account for mercury pollution such that tuna is no longer safe to eat? How much does it cost to treat the childhood asthma caused partly by coal fired power plants? You cannot consider the process efficient if you pile up debt for future generations. Should the costs of burning coal be allocated back to the power companies as the health consequences of smoking are charged to tobacco companies?
Solar energy is widely regarded as expensive, but there is no smokestack. All of the costs are contained in the solar panel. And how do you determine the cost per kilowatt hour when the costs are all up front. There is no boiler to feed; no maintenance. The power output depends on sunshine input. How do we measure future sunshine?
Similarly, in healthcare, we have trouble measuring costs. Most accounting systems are not set up to allocate costs to particular procedures. The institution charges what it can, and Medicare pays what it will. No one cares about the exact price, because there is no price competition--no comparison shopping. No one vies to be the low cost provider for, say, inguinal hernia repair. Patients don’t know and have little or no choice if they did know. And what is the cost? When my wife had ambulatory surgery, I took the week off to take care of her post op. Where is that cost in the efficiency equation?
Just because we have a daunting task is no excuse not to try. There are some efforts to induce hospitals to disclose costs for procedures. But would this be charges for the uninsured? Or negotiated fees for BC/BS? Or Medicare payments? Medicare, for it’s part, pays widely different fees to different providers in the same area for the same procedure. Will the real fee please stand up. How is the poor patient supposed to navigate this accounting nightmare?
Both healthcare and electric power need rewards for efficiency. Both also need accurate measures of costs in order to measure efficiency effectively.
