February 27, 2025 - Physicians and healthcare professionals focus on patient care because that is what their training emphasizes. However, running a healthcare organization also involves managing finances, complying with regulations, and meeting industry requirements. In other words, medicine is a profession, but healthcare is a business.

To succeed, you have to balance quality care with operational and financial efficiency. This begins with understanding the true cost of patient care. It will help you make informed decisions that support your patients and the long-term financial stability of your organization. Yet, many healthcare organizations find this challenging. Of 1,930 studies on healthcare management, only 215 examined costs in a value-based healthcare (VBHC) setting. Over half (51.2%) of these studies focused only on hospital costs, which leaves gaps in understanding the full picture of care costs. Many healthcare providers still don’t calculate total care costs, making it harder to manage costs effectively.

In this article, we explore why understanding patient care costs is essential, the benefits it offers, and how to determine your organization’s spending per patient.

Why you need to know the true cost of patient care

Healthcare companies have been struggling with their finances in recent years. In 2022, hospitals and health systems had their worst financial year since 2020 — their expenses were greater than their revenue. The situation remained critical through 2023, with many hospitals struggling to break even.

Understanding true patient care costs becomes essential for survival in this challenging environment. When you know exactly how much you spend on each patient's care, you can take precise actions to control costs while maintaining quality. This knowledge helps your organization build financial resilience in two ways:

• Identify inefficiencies and improve financial health
• Make informed decisions and allocate resources efficiently

Identify inefficiencies and improve financial health

You might be overspending and wasting resources on mistakes like over-diagnosing, over-treating, or administering incorrect treatments. Or you may be under-investing in areas that could improve patients’ experiences and increase your revenue. Tracking patient care costs can help identify inefficiencies and areas of underperformance within your organization.

For example, some organizations repeatedly performed the same diagnostic tests because they lacked access to shared patient data in a study by the Organization for Economic Co-operation and Development (OECD). In other cases, patients received unnecessary care that not only caused serious complications but also increased costs. What is the cost of correcting these preventable mistakes? More than 10% of hospital expenditures, according to the same study.

If your patient care costs are high, it may signal inefficiencies that require attention. On the other hand, if costs are just right or low enough, it suggests efficient resource use, reduced waste, and optimized operations.

Make informed decisions and allocate resources efficiently

Many clinicians and administrators lack clear information about the actual costs of treating specific conditions over the entire care cycle. This knowledge gap makes it difficult to compare costs with outcomes and evaluate the value of care provided. Without knowing which treatments deliver the best outcomes for their cost, organizations risk making arbitrary cuts or increasing spending in the wrong areas.

“There is also a near complete absence of data on the true costs of care for a patient with a particular condition over the full care cycle, crippling efforts to improve value,” says Michael E. Porter, Professor at Harvard University and Thomas H. Lee, MD, Chief Medical Officer at Press Ganey. “The lack of cost information starts with widespread confusion about the difference between costs and charges. Most clinicians also have no way of knowing what things actually cost or how much time care processes take. Without understanding the costs of the care for specific conditions or how costs compare to outcomes, efforts at cost reduction revert to power struggles and arbitrary cuts.”

Understanding the true cost of patient care provides critical insights for allocating resources effectively. It can help you identify treatments that deliver the best value, highlight areas where additional investment can improve care quality, and uncover opportunities to reduce waste without compromising outcomes. Instead of relying on guesswork, you can make data-driven decisions that improve care delivery and financial performance.

The true cost of patient care lies in your financial reports

Your financial reports provide a detailed view of your organization’s operations and financial health, showing how much you spend per patient over time. They help identify areas of overspending or underperformance so you can target improvements effectively.

To gain these insights, your financial statements must be accurate. Errors may lead to poor decisions that can hurt your organization. Unfortunately, many healthcare organizations struggle to maintain accurate financial records due to the current accounting shortage. Robert Half reports 85% of companies are struggling to hire finance managers Additionally, 300,000 accountants left the industry from 2020 to 2022, according to the Wall Street Journal.

This lack of financial expertise affects decision-making, as many healthcare organizations lack the support needed to produce reliable reports on time. To address this issue, healthcare providers are increasingly turning to outsourcing as a practical solution.

The power of outsourcing

Outsourcing your finance and accounting functions solves the problem of timely and accurate financial reporting. It ensures you can close your books on time each month. This timeliness lets you maintain an up-to-date view of your financial performance, enabling faster and better-informed decision-making.

It also gives you access to expert support to help interpret financial data, identify trends, and pinpoint opportunities for improvement. This gives you a clearer picture of your organization’s strengths and weaknesses.

Finally, outsourcing offers flexibility. Instead of maintaining a full in-house accounting team, you can scale your accounting support up or down based on your needs. This is cost-effective and means you can always get just the amount of support you need at a particular time. To learn more about Citrin Cooperman’s Business Process Outsourcing Services or Healthcare Services, please contact Mike Zyborowicz or Kieran Higgins.