Why is it easier for many hospitals to justify investing in capital equipment, new buildings, and service lines rather than in quality improvement? There are three major reasons.

Many hospital systems don’t know their real costs

It’s been said that the first step in fixing a problem is realizing you have one. The fact that many hospitals don’t truly understand their costs makes it nearly impossible for them to see the tremendous amount of waste in their systems. Most have an idea that it’s there somewhere, but they can’t pinpoint the greatest areas for improvement. As a result, they focus on low-yield areas or, even worse, become paralyzed with indecision.

This lack of focus on cost is fairly unique to healthcare and is the result of a long history of volume-based payment. Now is the time for healthcare organizations to refine their often outdated cost-accounting systems (if they have one at all). Hospitals that continue to function without a firm grasp on their costs could end up billing themselves into debt. For instance, if a service line brings in a million dollars of “revenue” per year, but costs $1.2 million to operate, there’s a problem.

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