For example, a treatment facility may establish a usual and customary charge much in excess of costs, competitive rates, or actual collections simply to leave open the possibility of collecting a large fee if anyone is willing to pay it. Actual provider costs would be free of such marketing influence, but these data are difficult to obtain. Questions about reasonableness, necessity, allowability and allocation of costs, return on investment, marginal versus average costs, and other cost accounting issues can make it very hard to estimate actual cost. Finally, there is reason to believe that provider costs are determined more by available revenue than by anything else. Once these efficiencies are reached, providers can only respond to lower revenues by reducing the amount of patient services or the quality of care, or both.
Higher revenues produce the opposite effect.
If providers are efficient, they are probably providing the best quality of care possible for the amount of revenue they have. If the current level of quality is acceptable, revenue should be a good proxy measure of the cost of providing treatment. The distinction between actuarial costs and provider average costs proved nettlesome in discussions between the State and service providers concerning the Washington study. Many service providers were angered and disheartened by an estimate of actuarial costs for insured and medicaid populations that was clearly below their own facility operating costs. To some extent, these concerns were reiterations of complaints about inadequate reimbursement under current reimbursement mechanisms.