By ROBERT S. KAPLAN and MICHAEL E. PORTER

RISING health care costs are busting the federal budget as well as those of states, counties and municipalities. Policy makers and health care leaders have spent decades trying to figure out what to do about this.

Yet their solutions are failing because of a fundamental and largely unrecognized problem: We don't know what it costs to deliver health care to individual patients, much less how those costs compare to the outcomes achieved.

When insurance companies or government bodies try to control costs, they usually make across-the-board reimbursement cuts that ultimately are unsustainable because they have no connection to the true costs of delivering care. Providers themselves do not measure their costs correctly. They assign costs to patients based on what they charge, not on the actual costs of the resources, like personnel and equipment, used to care for the patient.

The result is that attempts to cut costs fail, and total health care costs just keep rising.Regardless of what decision the Supreme Court reaches on the legality of the Affordable Care Act, measuring outcomes and costs is indispensable to driving improvements.

Because health care charges and reimbursements have become disconnected from actual costs, some procedures are reimbursed very generously, while others are priced below their actual cost or not reimbursed at all. This leads many providers to expand into well-reimbursed procedures, like knee and hip replacements or high-end imaging, producing huge excess capacity for these at the same time that shortages persist in poorly reimbursed but critical services like primary and preventive care.

The lack of cost and outcome information also prevents the forces of competition from working: Hospitals and doctors are reimbursed for performing lots of procedures and tests regardless of whether they are necessary to make their patients get better. Providers who excel and achieve better outcomes with fewer visits, procedures and complications are penalized by being paid less.

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