The ratio of costs to charges: how good a basis for estimating costs?

This study evaluates the accuracy of costs derived from the ratio of costs to charges (RCCs), using costs based on relative value units (RVUs) as the "gold standard." We found that RCC-calculated costs were not a good basis for determining the costs of individual patients. However, when examining average costs per diagnosis-related group (DRG), RCCs performed better. For almost 70% of the DRGs, average RCC-calculated costs were within 10% of average RVU-calculated costs. RCCs were even more reliable for comparing the relative cost of patients in a DRG in one hospital to the average cost of patients in that DRG in a group of hospitals. Charges, or an overall hospital RCC (as opposed to the departmental RCCs we used in most of our analyses), were not a good basis for determining relative hospital costs.