The cost of complexity: the teaching hospital

There are factors other than teaching that should be considered to understand why teaching hospitals are more costly than their community hospital counterparts. Often these factors are compensated under the rubric of education. Medicare's reimbursement of direct and indirect medical education expenses is discussed as an example of such compensation of teaching hospitals' hidden contributions. However, to designate the teaching function as the sole cause of higher costs is inaccurate. The following factors are suggested as contributing to teaching hospital costs: intensity of care; case mix of patients; ambulatory care programs; care of the medically indigent; biomedical research; other program development; and physical and organizational locations. These factors must be defined separately, understood in terms of their social and financial value, and paid for at appropriate levels to meet the increasing demand for accurate cost accounting by teaching hospitals in the present environment of competition and funding cutbacks.