The cost effects of protocol systems. The marginal cost-average cost dichotomy

Protocol systems are a mechanism that some have contended will maintain high quality of patient care and will result in improved delivery of care, more efficient management of care, and in lower costs. Cost savings reported from protocol care generally are based on average costs. This article reports on an analysis of the cost effects of a pediatric protocol system. The impact of the system on both average and marginal costs was considered. The study results indicated that care adhering to the protocols, when compared to nonadherent care, resulted in a substantial savings measured against average costs. However, only a very small decrease in the marginal cost of care occurred. Ancillary department costs were found to be fixed in most cases and not subject to variation without substantial changes in the volume of services ordered. None of the volume changes attributable to the protocols were sufficiently large to result in the reallocation of labor resources or the reconfiguration of departmental equipment. Although protocol systems still may be of great value in generating more appropriate care, their ability to reduce costs is apparently less than was supposed.