Paul Hebert and coauthors (Jun 2014) report that a patient-centered medical home initiative in the Veterans Health Administration (VHA) "avoided $596 million in costs." The savings were estimated from multiplying utilization changes by estimated average costs per service unit, since the VHA has a fixed budget that would obscure any true cost savings. But the cost savings estimate is likely to be high because, even in non-VHA settings, a large proportion of the costs of delivering health care services is fixed: Reduced utilization might save variable costs that are much lower than the average unit costs of avoided care. For example, when one saves a bed day of care, at the margin only the costs of perishable consumable items (such as food) are saved. When aggregated, some other non-perishable consumables (such as gauze and intravenous solution) might not need to be restocked as quickly, which would generate modest savings. But neither capital nor labor costs-both of which are embedded in unit costs-are saved, and both labor and capital productivity drop.
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