What Is Total Cost of Care? Why It’s the Right Metric for Employer Health Plans

Total cost of care (TCOC) is everything a health plan spends on a population over a set period, from the price of each service to how much care gets used and where it is delivered.
A plan can hold the deepest negotiated discounts in its market and still run a high total cost of care because unit price says nothing about how often care happens or in what setting.
Most total cost of care frameworks stop at utilization and site of care, but skip one of the largest remaining sources of cost difference: the individual doctor delivering the service.

Most employers still judge a health plan by its negotiated rates. Those rates show what the plan pays each time an employee gets a service, but they say nothing about how much care that population uses, where it happens, or who delivers it. A plan with the deepest discounts in the market can still spend more per employee than a plan with weaker ones.

Total cost of care is built to fix that. It counts everything a plan spends on its population over a year, not just the rate it negotiated for any one service. However, most versions of the metric simply stop at price, utilization, and site of care. So, they can show that an emergency room costs more than an urgent care clinic, but they cannot show that one surgeon costs far more than another for the same operation at the same hospital. And data shows that’s exactly what some of the largest cost differences in a plan come down to.

What is total cost of care?

A negotiated rate is the price of one service, while total cost of care is what all of a population's care adds up to. The standard definition of total cost of care covers all direct healthcare costs for a group over a set period, usually a plan year. That total reflects the price paid per service, the number of services used, and the setting where each one happens.

That is why a carrier can win the discount comparison and still pay more per employee than a competitor. One carrier might price the cost of an emergency room visit at $1,800 and the cost of treating the same condition at an urgent care clinic at $175. A carrier with the deeper discount on both services still pays more if its members go to the emergency room while the competitor's members go to urgent care. But most employers would never know because the discount report shows the two percentages and nothing else.

The three standard components of total cost of care

Every total cost of care framework starts from the same three inputs, and each one can hide a problem in the other two.

Component	What it measures	What it misses
Negotiated unit price	The contracted rate a plan pays for a given service	How many services get billed at that rate
Utilization	How many services a population uses over the period	Fewer visits still cost more if each one lands in the most expensive setting
Site of care	The setting where each service is delivered	A lower-cost setting only helps if the care done there was appropriate to begin with

‍

Most carriers, consultants, and point solutions now work on all three, and for good reason. Hospital-based imaging, for example, costs 3.7 times more on average than the same scan at a freestanding facility, so a site-of-care program can save a plan a lot on its own. But all three describe the transaction rather than the doctor performing it.

The variable most total cost of care frameworks leave out

Price, utilization, and site of care all treat the doctor as interchangeable. Two orthopedic surgeons at the same hospital, on the same contract, billing the same code, look identical in every one of those three measures, but they are not identical in what they cost the plan. That difference is large enough to show up in the national trend. A 2026 analysis of one of the largest claims datasets in the country named low-quality care as one of four drivers behind the year's employer cost increase. Those costs are rising 8% a year and account for a 1.7% increase in employer spend.

Why two providers at the same rate can cost very different amounts

The initial bill is the smallest part of the difference. A surgeon who operates when the evidence says physical therapy would work just as well generates a surgical bill, a facility bill, an anesthesia bill, weeks of recovery, and a chance of complications that a more conservative peer never generates at all. For example, spinal fusion is the single most costly procedure in the country for employers, and a randomized trial in The New England Journal of Medicine found that adding spinal fusion to the simpler decompression surgery produced no better outcomes for patients than decompression alone.

Surgeons have responded to that evidence very differently. About a quarter of spine surgeons have never performed a fusion for spinal stenosis, while some perform it on more than 80% of their stenosis patients. Every one of those surgeons can sit in the same network at the same negotiated rate, and if you aren’t paying attention, you would likely never know.

That difference shows up inside a single hospital, too. Claims analysis has sorted physicians within the same hospital systems into quartiles by how much low-value care they generate, and the top quartile produced 70% less of it than the bottom quartile under the same roof.

Independent research points in the same direction. A 2022 JAMA Health Forum study looked at 8,788 physicians in five metro areas using commercial claims. The top fifth of orthopedic surgeons performed arthroscopic knee surgery on 2% to 3% of their osteoarthritis patients, while the bottom fifth operated on 26% to 31% of theirs. In one market, the differences between doctors inside the same practice group were larger than the differences between groups.

What it takes to measure cost at the provider level

Measuring this takes two things most plan reporting does not have:

Breadth: A single employer's claims rarely include enough patients per doctor to say anything reliable about one surgeon versus another in the same specialty and market. The comparison has to draw on claims from many payers.
Depth: Data must follow the patient past the first bill to the complications, repeat imaging, readmissions, and follow-up visits that a poor decision produces.
Specialty Comparisons: The data has to compare each doctor only against peers in the same specialty treating similar patients.

Garner built its provider measurement on those two requirements. Its claims dataset covers about 75% of all claims nationally and more than 310 million patients. On top of that data, it applies over 500 clinical quality and efficiency metrics across 82 subspecialties to score each doctor against local peers on both health outcomes and total cost of care. Across that dataset, top-performing doctors lowered total cost of care by 32% on average while adding three healthy days a year to their patients' lives.

The effect shows up in plan spend once members start seeing those doctors. An independent Aon analysis of employers using Garner found 7.4% lower medical spend in the first year against a matched control group, with no plan design changes.

Total cost of care is only as useful as what you measure within it

Total cost of care is the right metric for an employer health plan. The problem is that most versions of it stop too early. A framework that stops at price, utilization, and site of care will rate two plans as equal when one of them sends far more of its members to surgeons who operate against the evidence. So ask any carrier, third-party administrator, or vendor one question: Can you show which doctors our employees are actually seeing, and what those doctors cost once the full episode is counted? If the answer is no, their total cost of care number is measuring the network's contracts rather than its care.

Want to see total cost of care broken down by provider in your own network? Book a demo to find out which doctors drive the cost differences in your plan and what those differences are worth.

FAQs

What is total cost of care in healthcare?

Total cost of care is the full amount spent on a population's healthcare over a defined period, usually a plan year, counting every direct medical cost rather than the price of individual services. It combines the negotiated price paid per service, how many services the population uses, and the setting where each service is delivered. Employers use it to compare plans and vendors on what they actually spend per member.

How is total cost of care different from unit cost or negotiated rate?

Unit cost is the price a plan pays for one service, while total cost of care is what all of a population's care adds up to over time. A deep negotiated discount can coexist with a high total cost of care if members use more services than they need or receive care in expensive settings. An emergency room visit and an urgent care visit for the same condition can carry the same discount percentage and differ in cost by roughly ten times, and only total cost of care captures that difference.

What factors go into calculating total cost of care?

The standard calculation combines negotiated unit price, utilization, and site of care across every claim a population generates in the period. A more complete healthcare total cost measurement also accounts for differences between individual providers, meaning the downstream costs a specific doctor's decisions produce, such as complications, repeat imaging, readmissions, and unnecessary procedures. Those costs land on the plan months after the first bill and are invisible when doctors are compared only on the rate they charge.