Do We Have Any Clue How to Cut the Cost of Healthcare?

Do We Have Any Clue How to Cut the Cost of Healthcare?


At the Society of Hospital Medicine’s annual meeting last week in Dallas, Lenny Feldman of Johns Hopkins presented the results of a neat little study. His hypothesis: physicians given information about the costs of their laboratory tests would order fewer of them.

Feldman randomized 62 tests either to be displayed per usual on the computerized order entry screen or to have the cost of the test appear next to the test’s name. Some of these were relatively inexpensive and frequently performed tests. After randomization, for example, the costs of hemoglobins ($3.46) and comprehensive metabolic panels ($15.44) were displayed, while TSHs ($24.53) and blood gases ($28.25) were not. He also randomized more expensive tests: the costs of BNPs ($49.56) were displayed, while hepatitis C genotypes ($238.62) were not.

The educational intervention was surprisingly powerful. Over the six-month study, the aggregate expenditures for each test whose costs were displayed went down by $15,692, while non-displayed tests had a mean increase of $1,718. Over the entire group of 31 tests whose costs were shown to physicians, costs fell by nearly $500,000.

Coincidentally, last week’s Archives of Surgery reported the results of an intervention aimed at decreasing lab ordering on the surgical services of Rhode Island Hospital. There, simply announcing the service’s overall expenditures on non-ICU laboratory tests for the prior week at a house staff conference led to significant savings: $55,000 over an 11-week study period.

Have we found the Holy Grail, the key to flattening the cost curve? A little physician education leads to increased awareness of the cost consequences of their choices and, voila, our economy is rescued from the brink of disaster. How nice.

Before we get too ecstatic, it’s worth reflecting on the long, sobering history of cost reduction efforts in healthcare. Luckily, Steve Schroeder, now a distinguished professor of medicine and health policy at UCSF, recently did just that in the Archives of Internal Medicine. But before I get to Schroeder’s reflections on our cost containment journey, I must digress with a personal story, since his counsel was central to my career choice.

In 1985, when I was a second year UCSF medicine resident, I made an appointment to meet with Schroeder for career advice. At that time, Steve was chief of our Division of General Internal Medicine and a national leader in academic medicine and health policy. I had an idea that I wanted a career in academic general medicine, but my interests were broad and vague. I sat in his office, intimidated. He asked me about my plans. “Well, I love general medicine, seeing patients and teaching, and I’m interested in policy, healthcare economics, epidemiology, rationing, and ethics.”

Steve took a deep breath. “That’s a disaster,” he said, his tone sympathetic but unambiguous. “To succeed in academic medicine requires focus. You’ll be competing against people who do only one thing. You can’t be a dilettante.”

I grew depressed. I knew that I was wired to be a generalist; I could no more focus exclusively on ethics or epidemiology than I could be a dermatologist or accountant. My career plans torn asunder, I thanked him for his advice and began to slink out of the office. As I reached the door, wondering whether to take the GMAT, something possessed me to stop and pose a final question to him.

“Steve, what did you focus on?”

“Oh, I completely ignored that advice,” he said with a mischievous smile, as he turned and pointed to his bookshelf, which had a clinical textbook he edited, along with books – some he had written – on health policy, ethics, epidemiology, and ethics.

“Why did you give me that advice, then?” I asked, more flabbergasted than annoyed.

“Because it is the right advice for most people,” he said. “But some people, probably like you and me, need to stay broad. I just want you to understand the risks and to be prepared. As a generalist, you’ll need to move from issue to issue, reinventing yourself every few years, and you’ll constantly need to bring together teams of experts to help you accomplish your goals.”

And that’s what I did. Some days, my eyes wander to my own office bookshelf, and I realize that it looks almost exactly like Steve Schroeder’s did that day in 1985. And I smile.

Now that I’ve established Schroeder’s bona fides as a truly wise person, let’s return to his recent article on the history of healthcare cost reduction efforts. Steve has walked this particular walk in his career, beginning as founding director of the George Washington University HMO, extending to his time as our DGIM chief, and peaking during his 12 years as president of the Robert Wood Johnson Foundation. Steve begins the article by noting that cost reduction gathered steam during the 1970s, when we were, as a nation, spending – OMG – 7.5 percent of our GDP on healthcare. While 7.5 percent seemed large, the burning platform came from projections that these costs might grow to an “unsustainable” 10 percent. (In case you’re missing the irony, healthcare now accounts for 17 percent of the GDP, projected to rise to 30 percent by 2032).

In the article, Schroeder reviewed several cost reduction strategies that have been tried over the past 40 years, ranging from reducing the “pro-technology bias” of our payment system, to training more generalists and fewer specialists, to giving physicians information about the costs of care. That’s right: in JAMA in 1984, Schroeder and colleagues reported the results of an educational intervention designed to sensitize residents to the costs of their care. Combining lectures on costs with chart audit and feedback, they found a slight reduction in the use of a few selected laboratory tests like the PTT, but no overall impact on costs. The effort was a bust.

After reviewing this history, Schroeder’s conclusion is that cost reduction efforts either didn’t work, or worked for a short while and then petered out, or led to compensatory increase in costs (the proverbial “squeezing balloons”). For example, while Medicare’s prospective payment system clearly resulted in shorter hospitalizations, the compensatory increases in high-intensity outpatient care (such as in ambulatory surgery) chewed up most of the savings. Other changes, such as changing the pro-technology payment bias or training more generalists, were countered by powerful political forces, a trend that continues today.

Schroeder’s bottom-line message is sobering. While he applauds the fact that we are now trying several new strategies (curbing fraud and abuse, using electronic health records, paying for performance) layered on top of the traditional ones, he writes, “it seems naïve to assume that these latest efforts will be any more successful than their predecessors.” He continues,

In the long run, reining in costs will require mobilizing political forces that can withstand the inevitable claims of rationing sure to come from the industries currently benefiting from the 17% of the economy spent on healthcare, and from consumers who have come to expect unlimited access to what they feel they need.

Do the two new studies – ones in which educational interventions appeared to work – mark a new era, one in which an overall increase in cost consciousness among physicians, coupled with a new ability to provide real-time data via computerized order entry, will lead to meaningful, durable cost reductions? I’m not too hopeful. I’d bet that once the novelty of interventions such the ones used by Feldman and the Rhode Island surgeons have worn off, the cost data will become white noise and folks will revert back to their comfortable, profligate ways.

So what will work? To make a meaningful and lasting dent in healthcare expenditures, I believe we’ll need to change some or all of the following:

  1. Just like certain medications are “non-formulary” and thus far harder to order, certain laboratory tests and radiologic studies will need to be taken “off formulary” – perhaps requiring subspecialty blessing or acknowledgment that the ordering physician has read through a brief summary of the test’s accuracy, its costs, and the alternatives before being allowed to click “Order.” How to accomplish this without gumming up work flow and driving ordering physicians batty needs to be on the agenda of some very smart operations engineers and IT gurus.
  2. Physicians will be more careful about test ordering if the costs of the tests are partly coming out of their own hides. The trick here is to enact strategies that don’t provide too strong an incentive for underutilization and that have robust quality and safety protections. The hope is that Accountable Care Organizations and bundled payments will be just the ticket, though the response to Medicare’s initial ACO proposal did not exactly resemble the front entrance of WalMart on Black Friday. Hopefully, with some tweaks, doctors and hospitals will be willing to stick their toes in this integrated care/shared incentive pool.
  3. We somehow need to change the culture of medicine, and of training. This’ll be the hardest nut of all to crack, but there is hope. For a brief glimpse into how much the culture has already changed, one merely needs to look back at Schroeder’s 1984 JAMA article. In it, he notes that his research team chose to focus their interventions on the interns and sub-interns, not the attendings. Why not? “…As with many other university hospitals,” he writes, “most attending physicians had expressed little interest in modifying the costs of medical care.”That was 1984, when virtually all the attendings were subspecialists coming out of their research labs or procedural suites to attend on the wards for one month each year. While we haven’t exactly solved the cost problem, I can’t imagine someone saying the same thing about our ward attendings today, certainly not the hospitalists I work with.That’s progress.

As I noted recently, it is critical that physicians focus on cost and waste reduction with as much passion and skill as some have, thankfully, been applying of late to quality improvement. Our systems need to be structured to promote this work, and our culture must encourage thoughtful and ethical cost containment as a core value. It’s not hyperbolic to say that the future of not just healthcare but our overall economy hangs in the balance.

As we embark on this crucial journey, while studies like Feldman’s give us hope, Schroeder’s historical perspective should gird us for the hard work ahead.

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60 Comments on "Do We Have Any Clue How to Cut the Cost of Healthcare?"

Oct 16, 2011

I truly believe that the concept of a tool that allows you to supplement at the breast is amazing, and had it not been so trying and tiring to use, it may very well have saved my breastfeeding relationship.

Aug 13, 2011

Some interesting thoughts, but cost will never go down, imho, unless these things also happen:

1. Doctors establish relationships with pharmaceutical companies that encourage them to subscribe drugs that may not be as effective as others
2. Healthcare industry is allowed to freely and arbitrarily indicate prices as they see fit to continue profits. So, if doctors begin to become cost conscious, what stops the providers from raising price of most commonly prescribed tests/methods? Nothing…
3. There is true competition and bidding for like services
4. AMA that is not interested in touching the salaries of it’s physicians, so less inclined to change the status quo
5. politicians who are bought by special interest groups that will find ways to compensate for any cost savings to patients
….so this silly notions that anyone in the healthcare industry is going to voluntarily do what is best for society as opposed to their earnings….

Aug 13, 2011

Steve has walked this particular walk in his career, beginning as founding director of the George Washington University HMO, extending to his time as our DGIM chief

Not surprising, I graduated from GWU in 1968…they produced outstanding generalists….after a one year internship I practiced independently in the US Navy and then foury years as a GP and ED director…loved general medicine. Very stimulating, a bit overwhelming at times, required constant reading and I did rely upon specialists if I was over my head. I then turned to Ophthalmology (perhaps the opposite of General Medicine, but I needed more control over my life style. ]]

I always learn something from your posts Bob.

larry w hirons, M D
Jun 14, 2011

ACOs and Actual Health Care Reform

Fuchs and Milstein1 wonder if U. S. physicians are “sufficiently visionary, public minded, and well led” to save $640 billion in our illness care system? Judging from the failure to build on sound initiatives2,3 that should have started us down that path, the answer is no. Discouragingly, Brooks’ salient essay3, which should have become a building block to meaningful reform, is not cited in subsequent commentaries on comparative effectiveness research.

But, enter the Accountable Care Organization (ACO). My prediction has been that the ACO movement will accomplish little except generate a lot of heat and smoke, exhaust well-meaning physicians trying to engage with the movement, and generate an industry of consultants and a society or two, complete with their own bureaucracies.

But it occurs to me that ACOs, incentivised by shared savings, could be the catalyst to true reform. ACOs could band together under an umbrella organization and transform the American illness care system by: 1) acknowledging the regional variability in frequency of services provided without outcomes advantage4; 2) insisting that every specialty society produce their own “Top Five List5” and incorporate these best practices into their ACO. (the model theorized for oncology6 is inspiring); 3) insisting that insurance companies standardize to save another $200 billion1,7; 4) agreeing with my7 et al 1 essays, to insist that physicians use absolute risk reduction in describing to patients the effectiveness of alternative treatment programs, thus revealing that often there are only marginal clinical outcome differences between approaches, but orders of magnitude differences in cost; 5) adopting the “Great Expectation7” that the patient is expected to take responsibility for their own health, citing but one example, of how through life style modifications, the diabetic glacier which is sweeping the country into bankruptcy could be tamed . The AMA could fight marginalization in regard to health care reform, seize the moment and be that umbrella organization to midwife the above, actually transforming our illness care system into a viable, effective health care system.

1. The $640 Billion Dollar Question —Why Does Cost-Effective Care Diffuse So Slowly? Fuchs, Victor R., PhD and Arnold Milstein, M.D., M.P.H., N Engl J Med 2011; 364: 1985 – 1987.

2. Cost Shifting Does Not Reduce the Cost of Health Care Victor R. Fuchs, PhD JAMA. 2009; 302(9): 999-1000.

3.Assessing the Appropriateness of Care—Its Time Has Come. Robert H. Brook, MD, ScD. JAMA. 2009;302(9):997-998.

4. Gawande, Atul. The Cost Conundrum What a Texas town can teach us about health care. The New Yorker, June 1, 2009.

5. Medicine’s Ethical Responsibility for Health Care Reform — The Top Five List
Brody, Howard, M.D., PhD, N Engl J Med 2011; 362: 283 – 285 .

6. Bending the Cost Curve in Cancer Care, Smith, Thomas J., M.D. and Hillner, Bruce E., M.D. N Engl J Med 2011; 364: 2060 – 2065.

7. Great Expectations: How to Actually Transform the American Health Care System and Avoid Squandering a Trillion Dollars, Hirons, Larry W., M.D., personal communication, Jan 2010.

Jun 14, 2011

I’m hearing some insightful things here, but also some not so…

Please correct me if i’m off, but if there’s anyone who is telling me or anyone else that my wife who has stage iv breast cancer (not her choice), at the age of 40-something, and has been in and out of the hospital for the last 4-years is a liability (chronic). I have a couple of things I would like to explicatively say, but won’t.

What I have discovered about our healthcare system:

1. Our doctors get paid 4-5Xs more than contemporaries in other industrialized countries. Why?
2. Possible response for #1: Because it costs so much to educate/train doctors? Compared to other countries, why?
3. Public, and especially, private insurance companies are incredibly inefficient. (many personal experiences from private company opened my eyes to some ghastly flaws)
4. Healthcare industry dictate prices, not the non-existent “free-market.” And we, the people, pay whatever they ask w/o asking why?
5. Our politicians and policy makers are not tackling the core of our healthcare problems- THE HIGH COST of services, goods, products.
6. Let’s have comprehensive PREVENTATIVE CARE! That will save billions!
7. Two medically related organizations essentially determine how many doctors and medical schools should be trained/built. WHY? Shortage of doctors, specialists? Let’s ask these organizations why they are not allowing the schools determine how many physicians to be trained? Why not allow the “free market” to determine…
8. Medical suppliers get tax credits for difference. If company A wants to charge insurance company B 5K and insurance B only will pay for 2K, company A can write off the 3K difference as a business loss! So, the people, AGAIN, pay!

Man, I have so much more to say. People just don’t have any idea of the difficulties of dealing with medical issues until they are in the middle of it! I am especially scornful of those who want to deny, deny, blame the person who is afflicted with a disease he/she did not ask for.

Jun 7, 2011

Matt is right that the culture can certainly trump strategies on cost-cutting, as has occurred in the past. But there is underway a certain culture shift in which doctors and hospitals (with a little help from PPACA and other pressures) are coming to realize that cost does and should matter to them.

If neither doctors nor patients pay any attention to cost and relative effectiveness, is it any wonder we have the highest health care tab in the world? Apparently, it takes financial incentives for hospitals to do things like cut wasteful (and cruel) readmissions.

The culture shift is here, and we should seize this moment to make lasting change that will affect the affordability and quality of care.

Jun 7, 2011

YES it CAN be very costly how ever, if you do everything accurately, you can actually pay half of what your paying now by getting better services with a different provider.

Catherine, RN
Jun 5, 2011

As an operating room director, I have shared cost of supplies and services with surgeons over the years, usually met with surprise and concern. I have been able to influence some to make changes, and some not. Unfortunately, they are still asking for the latest and greatest “thing” without asking much about the price.

The staff RN’s in the O.R. use an electronic clinical documentation program which shows the hospital’s cost of each item selected when used for charging purposes.

I’ve been toying with the idea of providing the surgeons with the total saved (or spent) on each procedure, similar to the “savings” realized by the clerk at the supermarket checkout. Dr. Smith, you saved $1000.00 today, thank you for operating with us today!

Aug 13, 2011

Outstanding idea, but do it at the end of the day, or get yourself invited to a surgery department meeting and discuss it with the whole department, but anonymized the data. Good Luck…Data tucked away in a silo is useless.. Perhaps you can even find a way to email individual doctors, but mention it is done as a service, not as an enforcement….many are twitchy about hospitals intervening, and control issue.

Craig "Quack" Vickstrom, M.D.
May 27, 2011

@Maggie Mahar,

Oh please, the PPACA was written by the AHIP, AHA, ATLA and Pharma. The docs on the panel were their stooges.

Aug 13, 2011

Oh please, the PPACA was written by the AHIP, AHA, ATLA and Pharma. The docs on the panel were their stooges.

Amen, Amen, Amen..

Here is another good one….a lawsuit. about RUC, AMA and CMS.

Craig "Quack" Vickstrom, M.D.
Aug 13, 2011

Yes, I saw that. Apparently some docs have both hope and stones. Is Dr. Kibbe a party to this suit? This is an interesting development.

May 26, 2011

I would just like to add that the people who shaped the Affordable Care Act ARE physicians–not govt’ bureaucrats.

Physicians are in the vanguard of refrom– as they should be.

The ACA si filled with the ideas of Drs. Don Berwick, Atul Gawande, Elliot Fisher, Jack Wennberg, Bob Wachter, George Lundberg, Zeke
Emmanuel, Nortin Hadler, Diane Meier, and a great many other physicians who have written many articles about reform for peer-reviewed journals such as Health Affairs, JAMA and NEJM. They are widely respected among their peers in the medical profession. And by and large,they tend to agree on what needs to be done. It’s not a mystery.

The Medicare Payment Advisory Commission (MedPAC ) absorbed many of their ideas, and in recent yeaars, MedPAC’s lengthy and brilliant reports, as well as its testimony before Congressional committees, inluenced legilstaors (and staff) able and willing to actually study health care’s problems. People like Sen. Jary Rockefeller understood what MedPac was saying and led the tought battle for reform.

May 26, 2011

Agree completely with this great post – thanks Dr. Wachter. I do agree the increased cost-consciousness alone will not be sufficient, but absolutely think it is a necessary first step.

It is also important to point out the costs in the cited studies are somewhat arbitrary. The cost to the hospital is different than the billed amount which is different than what the patient pays. Because physicians are trained to take care of the patient in front of them rather than assume responsibility for the “population” – I would argue that the cost to the patient is likely to be most important to the clinician at the bedside. This is often difficult to determine, but believe that a focus on this aspect of the cost equation places the price transparency problem within the doctor-patient relationship, right where it belongs.

May 26, 2011

Define “healthcare” first. A whole lot of spending is not on healthcare, by any definition.

Once you define it, then what is not healthcare gets labeled “political pay-off”.

Scooters, lift chairs, home health. Ring any bells?

May 26, 2011

Patients are not motivated to prevent disease unless you are going to scare them to death for not participating. Fear is the most important thing to avoid when caring for someone.

May 25, 2011

” That which gets rewarded, gets done”… Invert the pyramid, pay primary care twice as much and focus on doing everything we can to find the asymptomatically ill, the at risk and the chronically unstable. Create incentives for compliance and rewards for population health management.

Pass All Payer Legislation to even out the contracted rate disparities and even the playing field for new entrants against the payer oligopoly. Part of the reason why large hospital systems are reticent to form ACOs is the same reason why retailers did not want to embrace eBusiness — cannibalization of one’s business. Financial rewards can do wonders and reimbursement reform, not reimbursement rationing can drive market based reforms.

To quote or perhaps paraphrase Mssr Berwick, “My vision of health reform is empty hospital beds.” Our incentives must change to reward chronic illness prevention, not its treatment. Read Shannon Brownlee’s ” Overtreated”. Consumerism can only go so far. A person is a “consumer” when they are accessing the system standing up. They are a consumer when they are on their back. Could go on and on.

Barry Carol
May 25, 2011

“Granted I am not an economist, but instead of sacrificing consumers, why can’t we fix the amount that insurers are allowed to charge for a fixed set of benefits? They can charge less if they wish, and they can charge more for more benefits, but they will be required to provide the “standard issue” for that fixed price. Wouldn’t this create an incentive for insurers to actually negotiate prices seriously? Aren’t they in a much better position to force providers (hospitals mainly) to stop charging astronomic figures for services?”

Margalit –

The insurers are negotiating as hard as they can. They recognize that affordability is a huge issue for their employer and individual customers. The big name hospital systems perceive, often correctly, that the insurers need them in their network because employers and their employees want them in their network. At the same time, they claim that Medicare and Medicaid are both underpaying them so they need to cost shift to the commercial insurers. The insurers with the smaller local market shares pay higher prices than the dominant insurer in the market, often one of the Blues.

As a practical matter, in addition to disclosure of actual contract rates, the best ways to create countervailing power against the large and / or big name hospital systems are tiering and narrow or limited networks. Many of these big hospital systems also try to get away with refusing to sign contracts that allow insurers to impose higher copayments on their members who want to use those systems instead of less expensive local competitors. That’s an issue that can and should be addressed by state regulators or legislators if necessary.

To cite one specific example, the CFO of a famous health system in a southern state told a group of investors recently that it was able to charge a large national insurer with a relatively low market share in the state twice as much per procedure on average as it got from the dominant local Blue. At the same time, their cost per adjusted admission is only going up 2%-3% per year but they have been getting annual price increases of several times that. I say again that it’s the hospitals that are killing us. When they’re not killing us with infections and other avoidable harm, they’re killing us financially.