Health Policy

To Avoid Pay Cuts, Doctors Must Reduce Waste


(This is the fifth in a series of excerpts from Terry’s new book, Physician-Led Healthcare Reform: a New Approach to Medicare for All, published by the American Association for Physician Leadership.)

Real healthcare reform depends on an effective plan to reduce cost growth. To achieve this goal, it makes a whole lot more sense to cut waste than to limit access to necessary services or slash provider payments to the bone, noted Donald Berwick, MD, a former acting CMS administrator, and Andrew D. Hackbarth, a RAND Corp. researcher, in a 2012 JAMA article. In their telling, a significant reduction in waste would allow us to bend the cost curve without hurting healthcare quality or access.

Berwick shared with me that he doesn’t know how much unnecessary care physicians or hospitals could safely eliminate. “Some of it is marbled into the daily activities of healthcare organizations,” he said. “There would have to be systemic changes to get it done. But it’s a matter of will. With enough will, a lot of it could be eliminated. And when you’re talking about $1 trillion [worth of waste], even if you get 10% of it, that’s a tremendous amount that could be applied to other activities.”

Risk-based contracts, whether shared savings or capitation, can incentivize physicians to reduce waste. From the viewpoint of long-suffering primary care physicians, value-based-care agreements that let them share in the savings they generate are a godsend. Of course, not all primary care doctors are willing to take financial risk or change their practice patterns. But if maintaining their current income depends on it, most physicians will embrace change.

Specialists, too, can benefit by embracing the new paradigm. If they’re mainly being paid fee for service, they’ll have to forgo a lot of lucrative tests and procedures. But they can still keep their incomes up by delivering more-appropriate procedures and tests to a larger patient population.

Ken Cohen, MD, chief medical officer of New West Physicians in Denver and senior medical director of OptumCare, explained how his risk-taking group has worked with specialists over the years to achieve this result. New West Physicians’ primary care doctors refer only to high-quality specialists who avoid low-value tests and procedures. By working up patients far enough to determine that they really need specialty care before referring them, the primary care physicians make it possible for each specialist to care for a bigger population.

“Think of a situation where it takes, say, 10,000 patients to fill an orthopedic surgeon’s practice with the surgeon performing procedures at the current rate,” Cohen said. “Imagine what would happen if a primary care group funneled all of its referrals to that orthopedic surgeon. With the primary care physicians doing most of the legwork, the orthopedist could take care of a population of 20,000 patients. There will be the same number of procedures in that population of 20,000 as there were in the population of 10,000 people, but now all of the procedures are indicated [i.e., appropriate].”

In this scenario, it might seem that fewer specialists would be needed. But the Association of American Medical Colleges predicts we’re going to have an increasing shortage of specialists as the population ages and develops more chronic diseases. If that’s true, there will continue to be plenty of work for specialists.

Where Hospitals Stand

Hospitals might also be motivated to cooperate with physician groups in reducing waste if those practices were paying them out of a global budget. But provider groups must be very large and experienced with managed care before they’re ready to take on inpatient risk. Also, there are limits to what hospitals can do to cut waste when services are ordered by physicians. That’s why New West Physicians hires hospitalists, who ride herd on specialists in the hospital.

Berwick pointed out that hospital consolidation has led to a big increase in the cost of healthcare. But that trend could be reversed, he suggested, if hospitals were paid differently than they are today. “A shift to population-based payment should make hospitals more interested in keeping people home and well or recovering smoothly,” he said.

Some hospitals have moved in the direction of taking financial risk, such as bundled payments or ACO shared savings, but not enough to swing the needle on health costs. When will hospitals see the light and adopt a philosophy more congenial to at-risk physician groups?

“Here’s Berwick’s test for successful health policy: do hospitals want to be empty?”  he said. “We will know when things have gone in the correct direction when hospitals are trying to help people stay well rather than keeping beds filled. But that’s habit, and it’s hard to change.”

Ken Terry is a journalist and author who has covered health care for more than 25 years. He tweets @kenjterry.

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5 replies »

  1. Just look at the “hospital at home” practice in Ireland and Spain and other European nations to see just how much we spend inappropriately on unnecessary acute hospitalizations. There are loads of other examples and that one service done well would eliminate the need for half the US hospital bed capacity.

    Dike Drummond MD

  2. “You argue that physician waste is how much they order. That’s Berwick bunk delivered by an arm chair political malpractice “expert”.”

    Double thumbs up!

    Health care is about looking to be doing something different while keeping it all the $ame.

  3. Incentives are important and they do work in bringing quality of care up – *if* the incentives are properly aligned along all the participants, primary care physicians included of course.

    A hospital which is empty because the entire population is healthy would be a good thing.

  4. Incentive payments are bribes contingent on the volume of care ordered. “Value pay” means “bonus opportunities” for ordering in less care and “negative payment adjustment” for ordering “too much” use of corporate-cartel money. And none of these incentive bribe programs work!! [Please review the literature.] I see none of these facts reported in this article–shameful. Instead we see the “godsend” of profiteering thru rationing care in plan English, which is profiteering masquerading as Orwellian “gain sharing”. You can’t trust a corporate underwriting agent in a white coat delivering “care”; a clinician, who has primary corporate and personal wealth interests rather than an exclusive loyalty to the interest of each patient is an insurance underwriter, not a professional clinician–ever heard of Hippocrates or the duties of a fiduciary?

    Further, clinicians have no control of population health, which is primarily determined by wealth and poverty, i.e., socio-economics, national wealth, the business cycle, public policy malpractice, etc. etc. etc. Clinicians have no control over population health similar to public health victories over 100 years ago giving us all clean water and good sewage disposal. You argue that physician waste is how much they order. That’s Berwick bunk delivered by an arm chair political malpractice “expert”.

    You can do better. Good luck, Bob

  5. Very interesting and thought provoking. I’d love to see a look back on the bundled payment programs and ACO shared savings and how they fared, both for cutting cost and satisfaction of the organizations/physicians involved. The experiments have been ongoing for years and seeing how they worked would be most valuable going forward. Do we continue pushing them? Do we pivot into new directions? Thank for the article.