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Dr. Spendthrift

Rick Johnson, for HealthLeaders Media, January 10, 2008
The root cause of the healthcare industry's spiraling costs is the pen sitting in your white coat. After all, nearly every needless procedure, extravagant device, and useless technology that is ordered requires a doctor's signature.

If only those spendthrift physicians could clamp down on their wasteful ways. And to make matters worse, these well-to-do docs, averaging annual incomes of $200,000 to $300,000, actually get reimbursed more when they order the most inefficient, excessive procedures.

At least that's the rhetoric I hear from more and more hospital administrators, health plan executives, and healthcare consultants. They've taken an unofficial election on who to blame for the industry's downfall--and they voted for you.

All of us suspect that healthcare inflation is unsustainable. As Sg2's Michael Sachs pointed out at our Top Leadership Teams conference last fall, overall inflation and wages are up 20 percent, but the cost to healthcare consumers is up 85 percent. And healthcare spending as a percentage of GDP went from about 5 percent in 1960 to about 15 percent today.

You might have picked up a hint of sarcasm in some of my prose, but I don't get this line of thinking only from the professionals in power suits. A physician administrator told a story to me that has a similar-sounding theme at his hospital.

He had taken over as the surgery service line director and wanted to bring costs down, so he conducted a study to determine the efficiency of each of his 120 staff surgeons for the most common procedure performed at the hospital. It turned out my source was the least cost-effective surgeon at the hospital. So he had to change his ways to become a better example for the rest of the staff, he said.

The message I gleaned from this tale is that when this surgeon didn't have a stake in the bottom line--or know the financial impact of his decisions--he behaved as though he had a blank check. But once he was responsible for the service line, he became more economically responsible--and held others accountable as well.

And that's the trick that some insurers are trying to solve with P4P and other programs--how to align physician incentives with cost effectiveness (of course the payers like to term it quality outcomes). Patients trust their doctors and want to partner with them to improve their health. The idea that a person at the insurance company whom they've never met could deny procedures doesn't sit well with consumers or physicians.

I talked with another MD, board-certified in internal medicine for 11 years, about how a large payer in his region had begun to contract with a radiology management company. The payer was reacting to a 21 percent increase in diagnostic imaging services from 2003 to 2005.

Despite promises from the insurer to limit the administrative burden, the physician was frustrated by what he saw as the latest in a line of changes to the physician-patient relationship. "The physician-patient relationship is becoming more adversarial because we have all of these other people in the room with us. We have these insurers and lawyers in the room with us, and they really shouldn't be there."

But if Sachs' prediction that healthcare is an industry in the crosshairs proves correct, the government will join payers and administrators to change the way care is delivered--so there will be even more "people in the room" with the doctor. Of course, as my editor, Jim Molpus, wrote in a recent Web-exclusive column, Washington has an annoying habit of procrastinating change rather than promoting it.


Rick Johnson is a senior editor with HealthLeaders Media. He can be reached at rjohnson@healthleadersmedia.com.

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