October 10, 2016

The Centers for Medicare and Medicaid Services’ 2018 target date for having 50 percent of all Medicare fee-for-service payments made through a value-based model is not far away.  The transition to value requires hospitals, physicians and post-acute care providers to unite in delivering a high quality and cost-effective patient experience.  Indeed, providers must do so or suffer penalties.  As an anesthesiologist, how well do you understand the costs of the care that you deliver?  According to the speakers at a recent Hospitals and Health Networks webinar, “The New Conversation on Cost,” it’s time for clinicians to learn and become actively involved.

An approach to cost that actively engages clinicians in a discussion with cost accounting professionals provides the paradigm shift that can enable healthcare organizations to achieve the cost and quality goals of healthcare reform, argue presenters Neel Shaah, MD, MPP, of Harvard Medical School and founder and executive director of Costs of Care, Steve Allegretto of Yale-New Haven Health System and Dan Michelson of Strata Decision Technology.  Following is a summary of their presentation to clinicians and finance professionals.

The Value Equation

When people think about healthcare reform, they often conflate payment reform and delivery reform.  Payment reform happens at a macro scale in the legislative arena; however, it accomplishes nothing without changes in the way care is delivered.  It is this other type of reform—delivery reform—that must occur in hospitals and other care delivery centers in order to reach healthcare reform’s goals for quality and cost-effectiveness. 

Clinicians and financial managers have plenty of innovative ideas about how to reduce the costs of care, but these ideas rarely percolate into the public sphere.  Rather, they tend to be one-off solutions implemented by a handful of institutions.  Organizations should begin sharing these ideas and solutions with each other.

The equation in healthcare’s not too distant past was “success equals quantity.”  The currency in today’s market is not quantity, but value.  However, value does not mean merely delivering care at the lowest possible cost.  Quality is a critical part of the equation.  (Value equals quality over cost.) 

To deliver value, clinicians and financial and administrative professionals must come together in a shared understanding of the new equation.  Approaching cost as an isolated silo is no longer effective; it must be meshed with clinical insights from physicians—anesthesiologists included—and other front-line clinicians.  

Clinicians can and should become involved in driving the cost and business side as well as the clinical side of healthcare.  It is a stereotype that they do not care about cost. They do care, but they don’t know enough about it, and their perspective has rarely been a part of the conversation. 

The meshing of clinical and financial expertise is an approach that can work.  Involving physicians in an initiative focusing on quality as a driver of cost reduction enabled Yale-New Haven Health System to reduce the costs of care by $150 million, exceeding its goal of $125 million.  The strategy included building an atmosphere of collaboration and inclusion, embedding cost data in electronic medical records (EMRs) and gain-sharing incentives for clinicians.

The Costs of Doing Too Much

The story of healthcare during the past fifty years has been one of increasing capability and rising costs.  On average, these increases have been worthwhile in terms of the medical strides achieved.  In this sense, healthcare has been going in the right direction.

However, when people are hurt in the healthcare system they are not hurt “on average.”  They are hurt in two margins:  one in which physicians and the health system do too little, and the other in which they do too much.  Healthcare is very effective at addressing the problem of doing too little, but it does not have a strong method for addressing the problem of doing too much.  This is the area in which healthcare needs to focus and in which clinicians should be engaged. 

Physicians today actually are motivated to help reduce the costs of care in part because they face tremendous top-down pressure from policy makers, payers and regulators to deliver quality, as well as new bottom-up pressure for cost transparency from patients, a growing number of whom are covered by high-deductible health plans.

Physicians are struggling with how best to react to these pressures.  Their services are some of the most expensive on which the average American will spend money in their lifetime.  Yet they have very little insight into what those services cost the patient or the health system. 

This lack of awareness stems partly from the way in which physicians are trained.  Physicians are not trained to be good stewards of resources; they are trained how to take care of the patient in front of them.  As a result, many of the cost and value problems at the health system level feel like abstractions to physicians when they are focusing on the patient in front of them.  The first step in fixing this problem is to acknowledge that it exists and then to reframe the cost conversation in terms of the doctor-patient relationship, a perspective that physicians can understand.

Patients want to be able to openly discuss costs with their physicians.  A CBS/New York Times poll found that 80 percent of people want physicians to discuss the cost of a service before prescribing it.  This new mindset runs counter to previous thinking, which held that discussing cost with a doctor eroded trust.  In the current environment, in which patients feel the costs of care more acutely, not being able to have a conversation about cost with a physician is more likely to erode trust.

For most patients, clinicians and possibly even many people in healthcare accounting, the prices on a medical bill often seem arbitrarily determined and possibly inflated.  In talking to clinicians about cost management and winning their support, it is more helpful to talk to them about the services they have provided than to look at the numbers indicating what those services cost.  As it turns out, about a third of the items on a medical bill can be taken out without a negative impact on clinical outcome. 

Physicians are ready to acknowledge this.  In fact, physicians have done a good job of owning this utilization aspect of care in the past few years.  The Choosing Wisely campaign, for example, has brought 70 medical societies together in identifying and reducing unnecessary procedures and facilitating discussions about these procedures between physicians and their patients.

Because healthcare decisions tend not to be straightforward, the only way to make better decisions in these murky areas is to engage clinicians in the process of addressing them.  For example, the medical community currently has no idea of the ideal rate for cesarean-sections, even though it knows that about half of those performed are unnecessary and that they place a significant drag on the healthcare system. 

A Health Affairs study in which orthopedic surgeons at six major healthcare systems were asked to estimate the cost of 13 commonly used orthopedic devices found that only 20 percent of the surgeons could correctly estimate the cost of the devices.  (Estimates within 20 percent of actual costs were considered correct.)  However, when asked whether they consider cost a key criterion in device selection, 80 percent said yes. 

Considering that the decisions clinicians make control about 80 percent of the costs that flow through healthcare and hospitals, and account for roughly $1 trillion of the $3 trillion spent each year, this gap between awareness of costs and desire to understand them presents a tremendous opportunity for healthcare organizations. 

Correcting the ‘Conversation’

Most providers don’t know or understand their margins.  Currently, any number provided on cost tends to be accepted without question, regardless of whether it is based on the right cost accounting methodology. 

Part of the reason for this is that many organizations don’t have the cost accounting systems that they need.  Yale-New Haven Health System was able to exceed its goals with an advanced cost accounting system that enables the organization to incorporate quality outcomes data in real time into the EMR and then predict outcomes to facilitate a conversation about costs with patients before services are provided.

An engaged clinical staff also played a critical role.  The opportunity for healthcare leaders is to help their physicians understand that what they are really trying to do is partner with them to make sure they are accurately representing the care they’re providing and to make sure they’re also hitting the targets to meet their margins.

Empowering clinicians with data can build trust.  The best approach for clinicians is to see objective cost and quality data that is granular enough to enable them to connect that data with specific patients, because clinicians remember patients.  Order sets and EMRs were both initially met with resistance by physicians until the conversation around these innovations became normalized.  The same acceptance and engagement can be achieved with cost.  As with EMRs, early adopters are needed before everyone can be expected to jump on board. 

Value is about three things that must occur in tandem: affordability, safety and the patient experience.  Paying attention to only one or two of these dimensions will result in poor care.  Safe and affordable care at the end of life, for example, means little without consideration for the patient experience.  Better care and more affordable care are going to become one and the same.  Clinicians and organizations must remain focused on all three aspects at once.

Achieving these goals calls for a strategy that combines the insights of the people who work in the various aspects of healthcare finance, including revenue cycle management, with the insights of the physicians and nurses—including the anesthesiologists and CRNAs—who work on the front lines of care delivery and who understand the care and processes that provide value.

With best wishes,

Tony Mira
President and CEO