It's hard to put that on the consumer without recognizing that the consumer
needs to have good information on which to make that decision. And it's
difficult to get that kind of information in health care, whereas it's a lot
easier out of Consumer Reports to buy something like a television
We've tried alternatives to constraining costs. We've tried managed care,
where the managed care company, the HMO, decides whether you should or
shouldn't have access to a particular service. That's obviously not been a
very popular idea and basically isn't done, because the public has risen up and
said, "We won't stand for that."
Another alternative would be to have a government commission decide whether you
should or shouldn't have access to a particular set of services. But that's a
fairly un-American idea.
So from a practical standpoint, perhaps the only way to really resolve this
cost question is to put a certain amount of the cost back on the consumer and
say, "If you really want to have this MRI done, the system will pay for half
the cost and your Visa card will pay for the other half of the cost."
In the CareGroup set-up, and specifically at Beth Israel Deaconess Medical
Center, what's your mandate from the board in terms of dealing with these same
issues that we've been talking about?
The board of this institution has asked me, as CEO, to make sure that we
deliver the mission of this institution--to provide care, do research and to
train the next generation of professionals to deliver that mission, and to do
it in a way that makes us the extraordinary institution that we've always been.
It doesn't allow us to become ordinary. That's the mandate from the board.
The most obvious threat to our being able to accomplish that mission is a
financial threat. It's the old "No money, no mission" issue. We need to right
our financial circumstances before we can move forward with that mission. So
we need to correct our financial situation very quickly in order to be able to
return to our long-time focus on excellence in care, innovation in research,
generating new knowledge and training new professionals.
How quickly is "very quickly" to get into the black?
We need to get into the black by next fall. We have given ourselves about a
nine- month assignment here to move from our current rate of losing in the
neighborhood of four million dollars a month to breaking even--at least a
break-even rate by next fall.
To do that, what's your biggest problem?
The biggest problem is making sure we establish and maintain a sense of urgency
without going all the way over into a state of panic. It's one of the more
interesting challenges for a leader. You've got an organization that has tried
certain things, and they've always worked for decades, and all of a sudden
those things aren't working anymore.
So you have to jar the organization out of its complacency, and say, "We have
an urgent problem. We have to address it. We have to be resolute about it.
We have to move through this very quickly."
When an organization has been in a state of relative complacency and stability
for decades, when you originally communicate that message that we have a
problem that we need to deal with urgently, it's very easy for the organization
to swing all the way over into panic.
In order for us to make a rapid financial turnaround, we must take action on a
number of fronts. It isn't just one big grand strategy to achieve this. So
the broad categories of action we need to take are the following: We need to
achieve a sense of operational discipline--which we have not had before--around
how we manage our time, our schedules, what the doctors are doing with their
time, and the like. And we have to manage the dollars that we have in our
trust. That's the first thing that we have to do.
The second thing we have to do is to grow strategically. We have to grow those
services that actually bring some dollars into the organization, rather than
continuing to grow services that are hurting us every time we enroll a new
And the third thing we need to do is to engage the hearts and minds of
everybody in the institution on these activities. It cannot be the case that
this is the assignment given to administration to fix this problem. So a big
part of the strategy for rapid turnaround is to get everybody's heart and mind
focused on this goal, what they can do to achieve it, and start getting
It's interesting that you say that. One of the things that we've heard
repeatedly from your colleagues is that conversation among doctors is striking
today in its difference from the conversation among doctors ten or 15 years
ago. . . . I'm told that, in the old days, they were talking more about
medicine. Now they're talking almost constantly about money--how do they
handle capitation, what the health plans are doing, their compensation, the
cost of patients--money, money, money. It sounds as though they're focused on
the issues you're talking about.
Doctors today are talking about money, because money is the crisis that we're
facing. . . . The pressures they're getting come from payors, from
administrators, and from their department chairs. They come from
For that reason, the physician's focus of conversation has been financial, much
more today than it would have been 20 years ago. It isn't necessarily the
case, however, that just talking about it gets us moving in the right
direction. You need to talk about it in a healthy way.
If we discuss a problem like our financial challenge out of a posture of
victimhood--"Woe is us, look what they're doing to us. The place is not what
it used to be. It's all their fault. Look at what they're doing it to us
again," then we will never get there.
We need to change that conversation so that the conversation is more like,
"Okay, we've got a problem. This is our part of the problem, this is their
part of the problem. Let's work together on this. If we take these sets of
actions, we know it will help the institution, so let's go do it." That's a
What's the importance of what Kim Saal has been doing in terms of that whole
operation over at PSN--the information systems that he has developed--how
important is that in achieving the efficiencies that you want to
One of the things that we've been able to do in CareGroup is to provide an
answer to the question that doctors ask, which is, "How can I help? How can I
do better? If it costs so much for health care in Massachusetts, what's my
contribution to that?" Dr. Kim Saal and his colleagues have provided a sort of
a feedback loop to the physicians.
They've taken all of the data from all the health plans, put it into a big
database, sliced and diced it, and they're able to provide feedback down to the
individual physician level to each doctor. They can say, "Dr. Jones, you did a
great job last year or last month . . . on the cost of hospital care and
the quality of the outcomes for your patients, and a variety of things. But
you are in the top two or three in the world for cost of prescriptions. And
you might want to take a look at that. In fact, here are the types of
prescriptions that you write more than any doctor known to mankind. And here
are some helpful hints about that."
Physicians have never gotten feedback like this before, not regular feedback,
on their performance in a variety of dimensions of their work, including the
cost of their work.
Ultimately, somebody is paying if those prescriptions are unnecessarily costly.
Somebody is paying for them that probably shouldn't be paying for them. We're
devoting the resource there when it could be going to something else. That's a
waste and that should be something the physician should be aware of.
You talk again and again about waste and inefficiency here. A lot of stuff
has been cut out in the last eight or ten years. Where is the waste and
inefficiency that can be cut out?
The waste and inefficiency in our system is largely in unnecessary complexity.
I'll give you some examples. The average doctor's office of a couple of doctors
has six additional employers. It's doctors, and six staff: nurses,
receptionist, medical records and the like.
Of those six staff, only 1.5 on average ever touch or talk to a patient. Four
and a half of those six employees are dealing with the complexity of the
system, getting referral authorizations, making sure the bill is right, dealing
with the 132,000 pages of regulations in Medicare law, as opposed to 13,000, by
the way, in the entire Internal Revenue code. They're making sure that the
payor the patient is allegedly covered by is, in fact, the payor that they're
currently covered by. It's a long, long list of things that are going purely
towards what I would call administrative waste. We've got a lot to do
Another area I could describe has to do with the complexity of our inpatient
procedures. For a variety of reasons, we've made things very complicated. For
example, if I order a prescription in the chart today in the hospital, for a
patient to receive a medication, there are between 45 and 60 steps between that
order and the patient actually receiving the medication.
Any one of those steps is a potential error point and, in addition, the double
checking and triple checking that has to go on because of the complexity of
such a system creates an enormous layer of cost.
I cited two very specific examples of complexity. And I think that's our major
opportunity to remove waste. If we were to make these things simpler, a
simpler administrative system for payment, a simpler oversight and regulatory
system, simpler processes to flow the core processes that work in our
hospitals, we'd reduce cost dramatically.
In this circumstance with your red ink, can you continue as a group or as a
medical center to subsidize primary care doctor practices? You now have a few
that are money losers.
One of the really lousy ideas in hospital management in America for the last
ten years has been to go out and buy practices that are delivering primary care
and then make sure that those patients then, of course, use your hospital.
On average, doctors in hospitals across America are losing $100,000 to $200,000
thousand per doctor on those practices, based on the purchase agreements they
made, and the way they've managed the practice. We are doing a little bit
better than that, but not much. One of our jobs over the next several years is
to reframe the deal, in effect, that we have made with our physicians in that
It's going to be difficult but it needs to be done. We need to return those
wonderful small businesses called doctor practices back to their previous
state, where they were actually making ends meet and managing to run themselves
better as a small business than we as hospitals have been able to run them as a
Are you talking about getting people out of the hospital even faster than
No, I don't think we will be able to get people out of the hospital a lot
faster than we now do. We've pushed that idea about as far as it can be
pushed. The issue really is to decrease the complexity of the care system that
actually is responsible for the patient while they're in the hospital.
Another area where you're in effect subsidizing care is the senior programs,
like Secure Horizons, and Medicare HMOs, where some years ago those were
reasonably profitable. Patients have gotten older, care has gotten more
expensive and now those practices are losers. . . . We've talked to people in
the pod. Like many others, they just happen to have a large concentration of
these folks. Can you keep accepting those kinds of patients . . . under the
deals that you got from the HMO, or are you going to have to either renegotiate
the deals or let the patients go elsewhere?
We've asked ourselves several times whether we can continue to do Medicare/HMO
work. And each time we have decided that we will continue to do it. We are
hoping that that will be the case, because it would be very disruptive to our
patients to have them completely change their insurance mechanism and still be
able to come and see us.
On the other hand, it's very clear that this is an increasing loss item for us.
It may well be the case that our efforts on all these other cost fronts and
everything else will not be enough, and that we will also need to go back to
our Medicare patients and say, "We're sorry, but we need to have you go to sort
of regular Medicare rather than this Medicare/HMO idea. The Medicare/HMO
payments just simply don't cover the costs anymore."
What do you say to your colleagues who said to us, "We've gone as far as we
can go. We're right at the limit to what we can cut. If we go any further, no
matter what we say about it, we're actually going to be cutting into the
quality of care or into the caring relationship itself."
I hear a lot from nurses and from doctors and pharmacists that we can't go any
faster, we can't cut any more, or we will start hurting quality. And when I
hear that, I listen to what they're saying. I'll often ask them a question
that goes something like, "Tell me, on this shift today, are you doing anything
as a nurse that you regard as pretty much a waste of your time." . . . And
they'll start to tell you about something that's a complete waste of time.
For example, . . . a nurse told me that each nurse on each shift . . . might
spend over 20 minutes a shift making several calls to the pharmacy to get
needed medications. . . .
If you add up a number of events like that . . . I think we've got a lot of
waste in your work that we could improve. They would have more time at the
bedside with patients if we eliminated all of that. And I ask them, "Is that
what you most care about in your work?" And they always say, "Absolutely."
So what we're working towards is maximizing the amount of time a nurse or a
doctor does real value-added work, touching a patient, holding a hand of a
dying patient, talking with them through a difficult problem. Eliminate the
administrative waste of having to call the pharmacy back, or trying to figure
out what the doctor meant in his handwritten order that they can't decipher, or
whatever else that's taking their time away from their patient work.
How did doctors respond to what we were talking about before--what Kim Saal
has done with this feedback loop?
When we have given physicians feedback on their performance, such as their
costs per outpatient visit, their frequency of lab tests and x-ray ordering, or
the frequency of prescription ordering, what we have found is something very
The report card system we have has gotten very little challenge form the
doctors about the credibility of the data. They're very responsive to report
cards. Doctors spent many, many years getting very good report cards, and they
want to get good report cards. And their behaviors change rather rapidly when
they realize that their colleagues are doing better than they are on a quality
measure or a cost measure. So they'll go to their colleagues and say, "What
are you doing differently that allows you to show me what's a better way?"
And they learn very quickly and adapt, and we've seen dramatic improvements in
a variety of these areas just in the first few months of the report cards.
Do you think it's a good idea for doctors to be thinking simultaneously
about care and about the cost of care?
I think it's important for doctors to know the value of the services they're
providing. That means they have to know both the quality of the care and the
cost of the care. Let me give you a specific example.
I used to take care of a lot of patients in a first-dollar coverage situation
in Minneapolis, insured by Cargill and General Mills. And they had no
out-of-pocket costs for most care, and maybe a five-dollar co-payment for any
prescription. I developed a certain way of taking care of them. After a few
years, I started going out into the country, a couple of hours away, to take
care of patients and see them in a small town one day a month. I did exactly
the same sort of practice methods that I did in the city.
After I saw patients back on the return visits, though, I began to learn
something about the country insurance that I didn't understand about the folks
in the city. The farmers out there would have catastrophic coverage, in which
they would have a $5,000 deductible. After that, things were covered. They
bought insurance so they wouldn't lose the family farm.
When I'd come back to see them a month or two later, they'd say, "Doc, do you
know how much that pill you gave me costs?" And my bad answer was, "I don't
know, what did it cost, John?" And he'd say, "Sixty bucks." And then he would
ask a very important question: "Do you have something that would work just
about as well, but would cost less?"
And it turns out I did, but I just hadn't thought about it. He was paying out
of pocket for this prescription, and I'd never had any mindset at all about
what things cost, because my patients didn't have any mindset about it.
It's very important in the doctor/patient relationship for us to be in sync on
this one. I can be a value adviser for my patients if they have concerns about
the costs of the treatments or the interventions or the diagnostic methods that
are being used.
Your doctors consistently say they're most worried about the doctor/patient
relationship, that patients no longer trust me to give them the best care.
They think the doctor is worried about the bottom line.
We've had an interesting transition in the country from the old days. There
wasn't any insurance at all, and the doctor just took care of the patient in
return for whatever they could pay, in which case the doctor's interests
economically were, in an interesting way, not necessarily all aligned with the
And then there was an era where third-party payors paid on an indemnity basis
for whatever the doctor and patient decided they want to go and get. Then
managed care came in and said, "No, you can't get these things," after the
doctor ordered them.
The second era of managed care put the risk on to the doctor, so the doctor's
pocketbook was now paying for the decisions. And that's the point that you're
describing where the distrust starts to get into the room. We need to get past
that phase of things, very quickly, and many plans are doing this. We are
working at ways of getting out of such arrangements, where we, in effect, are
aligning our interests with those of the patient.
Let me be sure I understand where we are now. Tell me again where you say,
"We are now with the doctors," and how you get that.
The real critical thing for patients to understand is that when they walk into
a room with a doctor and they sit down and the doctor's evaluating them, how
that doctor is paid is a very important thing for the patient to know.
The very best way for a doctor to be paid is on a salary, where whether the
doctor makes decisions to do something for the patient, a procedure, an x-ray
or something, or not to do something for the patient is totally irrelevant to
the doctor's income.
The doctor is simply there to make the best judgment possible on behalf of the
patient. That is the very best method of payment. It's not silly or unwise
for the doctor to be aware of costs when doing that, because ultimately the
patient and the taxpayer literally pays for all of these costs one way or
another. But there's no personal income at stake. A firewall needs to be
drawn . . .
It's very important for a patient to know how a doctor gets paid.
It's very important when a patient sits down in a doctor's office to know
how the doctor is being paid--not how the institution is being paid, not how
the group practice is being paid so much, but how that individual physician is
being paid. If the individual physician has an incentive to provide more care
to you, then you, as a patient, need to be on the alert for recommendations
from a physician for unneeded or unnecessary services.
That's a distrust-engendering event, although, interestingly, less
distrust-engendering than if the physician has an incentive to withhold
services from you. Personal financial incentives tend to engender a great
amount of distrust. Both sides of that set of incentives have real problems
associated with them, but for a variety of reasons, probably the main one being
we tend to equate doing more things with quality. . . .
Patients tend to have less distrust if a physician has an incentive to do
more things for you and is rewarded economically for doing more things on your
How do you get out of the situation where you're in now--that a lot of your
doctors say they're in now--where the financial incentives are on them to limit
treatment, particularly primary care physicians?
Probably the only way, ultimately, that we can get out of a situation where
physicians are put in this bad guy role of limiting treatment is to put the
patients back into a role of having a stake in the cost of the treatment. Then
the physician's and the patient's interests once again become aligned, like my
rural farmer. That farmer had a problem, and he knew that I could make
recommendations one way or the other. If I made a very costly recommendation,
I knew and he knew that he was paying the bill.
And he might ask me to try a different tack here, and see how it goes, and I
could counsel on the advisability of that. And I can tell you, very
interestingly, I never ever encountered wanting to do something expensive
because I knew it was potentially lifesaving or was really important, and had
one of those people with catastrophic insurance coverage in my farmer
population ever say, "No, I'm not going to do it, Doc, it costs too
I never had trouble convincing them about what the right thing was to do.
They often reminded me about how expensive my recommendations were, and I would
often be able to find a less expensive path for us to go in. That aligns those
interests. I didn't lose any trust with those patients. In fact, we had a
better trusting relationship than I had with first-dollar coverage HMO patients
in my practice in Minneapolis.
The only people making money in health care right now are the pharmaceutical
companies and the device manufacturers. They're able to sell their wares to an
intermediary, in this case to a hospital, who then delivers their products. If
it's a device, the hospital puts it into the body of a patient to help them get
better, or gives them the medications to cure their cancer. And then has to
go to try to collect the bill.
We do treatments here that cost us $50,000 just for the treatment in the
hospital, for which the total payment from the federal government and from the
payors for the whole hospitalization is $11,000. And we do those every day.
We're probably doing several today, such as giving chemotherapy like
Interluken-2 for some advanced cancers. The people that are making the drug
are getting their investment repaid. We bought it from them. It costs us
$50,000, we're putting it into a patient, and getting paid $11,000 for
And when you're saying that the patient needs to be a co-payor, it's a fact
that people are complaining about paying higher health insurance premiums.
Employers are shifting more of the burden onto their employees to pay more of
the premium. We have 44 million people who have no insurance in this country
today. . . . We have over-insured 80 percent of the public, and that costs us
so much that we can't buy it for the rest of the 20 percent.
By over-insurance, I mean they have access to a lot of stuff that simply has
little or no value, and it is being done every day all over the place--x-rays,
knee arthroscopies, and procedures of one kind or another are being done all
over America today that have relatively little value, although they are
evidence of quality in the sense that they show that we're trying hard.
And the reason they are being done to the extent they are, and the reason
that they are priced as highly as they are, is because none of them have had to
stand the scrutiny of a patient market saying, "Wait a second, if I have to buy
that, I'm not paying $800 for this x-ray. I might pay $300 for it."
I think several things would happen if patients bore a greater portion of
the costs for certain kinds of interactions at the time they happen. One is
that the price would come down, because the market wouldn't sustain it. If
patients judge many things as having no value, the market would not sustain the
And the second is the frequency with which they're done would dramatically
decrease. The total cost would go down so far, we could extend coverage to the
other 20 percent who now don't have it.
inside the dilemma ·
financial incentives ·
cost v. care
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