Transform the Culture to Save More

Medicare has initiated a new program for paying for coronary artery bypass surgery (CABG) at our hospital. In the past, hospitals and physicians have been reimbursed for various aspects of surgical care a la carte. The cost of hospitalization to perform cardiac surgery has been part of a global payment called a DRG, but the professional fees of physician services, postacute care (rehab/nursing home), and added costs of complications and readmissions were all billed separately. Going forward, Medicare (and likely followed by other insurers) will provide a lump sum that covers all aspect of care for a 90 day period surrounding surgery. The lump sum, or “payment bundle”, was calculated from the amount of reimbursements that have been provided for Medicare patients undergoing CABG at our hospital in the past. This bundled payment program creates a financial benefit or risk depending on whether the actual costs required for each CABG case end up less than or more than the payment received.

There has been a lot of cost variability for the 90 day period around cardiac surgery at different programs that don’t correlate with patient outcomes, meaning that costs could be reduced at expensive programs without compromising care. In the past, payment strategies have imposed no risk or reward for controlling costs. It is human nature for anyone to choose the more expensive option without an incentive to do otherwise. It is no surprise that healthcare as a whole has been plagued with the same inefficient and wasteful processes seen with the “cost-plus” contracts in the defense industry reimbursed this same way. Remember the $1000 toilet seats from the 1980’s?

Even worse, Medicare funding has incentivized poor patient outcomes. Current DRG reimbursement is actually less when a CABG patient recovers quickly with no complications (DRG 234: $28,633) vs. one that suffers complications (DRG 233: $43,107). Multiple prior studies have documented that roughly 40% of complications after cardiac surgery are caused by preventable errors like poor communication/teamwork in the OR. Other high risk industries such as aviation or nuclear power plants have dramatically reduced teamwork errors by creating a culture known as the high reliability organization. According to a recent publication from the Joint Commission, there are no hospitals in the US that have the fundamental aspects of a high reliability organization. At first glance, it seems impossible that hospital leadership would be complicit with behaviors by surgeons and other physicians that cause preventable errors. But consider just the case of CABG. A complication increases reimbursement by almost $15K and the cost of caring for these cases often shifts to post-acute care and readmissions that weren’t bundled into the old DRG payment. Suddenly, it is not so fantastic to suggest that other financial initiatives must have ranked higher on hospitals’ action item list and that leadership in the OR was willingly left up to the surgeons.

Bundled payments is a gamechanger. Hospitals depend on CABG payment for their survival. These payments will no longer be increased for complications or comorbidities that alter the risk for complications, an expensive course of post-acute care or the need for multiple physician consultants. Now, a profit or loss for the hospital depends on how well the surgery goes. The only strategy likely to achieve financial success in this setting is to avoid complications so that patients recover quicker and use less resources during and 90 days after surgery. The business case is now crystal clear. Preventable harm and its associated waste can no longer be considered just business as usual.
It is daunting to change a culture largely oblivious to preventable harm and wasted resources. The status quo –Medicare continuing to reimburse this waste – is no longer politically feasible. Cardiac surgeons in the past that strongly disagreed with the hospital’s vision of cost reduction are now coming back to the table because of this Medicare mandate. But hope that new sources of profit will flow from this program is on a collision course with some important realities.

First, a new culture must rapidly replace the old one created by decades of perverse incentives. The old approach unintentionally rewarded us all to turn a blind eye to unacceptable errors causing serious, often lethal complications. Perhaps more than any other issue, the topic of hospital finances has been surrounded with heated arguments, power negotiations, and frustration caused by inadequate costing systems. These issues have created a chasm between those that spend (doctors) and those accountable for spending (hospitals) and eroded trust. It is unlikely that organizations not known for being nimble will orchestrate the dramatic type of culture shift that is needed to restore trust in time to make a profit during the limited time-frame of the bundled payment project. But at least the current siloes separating the financial and clinical teams will start to be broken down.

Second, physician culture needs to change too and old habits will be hard to break. It is not the executive but physicians that create the bulk of healthcare costs via decisions like ordering diagnostic tests, performing surgery, requesting consults and discharging a patient to home or a rehab center. Doctors know that management has no clue how much things really cost or even should cost, so the hospital’s efforts to “reduce costs” have little credibility. Short term initiatives at cost savings can be waited out and thwarted in the end, often by unsupported arguments about patients being put at risk, affectionately known by insiders as “playing the patient safety card”. In fact, physician culture has always actively encouraged the exclusion of financial topics from patient care decisions. As a result, any innovation has been pursued that provided even a modicum of clinical benefit, regardless of the cost. Most of my colleagues have no training and little interest in the science of cost effectiveness analyses. Their position is partly based on ethical concerns. If hospital and physicians financial interests are aligned, then the balance of interests to provide necessary care could become threatened. The popular image of doctors as protecting patients from financially driven motives of the hospital is perpetuated by the media: “When doctors start acting like businessmen, who do the people turn to for doctors?” (And the Band Played On, 1993).

Third, hospitals must abandon their old habits and act on the belief that good clinical quality is good finance. This will take courage because it requires a level of collaboration with physicians that currently doesn’t exist. Unable to gain traction on the reduction in clinical spending, many hospitals have turned cost control efforts towards things they can control without the need for collaboration like “overhead”. This category includes labor costs, negotiating the lowest cost from suppliers, and improving the efficiency of their processes and is often low hanging fruit that all responsible businesses are obliged to control. Unfortunately, this source of cost amounts to only a fraction of what drives the soaring costs of healthcare and can have unintended consequences. For instance, labor cost – e.g. the staffing support, ratios and salaries provided to nurses – is a frequently traveled avenue to reduce overhead. If labor resources can be reallocated more efficiently, overall profits can improve without risk to the organization. If done incorrectly (it usually is), reductions in pay or staffing levels can cause problems with staff morale and snowball into a legitimate patient safety issue. These financial and public relations problems often go unmeasured and underappreciated and clearly undermine the final yield of trying to reign in overhead. Even when successful, these initiatives are a poor substitute for a more fundamental approach to lower costs through preventing harm and improving quality.

Finally, hospitals should avoid the temptations of short cuts. Financial incentives are a frequently employed and politically expedient way to motivate physician collaboration. This approach should come with a warning label: RESULTS WON’T BE SUSTAINED. One of the most robust (and largely ignored) findings of social science research is the shortcoming of financial rewards. It has been consistently demonstrated that monetary rewards motivate actions that achieve the short term goal but at the expense of long term commitment. There are also unintended consequences. It invites gaming the system rather than truly improving patient outcomes. The legal cloud surrounding financial rewards could add unwanted tension and mistrust between administrators and doctors. Stark and anti-kickback laws prohibit certain types of payments from hospitals to referring physicians and civil monetary penalties can be imposed on both for any evidence that necessary services are being limited in Medicare patients. Patient advocacy groups could initiate legal action to discourage the pressure this program might put on doctors to reduce costs. Courts have been willing to defend the rights of patients to receive care regardless of costs. For these reasons, it always better to think of nontangible rewards.

As Einstein said, “’We can not solve our problems with the same level of thinking that created them.” Trying to engage physicians in the same, tired cost savings plans that have failed in the past merely by dangling a financial reward is not the level of thinking needed to solve this complex problem. A more effective approach is to tap into common goals. Both the hospital and physician are fully committed to reducing costs by improving the quality and safety of our care. Clinicians know all the roadblocks and most of the solutions. Instead of trying to “engage physicians in the hospital’s plan (to save costs)” maybe the higher level of thinking and nontangible reward that will work is to “engage administrators in the clinician’s plan (to prevent harm)”. Safety expert Peter Provonost has found that this type of frame shift is key to creating the ownership needed for all stakeholders to build a comprehensive safety plan.

When outside Provonost’s ivy walls of Johns Hopkins, one might question whether the financial rewards from shared savings are sufficient to engage senior administrator’s help with safety roadblocks of CABG. The answer lies in the business case. A typical cardiac surgery program with 100 CABG cases/yr funded by Medicare is likely to have 15 cases/yr with postop complications. Prolonged recovery times and other added resources needed to care for these cases over an expanded 90 day window increases costs by approximately $50K/complication. A reasonable annual goal would be to avoid 5 preventable complications, yielding a direct savings of $250K/yr. Now consider the halo effect of just 5 more patients per year having to endure a preventable complication. These patients often become disgruntled and complain to their family, neighbors, and healthcare providers. Bad news spreads by “word of mouth”, ultimately undermining referrals and the reputation of the hospital. This type of environment demoralizes healthcare workers, making it harder to retain and recruit staff. In high profile fields like cardiac surgery, preventable harm provokes the risks of regulatory sanction from agencies like the Joint Commission. Those of you unconvinced by the list so far should consider the legal risks of preventable harm illuminated by another quote from And the Band Played On (1993): “Give us a number so we won’t annoy you again until the amount of money you begin spending on LAWSUITS makes it more PROFITABLE for you to save people, than to kill them!”

There are also strategic advantages to the organization. Efforts at collaboration between the hospital and its physicians will be clumsy and ineffective at first. Unlike the past, this nascent team will be kept afloat by the goal of preventing patient harm as its “true north”, granting it the time to develop the skills on how to work together. This builds intellectual capital with important long term benefits for future initiatives and establishes team credibility, whether there are 1, 5 or 50 complications that are actually prevented. As confidence builds, teams will turn their attention towards waste that occurs in cases without complications, leading to further savings. Hospitals that embark on this journey will be rewarded with a first mover advantage. Organizations that later want to follow will have to compete with the loyalty towards those pioneering executives that were willing to take on a risk, separate from the past models that have failed, and create the hospital that patients, staff, and physicians always wanted. Personally, I would follow that executive to the end of the earth.

Administrators would be wise to remain sensitive to those at the sharp end of this novel cost saving initiative – the physicians. A surgeon who changes any part of their patient care decisions could be at risk for legal criticisms about standard of care. There may be ethical questions from colleagues about a potential conflict of interest. These ethicolegal issues are mainly a concern when physicians are led by financial motives to restrict necessary care. Fortunately, cardiac surgery is the most studied field for the novel shared savings and gainsharing models so these type of concerns can be addressed with actual evidence. In fact, the CEO of our hospital system, Rick Gilfillan, is quite familiar with the challenges of this innovation. He established his career by helping to create these models while at the Giesenger Hospital System and CMS innovation center. The consistent finding of this body of experience is that shared savings projects have consistently reduced costs without restricting needed care in cardiac surgery.

Servant leadership, above all else, will drive this modern version of cost reduction towards the Holy Grail of sustainability. Clinicians know the recurrent themes that hinder front line troops from delivering mistake-free care. There is no substitute for executives willing to get knee deep in the weeds to learn these themes. Then, they must play their position – “logistical support” – without resenting those on the front lines. In order to provide some granularity as to what I think this support needs to look like, here is a list of some of systems problems that I’ve found compromise safety and efficiency in today’s hospitals:

Inefficient sharing of information: Hospital infrastructure and processes for sharing of medical records and important imaging studies (e.g. cath films, echos) is grossly inadequate. Particularly when patients have been worked up at outside facilities, the various physicians and consultants that want to interpret a patient’s data independently are often unable to do so. This is a safety concern because these experts can’t do their job as well and they also lose the opportunity to cross check the surgeon and provide a second opinion about the best course of action. Hospitals spent millions on electronic health records (EHR) that have not put a dent in this problem. As noted by Dr. Wachter and others, all EHR vendors developed a similar product around the needs of the old model for cost reduction. It reduces overhead by eliminating the need for unit clerks and transcriptionists to process written orders and dictated notes. It maximizes reimbursement by making notes seem more complex. Compared to the paper chart, EHR does little to address the concerns about information sharing that is critically important to the end-users of EHR and so frustrating because of how simple it is to solve. With the focus and commitment of talented IT professionals, the problem of electronically sharing every record, every time could be solved quickly by one of many available workarounds. That this has not yet happened must indicate that the key stakeholders are unaware of how dangerous it is to patients when all their doctors don’t have the same information available to them.

Another common problem with information sharing in hospitals is when administrators make decisions in a vacuum without feedback from physicians how clinical care might be impacted. This is where multidisciplinary team meetings are critical. A past history of physicians crying wolf by “playing the safety card” limits the impact of one doctor’s opinion about how any given hospital’s decision might harm patients. When there is a team of clinicians telling you the same thing, the need to course correct becomes obvious. Executives that change their decisions in response to this type of meeting are helping to build their influence with physicians. The best way to influence is to be influenced.

Need accurate and timely financial data: During prior gainsharing projects, hospitals seemed confused whether financial data was important to change the spending behavior of physicians. This confusion illustrates the hospital’s own lack of confidence that they can understand costs on a per case basis. All the hospital has to predict costs is the chargemaster, which is known to be more fiction than reality. Any cost saving initiative that involves independent minded professionals is doomed without precise data on how much cost is saved in relation to revenue lost. Shared savings and other novel payment models create an urgency for this information. While you’re at it, if you want to change the behavior of skeptical physicians worried about patients, you need this information in real time. A complaint by physicians from past gainsharing projects was that they did not have data to be available in real time (6-9 mo lag times were common), making it useless to drive decisions.

There are technological advances that will help. In the future, it will be possible to combine individual patient data from the EHR (that has financial information) with national clinical quality databases like STS (that has clinical risk and outcome information). This will be a good start to the process but is still a long way from knowing per case costs. The main obstacle to getting this data has been the will to act. I’ve published several papers on data of the per case costs of CABG. It was tedious to comb through the chart to estimate cost, but there are tools available to those in finance to streamline the effort. In the past, the financial brainpower in the hospital has been focused on issues relevant to running a treasury, such as cash flow and credit ratings. This leads to community confidence in the hospital which helps referrals, philanthropy, employee morale, etc., but has distracted them from the difficult task of developing reliable and efficient microcosting methods.

Recruit high performing teams: A necessary ingredient for preventing avoidable harm is to assemble a team with talented individuals that are motivated to work together. This isn’t something that happens by default. Team members are more motivated when they work at “the top of their license”. In the old model, tasks that could be done by nurses or aides were sometimes shifted onto physicians because only their labor cost was reimbursed by Medicare. The new model challenges us to rethink the gross cost inefficiency of this approach. On the other hand, sometimes expensive labor will be required to create a safe environment. In cardiac surgery, a highly experienced surgical assistant is critical for the smooth performance of the operation. The collaboration of the surgeon and assistant is reflected on the length of the operation, the risk of complications, the amount of blood transfusions and the morale of the team. These individuals are in limited supply and therefore demand premium salaries. Every CABG performed without such an individual comes with added avoidable risks that helps make the business case for this salary.

Create a high reliability organization: Everyone recognizes the reality that battles are won or lost on how well the combat troops perform. But logistical support can also impact the outcome. When surgeons don’t perform well, there is always accountability – fewer referrals, poor results on publically reported statistics, external peer review, etc. High reliability organizations know how to identify administrative decisions that are responsible for failed processes and poorly designed systems. They reflect this understanding by giving these failures of “logistical support” the same level of scrutiny and accountability as they put on poor surgical performance. Executives that aren’t willing to admit fault or make repeated mistakes are recognized as a hazard to safety. It is this recognition that is the key step. The will to mitigate that hazard naturally follows for teams driven by a “north star” of preventable patient harm. On the other hand, there is no shame and blame approach to errors so staff, physicians and administrators routinely debrief and learn from adverse events and near misses. This reinforces the knowledge that systems issues (not bad individuals) are the root cause of poor quality within their walls and emboldens those administrators that buy-in to concept that better quality of care lowers costs.

The next frontier for healthcare is in the growth of teamwork and collaboration between physicians and hospital administration. It is possible to transform a surgical culture that has encouraged fierce individualism and competitiveness over the type of teamwork behavior needed for sustainable cost savings. Credible data showing the costs of one surgeon’s practice vs. another will be the key to that transformation. Perhaps one of the reasons we are in this healthcare mess is because we forget that there are underlying free market principles that put a glass ceiling on how well any organization can perform. In the new era of bundled payments, trust, teamwork, a willingness to innovate and the north star of avoiding preventable harm will be rate limiting for our success.


4 thoughts on “Transform the Culture to Save More

  1. You’ve surpassed your previous excellent posts. I see you read Watcher’s book.

    Great synthesis of some of the key issues in healthcare delivery today and the path forward.

    Intraoperability of medical records is a huge issue which IMO will only be solved by patients getting involved. The “Open Records” initiative may help create the impetus for a solution. Kaiser Permanente plans to roll out to all of their patients so it has some momentum. Otherwise may take the “one patient, one record” approach with patients owning their medical records.


    1. Thank you for your kind feedback. I neglected to include the patient’s role in this change process. I’m skeptical that, in isolation, arming patients with their medical records would have a measurable impact on medical culture or the odds that shared savings ends up profitable. But I do appreciate the transformative influence of transparency caused by the open records initiative. The public is likely to buy into the idea that good quality is good finance, so including them in this quality movement is likely to help. Clinicians and administrators are kind hearted people that are hungry to be motivated by a north star vision. The focus on avoiding harm and improving quality serves that role well.


  2. I totally agree with you Rob about the North Star of quality. Improving quality will improve cost and quality is something everyone can be passionate about, unlike financial results. Personally, I don’t get passionate about money but I do get passionate about improving QOL for patients. I’m also skeptical about vertical integration as the best model for health care delivery. Gives a lot of power to one organization – not known to be the best model for cost effectiveness in other industries. But first and foremost we need to know what our actual costs are …


  3. It is self-evident that data on costs that is credible and available in real time is the only way that a cost savings initiative will succeed. I have the advantage of working for the organization who’s CEO was the same person that essentially invented the bundled payment project, Rick Gilfillen. If any hospital would come prepared with these cost data before embarking on this type of project, we would. Our hospital volunteered to participate in the bundled payment project for CABG on 10/1/15 and to date we still can’t describe these costs better than anywhere else. Its like healthcare lives in an alternate universe where the laws of business don’t seem to provoke any interest and where its OK to estimate costs on the basis of how much the market is willing to pay (i.e. cost-to-charge ratio). That would be an extremely rough, albeit sloppy, way to determine costs. In our case, hospitals don’t charge on the basis of what the market will bear so this ratio is meaningless. But that is what the consulting firms use as their metrics for physician cost performance.


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