The Value of Sharing Cost Information with Physicians

By Dennis Knox, contributor.

(Edited by John Henry Dreyfuss. Follow me on Twitter @JHDreyfuss.)
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I recently attended a state hospital association meeting and listened to 2 reputable healthcare systems present how they aligned their respective medical staffs to achieve quality outcomes. They demonstrated how they achieved reduced unnecessary admissions, reduced lengths of stay, and the reduction of clinical testing and procedures. They specifically portrayed how they worked with their medical staffs to strive for best practice outcomes.

Clearly the outcomes were impressive, but they neglected a key component of the triple aim: Reducing the per capita cost of healthcare.

Never once did they present the actual cost reductions that their efforts rendered. When I posed the question about cost savings, the response I received from the 2 presenters suggested that I was the proverbial elephant in the room. They told me that they didn’t discuss cost to align their physicians “unless it was absolutely necessary”. They implied that they avoid doing that at all costs, no pun intended.


Dennis Knox, CEO

The Cost of Waste

I disagree. My experience suggests that the cost of healthcare, or namely the waste in healthcare, needs to be shared with and addressed by all stakeholders – especially this key group of decision makers - the medical staff. In 2010, the Institute of Medicine issued a report stating that about 30% of health spending in 2009—roughly $750 billion—was wasted on unnecessary services, excessive administrative costs, fraud, and other problems. This amounted to about 30% of the total healthcare spending in the U.S. in 2009. The report found that higher prices, administrative expenses, and fraud accounted for almost half of this waste. Bigger than any of those, however, was the amount spent on tests that are overused, unnecessary, or potentially harmful to patients.

Although it is, in my opinion, the right thing to do, I guess I can understand the presenters’ reluctance to relate the cost savings to their physician partners. Sometimes it can be potentially career ending. For instance, I had a pulmonologist on staff that was a nightmare for our Case Management department. By himself, he accounted for 29% of all Medicare admissions and had a variance of the geometric mean length of stay for his patients of 2.5 days. His estimated uncompensated cost to the hospital annually exceeded $1.8 million.

The Cost of Bad Outcomes

As well, there’s the cost of bad outcomes and malpractice cases. I also had a surgeon on staff that was on the watch list for our Medical Malpractice carrier. Sadly, both of these physicians were also on the hospital’s Board of Directors and when I addressed these concerns (as a CEO with high integrity should) I paid the ultimate price for doing the right thing. I was asked to move on, while they continued their ways.

The Challenges of Physicians Partners

Working with physician partners isn’t always negative, though, especially when they are receptive and are interested in the hospital succeeding. When I had just become the CEO in the same facility, I found out early on that the price being paid for physician preference items was shockingly high in comparison to other facilities in the same metropolitan area.

When I insisted that the information on this egregious pricing difference be shared with the interventional cardiologists and orthopedic surgeons for such things as cardiac stents and orthopedic implants, the alignment towards the hospital point of view was overwhelming. Despite the fact that these physicians had close ties and relationships to the individual companies and/or the representatives, they were astounded at the price difference and they worked with the hospital to leverage an $8 million annual savings for the same implants! It was the right thing to do, and it was extremely successful.

The Message

My message is that reducing the cost of healthcare goes hand-in-glove with the other two prongs of the Triple Aim: improving the patient experience and improving the health of populations. You can be selective in how you share the cost information, but it must be shared with all decision makers in order to achieve the ultimate value for your institution.

Dennis Knox is currently Chief Executive Officer (CEO) of Aethena Healthcare Holding Company in Los Angeles. Aethena Healthcare Holding Company “is a healthcare consolidation platform with the mission to consolidate the fragmented Urgent Care industry. We plan on having scalable growth, achieving exponential revenue growth with incremental increased costs through streamlining operations. We are seeking vertical and horizontal integration of all facets of assets within this sector. Through standardization of care along with major improvements in the business infrastructure, we will be the Starbucks of Urgent Care, projecting to go public by 2020.”

Mr. Knox has also been CEO of Antelope Valley Hospital in Lancaster, CA; CEO of Western Medical Center, in Anaheim, CA; CEO and Managing Director of UHS/Southwest Healthcare System; CEO of Ardent Health Services/Lovelace Medical Centers/Downtown & Gibson, in Albuquerque, NM; CEO of Vanguard Health Systems/Phoenix Baptist Medical Hospital and Medical Center - Phoenix, AZ; CEO and System Vice President of Memorial Hermann Health System/Memorial Hermann Pasadena Hospital & Memorial Hermann Continuing Care Corporation in Pasadena, CA; and CEO and Executive Director of R.T. Jones Regional Hospital/Hospital Authority of Cherokee County in Canton, GA, among other prominent roles in healthcare. 

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