Cost Shifting in Healthcare

press shift

There is a widely held belief, perhaps unspoken but no less strongly held, that the healthcare business is a zero-sum game.

Consider how healthcare dollars are generated.   A hospital system, care facility, or provider provides a service to the surrounding area, termed a catchment area.  Those covered lives in the catchment are expected to generate a certain amount of healthcare expenditures on an aggregate, population basis.  This is modeled by insurers and hospital systems for budgetary purposes.  Given the number of people in the catchment area, the age, socio-economic status, general degree of illness, and type of insurance, finance professionals and actuaries can make an estimate of expected healthcare dollars by payors (insurers, government) to providers and facilities on a per patient basis.

While modifiers, complications, and co-morbidities can alter the real billing for a particular patient and encounter, on aggregate most in the healthcare industry tend to think that these care dollars will either be captured by their system or a competitor.  Hence, zero-sum.  That understanding probably accounts for the ‘me too’ effect in healthcare, as once one system purchases a gamma knife, the other system will to, as they are unwilling to let the competitor capture those lives with the resulting profit strengthening one system over the other.  

But this zero-sum mentality trickles down as well from the CEO level to employees, particularly middle management.  Consider the service line manager – given a fixed budget, bonused on cost savings vs that budget ceiling.  You have value-added services that earn revenue.  However, you also have compliance-related non-value add mandatory services which are essentially costs.  What’s one way to improve the service line budget?  By keeping the valued added work and pawning off the non-value added work as much as possible on someone else.  By having your clinicians bill separately for services, and requiring by medical staff privileges that ‘cherry picking’ is not allowed, you make sure your clinicians will provide services to the indigent as well as the insured.  But you don’t have to pay your clinicians for that work.  By requiring department chairpeople to design standard orders, you avoid having to hire consultants to do the same thing.  Cost-shifting onto the non-employed physician is a well-known phenomenon.  Don’t think that it doesn’t work the other way, however!  On a busy friday afternoon, a family practitioner sends a complicated elderly patient to the ER with a weak complaint which requires evaluation.  When it is time to discharge the patient, the family members can’t be found and the physician, who does not have privileges at the hospital, won’t answer the phone.  An economist would argue that each of these individuals acted in their own best interest, but the cost to the patient and the system, as well as the payor, is high.

As physicians are employed in the hospital system,  the situation gets more complex.  Cost-shifting behavior dies slowly, but the mid-level administrator is merely shifting costs within the system to another service line manager to meet their own budgetary  or productivity goals.  Without an institutional understanding of why this behavior is maladaptive, and management processes in place to make sure this does not happen, the result is that employed physician is cost shifted upon – and that person has lost the ability to cost-shift herself back to maintain equilibrium by virtue of employment.  This is a problem, because it can cause physician dissatisfaction, a declining quality of care, and ultimately physician burnout.  And currently, there does not seem to be any governance model in place to prevent this (At least, I’m unaware of them).  What will ultimately happen is service lines will be missing key players, resulting in missed revenue opportunities for the system – essentially giving their competition the edge – in light of positive budgets and productivity goals.  This will leave most executives scratching their heads, as the relationship is not directly seen.  The bottom line is that you can’t cost shift onto yourself.  Systems employing physicians in significant numbers would be wise to learn this quickly.

Productivity in medicine – what’s real and what’s fake?

Let’s think about provider productivity.  As an armchair economist, I apologize to any PhD economists who feel I am oversimplifying things.

Why is productivity good?  It has enabled the standard of living increase over the last 200 years.  Economic output is tied to two variables: the number of individuals producing goods, and how many goods and services they can produce – productivity.  Technology supercharges productivity.   50 member platform companies now outproduce the corporation of 40 years ago which took a small army of people to achieve a lower output.  We live better lives because of productivity.

We strive for productivity in health care.  More patients seen per hour, more patients treated.  Simple enough.  But productivity focused on N(#) of patients seen per hour does not necessarily maintain quality of care as that metric increases.  A study of back office workers in banking validated that when the workers were overloaded, they sped up, but the quality of their work decreased (defects).  Banking is not healthcare, granted, but in finance defects are pretty quickly recognized and corrected [“Excuse me, but where is my money?”].  As to patient outcome, defects may take longer to show up and be more difficult to attribute to any one factor.  Providers usually have a differential diagnosis for their patient’s presenting complaints.   A careful review of the history and medical record can significantly narrow the differential.  Physician extenders can allow providers to see patients more effectively, with routine care shunted to the extender.  However, for a harried clinician, testing can also be used as a physician extender of sorts.  It increases diagnostic accuracy, at a cost to the patient (monetary and time) and the payor (monetary).  It is hardly fraudulent.  However, is it waste?  And since it usually requires a repeat visit, is it rework?  Possibly yes, to both.

The six-minute per encounter clinician who uses testing as a physician extender will likely have higher RVU production than one who diligently reviews the medical record for a half-an-hour and sees only 10 patients a day.  But who is providing better care?  If outcomes are evaluated, I would suspect that there is either no difference between the two or a slight outcome measure favoring the higher testing provider.  An analysis to judge whether the cost/benefit ratio is justified would probably be necessary.  Ultimately, if you account for all costs on the system, the provider that causes more defects, waste, and re-work is usually less efficient on aggregate, even though individually measured productivity may be high.  See: ‘The measure is the metric‘.  Right now, insurers are data mining to see which providers have best outcomes and lowest costs for specific disease processes, and will steer patients preferentially to them (Aetna CEO, keynote speech HIMSS 2014).

One of my real concerns is that we are training an entire generation of providers in this volume-oriented, RVU-production approach.  These folks may be high performers now, but when the value shift comes, these providers are going to have to re-learn a whole new set of skills.  More worrisome, there are entire practices that are being optimized under six sigma processes for greatest productivity.  Such a practice will have a real problem adapting to value-based care, because it represents a cultural shift.  It might affect the ability of a health system to pivot from volume to value, with resulting loss of competitiveness.

In the volume to value world, there are two types of productivity:

  • Fake productivity: High RVU generators who do so by cost shifting, waste, re-work, defects.
  • True productivity: Consistent RVU generators who follow efficient testing, appropriate # of follow-up visits, and have the good outcomes to prove it.

I am sure that most providers want to work in the space of real productivity – after all, it represents the ideal model learned as students.   Fake productivity is simply a maladaptive response to external pressures, and shouldn’t be conflated with True productivity.

Things to think about in transitioning from a private practice to hospital-owned practice – productivity, pay, and metrics

Browsing the other day I came across a question asking about salary metrics.  A multi-specialty group (MSG) was looking at a sale to a hospital.  All providers were on flat salary.  (uh oh)   
Paying everyone a flat salary in a single specialty group (SSG) communicates that you are being paid for your time, not necessarily productivity.  This may work in some models (dept. of health clinics, clinics targeting the underserved, etc…) but in a SSG with multiple physicians, it will eventually cause problems as 1) different physicians have different productivity naturally and 2) paying a flat salary regardless of income is fiscally dangerous – you can’t spend more than you earn.   This approach may flatten productivity in a ‘lowest common denominator effect’.  

At the other extreme, is ‘eat what you kill’.  This creates a vicious practice environment where partners fight over high RVU & highly paid work, and ‘dump’ the unpaid or poorly paid work on each other, other clinicians, anyone they can!  Younger, less connected members of the group are taken advantage of by older, savvier partners.  This kind of practice (and they do exist!) is where medicine gets its reputation of “eating its young.”  It is an anti-collegial system, and results in high turnover, a lower level of overall care, possible legal risk, and ultimately a lawsuit when the providers split up.

So, how to resolve this problem?

1.  Its important that you KNOW your provider’s productivity.  How many RVU’s?  How many patients seen?  How many procedures?  What are their charges?  What are their receivables? You need to measure these items.  Billing records may give a reasonable approximation.  Consider basing productivity on charges, not revenue, as different payor mixes may have different reimbursement, and swapping a provider to another site/shift might account for differences in recovered revenue.  Also see discussion below in #3 for philosophy.

2.   Once you know the average productivity of the providers, then you can establish the level of salary from MGMA for a group of that % of productivity.  Consider establishing the base salary at a slightly lower level (i.e. if average group productivity is 65%tile – 85%tile, set your base salary at the 65th%tile not the 75th%tile mean) so that less productive members of the group are not dismissed at the first opportunity if they are not meeting productivity measures.  In a MSG setting, it might be better to treat it as a bunch of single specialty group contracts negotiated under a master agreement.

3.   Establish a bonus based upon excess RVU’s to encourage productivity.  Be careful here, as solely basing the bonus on RVU’s can cause the group to lose cohesiveness and collegiality.  Even better, if you can model it correctly, use a hybrid model of RVU’s, # of patients seen, total $ amount of charges.   This last part is important, as one of the big advantages of being a hospital-owned group is the ability to be separated (in theory) from accounts receivable.  Bottom line – providers are doing the work, and the hospital is doing the collection.  You (the providers) need to be paid for your work & the hospital needs to collect.  If the hospital is not able to collect, that is beyond your ability to control in a hospital-owned practice, and ultimately not your responsibility (although you must do everything in your power to help them collect by coding properly & compliantly).  It is a shift in thinking from shareholder to employee.  One neat thing that you can do here as a MSG is set a ‘group bonus’ tied to the overall productivity of EVERYONE now in the MSG swept into the hospital group and a separate ‘individual bonus’.  That might go a long way to maintain the culture which existed in the MSG and keep the providers happier. 

4.  Nobody likes to do work that they are not paid for.  So for administrative duties (chairmanships, committees, etc…) negotiate a small(er) bonus for that specific work.

5.  There are quality measures that need to be met under meaningful use criteria, and the hospital leadership may have set their own performance measures.  There should be a small bonus for meeting these measures as well as a small demerit for not meeting them. (+/- 0-2%?)  This should modify the overall group and individual productivity bonus to discourage folks from boosting RVU’s at the expense of quality measures.

6.  For call, you might be wise to negotiate a flat rate per call with the hospital (specialty-specific).  That way, those who hate call can ‘sell’ their call to those who like to take call or who are hungrier for earnings.  If you do so, you MAY need to hold the call earnings out of the RVU pool as otherwise those who take more call will have more RVU’s and skew the bonus pool.  However, the calculation may be difficult to do.  

7.  Finally, once you go through this process you can standardize a day’s pay, and those who want to work less can buy vacation days from those who want to work more.  This is a nice option if available.

8.   Be really clear about the metrics established for performance evaluation, promotion, and bonuses.  Try to make it fair but don’t provide incentives for uncollegial behavior, substandard care, etc…  It will save money and heartache later.  See previous post on “The measure is the metric.”  Solely basing employment on RVU targets is risky.

Z.B.  While I think its fine to ask on the net about options, there is no substitute for specific, expert advice from someone who has gone through this process before – preferably multiple times!  Being that a MSG has the income of multiple physicians, I think that it would be wise for them to hire a consultant who has guided groups through this kind of transition and can evaluate the practice intimately under a NDA and provide specific recommendations (which this post is emphatically NOT).  Perhaps the questions and comments above may serve as a very rough beginning of a process which will lead to a successful cash-out and transition from private practice to hospital-owned practice. 

Dear Doctor, (letter to a Doctor)

Physician reviewing records

This is a post from a person I interact with on social media. It has been heavily modified to keep anonymity. I have obtained express consent from this person to share their views here.

Dear Dr. — Thanks for seeing my child today & conducting a comprehensive exam. We were pleased with your care & the recommendations received.

However, please work with your staff on:
1 -Don’t tell me ‘1 hour’ if I ask how long the the appointment will last and then expect me to be happy after more than three.   Yes – I do know I will have to wait  – a range would be helpful.
2 – When called to reconfirm by your staff, I asked if they had all of our reports sent 2 months ago which were printed for you (it’s a little complicated).   Don’t have them tell me ‘yes’ when the answer was ‘NO’.   Putting a ‘see me’ post it note on the file from a staff member who is out of the office is not helpful.
3 – You are excellent in what you do.  I’m happy to pay for your knowledge and expertise but not your data entry skills (see above).
4 – When I explain to your staff that my child is uncomfortable going to physician’s offices and I need to prepare him about what to expect, please don’t giggle.  Is this the first time your staff has been asked this question?  I can’t believe that.

Thank you.



-A friend once sent a bill to his doctor for making him wait 3 hours.

-I hear you . Waiting forever is the worst! Some health professionals need to brush up on their interpersonal skills.

-(We) were just talking about the medical practitioners we’ve left over the years…because of their staff!!

-…staff was really frustrating.  …tried to give feedback constructively and professionally but the attitude was unreal.


Can anyone not relate to this?  (Unless you are a practicing physician or administrator and you are so busy you have no time to go to the doctor!)  I view this as a systems failure.  The processes to make sure that this patient had an excellent experience were not there – the Doctor seems to being doing all he can to make the experience great (except for the ubiquitous data-entry EMR curse that patients hate as much as physicians!), but the staff undermines his efforts and this visit goes squarely into the negative category.  Regardless of where you want to place accountability (the staff, the physician, the office manager, the administrator), the root cause of this negative experience could be looked at and improved.

What the patient (patient’s parent/responsible party) wanted in this circumstance was:

  1. Accurate scheduling (responsible booking, integration with MD’s calendar)
  2. Accurate information (saying “you should block off your afternoon, but we will try to get you out in an hour” would go a long way here)
  3. No data entry (hire a scribe or switch your EMR system!)
  4. Transmissible Review of information by a staff member (no “see me” post-its – that’s poor continuity of care)
  5. To be treated with respect and dignity (NO giggling or attitude).

The last item is the most concerning – I know that we are starting to recognize ‘compassion fatigue’ and ‘burnout’ in docs in increasing numbers, and it almost certainly crosses over to support staff.  But this offending staff needs to be trained/educated, or shown the door.  Someone else’s discomfort is never a cause for a healthcare staffer’s entertainment.  Better to create systems and processes that rein in the chaos and allow these staffers to feel less besieged and give a level of care that supports the hard-working doctor’s efforts, not negates them.


Triple Aim? How about the Quad Win!

I’ve heard a lot about the Triple Aim lately – the goal of:
Improving patient experience through both quality and satisfaction.
Improving population health (care)
Reducing the per capita cost of healthcare

Well, I think we should be thinking more inclusively, and for that I propose the Quadruple Win:
Better Patient Satisfaction
Better Patient Outcomes
Better Provider Satisfaction
Reduced Cost

The difference is in structuring meeting the Triple Aim to include Provider Satisfaction. 

It is beyond the scope of this discussion, but the chatter from physicians is more negative than usual.  Granted, a lot of physicians are ‘glass half-empty’ types, but even so, the pervasive uncertainty about the future of their careers is widespread and palpable.  A number of articles about physician ‘burnout’ have been hitting the rounds lately, even from venerable sources like the New York Times. (1)  How does a profession that prides itself on hard work and a single-minded devotion to their patients go from discussion of exciting new medical cures to 50% burnout rates, even starting in medical school?  I find that difficult to understand – on a personal level, I couldn’t wait to get to work when I was in medical school on the wards – it was just so exciting and interesting!  So how did we get from there to this?

Perhaps mandating the triple aim without including physician well-being (provider satisfaction) has something to do with it?

More on this to come.


Some Definitions – Rule Sets in Healthcare

I came across the idea of rule sets while reading Tom Barnett’s excellent The Pentagon’s New Map.(1)  Tom is a military strategist who was influential in the 1990’s-2000’s when the collapse of the Soviet Union left the US as the sole hegemonic power (this was before the 2008 Western financial crisis and China’s ascendancy).  I had the pleasure of corresponding with Tom on a few of his ideas which at the time seemed quite radical, but bore out to be accurate.  I’m not going to comment on his military and geopolitical views, as I’m only an armchair foreign analyst.  


Tom promotes the idea of “Rule Sets” – the combined written and unwritten rules that exist in a society or culture.  Entities that have similar rule sets interact and cooperate more effectively, and entities that have very different rule sets have difficulty synergizing well.  Ergo, western cultures (US & European) interface quite well as we have a shared belief system – representative democracy, protection of private property, freedom of religion, rule of law, etc…   However, cultures such as American and Azerbaijan may not interface easily as paternalism, tribal and familial patterns of voting and class, arranged marriages clash between the two cultures (apologies to any Azeris who feel I am unfairly singling them out for the purposes of example).


In healthcare today, we have different rule sets belonging to the various stakeholders involved in healthcare delivery.  The differences between these rule sets create friction in interaction, even when one group asserts dominance over the other.


The physician’s rule set is first and foremost governed by the Hippocratic “primum no nocere” (first do no harm) dictum.  As a result, most physicians are risk-averse, patient-centric, and conscientiously compliance focused, also stemming in part from a fear of malpractice and payment compliance problems.  They are also cognizant of the “captain of the ship” doctrine as it has applied to them (z.b. this may be changing in practice if not as quickly in case law) and are therefore independent and opinionated, not concerned about consensus-building as their decisions tend to be of the “buck stops here” variety.  Consumed by the frequent changes in the medical literature that make up the basis of their practice, they tend to be resistant to other forms of change.  Success is typically measured internally by the satisfaction derived from good patient outcomes, a patient at a time.


The administrator’s rule set is more nuanced with greater attention to soft skills, team and consensus building, and an avoidance of unnecessary risk.  Slow, iterative refinements punctuated by less frequent sweeping change either in response to market conditions or strategic initiatives are the rule.   For all but the highest level administrators, shared decision making is the rule, requiring buy-in from different organizational levels.  Institutional knowledge and know-how are as important as efficient execution and interpersonal skills.  Productivity enhancement is a sure key to success and greater roles in the organization.  Mid-level managers tend to be more narrowly focused, myopically on their own area of supervision and control, while higher level executives are responsible for institutional stewardship.  Success is usually measurable by numbers, either in a P&L basis, volume, time, or outcomes measures.  Responsible for many lives, the administrator focuses on population health measures.  


So, if physician’s rule sets and administrator’s rule sets are so different, how then are we to expect the two to collaborate successfully?


Perhaps a new rule set will need to be developed with commonalities both physicians and administrators?  


They already have one huge thing in common – the patient.


(1) Thomas P.M. Barnett (April 22, 2004). The Pentagon’s New Map. Putnam Publishing Group. ISBN 0-399-15175-3