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Sandeep Singh Dhillon
How Not To Lower Healthcare Costs – Forbes
Pharma Notables

By Robert Pearl, M.D.,

Citing recent estimates that nearly one-third of clinical laboratory tests are unnecessary for patients, University of Pennsylvania researchers posed a question with huge cost-savings potential: What would happen if doctors were able to look at the price of these tests before ordering them?

To determine whether price transparency might change the way physicians behave, the researchers spent a year studying how frequently clinicians ordered 60 different lab tests at three Philadelphia hospitals. They randomly assigned half of the tests to a control group with no prices posted and the other half to an intervention group for which the “Medicare allowable fees” (the maximum amount Medicare will reimburse) were displayed in the electronic health record system for all clinicians to see.

The results, published in a recent issue of JAMA Internal Medicine, show that making doctors aware of lab-test pricing has almost no influence over medical decision-making. Surprised? You shouldn’t be.

Healthcare Costs In Context

With national healthcare expenditures topping $3.2 trillion annually, legislators on Capitol Hill are looking to root out the kind of wasteful spending that has flattened American wages and sent health insurance premiums soaring. At the same time, Congress is under pressure from voters not to sacrifice the quality or accessibility of medical care.

What few seem to realize, however, is that financial disincentives in healthcare rarely work and, more often, carry unintended consequences. To understand why, consider a daycare experiment carried out by economists and made famous by Freakanomics.

Several years ago, administrators at a childcare facility were asked to collect a modest late fee from parents who picked up their kids more than 10 minutes after the normal closing time.

The idea behind the experiment was to reduce the after-hours burden on caregivers. The result was quite the opposite.

Prior to implementing the late fee, parents did their best to arrive on time, not wanting to inconvenience the people caring for their kids. But when the daycare centers began assigning a fee, the parental perspective shifted. Lateness was no longer seen as an imposition on the workers but rather as a service that could be bought. Parents viewed it as simply the going rate for completing an urgent project or running an errand after work. And because the consequences had gone from personal to transactional, tardiness at the daycare centers doubled.

For physicians, medicine is much more personal than transactional. Doctors worry about whether their patients can afford healthcare coverage and, as a result, ask themselves whether a test or procedure will help. But in the context of deciding whether to order a test that adds $10 to $15 to a hospital bill, the savings hardly seem worth it.

Besides, residents who fear being grilled by an attending physician for not having the most recent laboratory information handy no doubt see the added expense as a small price to pay. And, of course, clinicians know that patients rarely pay the added cost themselves. These contextual clues are important to consider when thinking about how best to lower costs in American hospitals.

So, What Approaches Would Work?

In my experience with leading doctors, I have observed three approaches that have proven effective in modifying physician behavior.

1. Inspire healthy competition. When it comes to their performance, doctors are highly competitive. They like being perceived as “the best” among their peers–a point of pride ingrained in physicians throughout their training. Therefore, presenting doctors with unblinded performance data has the power to modify their behavior. For example, showing which doctors are “best” at achieving high-quality and cost-efficient outcomes would inspire all physicians to learn from, and compete with, the top performers.

I have seen this competitive spirit in action when comparing lengths of stay among hospitalized patients at different Kaiser Permanente medical centers. By measuring outcomes, we know that some physicians are better at helping their patients improve faster and get home sooner. When confronted with this data, the physicians who lagged their peers most often made the necessary adjustments to improve.

2. Appeal to the heart. Physicians usually know when expenditures add little value and they care about the cost impact on their patients. Therefore, the second opportunity to shift behavior is to reframe the problem in human terms, with a focus on the patient, not the dollars.

Devi Shetty, a successful cardiovascular surgeon in India, communicates the hospital’s P&L to all physicians and hospital staff each day. But he doesn’t quantify the bottom-line impact in terms of rupees; instead, he translates it into the number of free surgeries the facility can perform the next day. By showing everyone from housekeepers to department chiefs how a dollar saved can improve a patient’s life, Dr. Shetty’s entire staff strives to lower costs.

3. Make the right thing the easiest thing to do. According to the Penn study, “91% of resident physicians reported that unnecessary lab testing was due to the habit of entering repeat daily lab test orders on the patient’s first day of admission.” Doctors who place these “routine standing orders” at the outset of a patient’s stay rarely discontinue the lab studies even after a patient is stable.

That’s why, except for certain life-and-death situations, it would make more sense for doctors to order these tests one day at a time. Requiring them to do so would make it easier for doctors to consider whether the test is necessary.

The Power Of Perception

Perception in healthcare–what doctors see, hear and feel–is often as powerful as logic. Usually, changing perception in healthcare requires a change in context, not a change in logic.

For example, emailing doctors a warning about unnecessary laboratory testing or requiring them to attend a lecture on the rising cost of medical care won’t change their actions. Do as the researchers did–simply post lab-test prices–and doctors will see it as little more than administrative interference.

These approaches fail to produce the predicted or desired outcomes in healthcare because they ignore what truly motivates physician behavior.

By revealing how the best clinicians are achieving high-quality and cost-efficient results, more doctors will make the effort to improve. By helping doctors connect the dollars they save with the mission-driven outcomes they want, more physicians will do the right thing. And by making it easier for physicians to reconsider the patient’s clinical status each day, the number of wasteful laboratory tests will decline.

Money can have a major impact on physician perception and behavior. But we should remember that using money as motivational tactic alone will, as often as not, produce unintended and undesirable results.

Dr. Robert Pearl is the author of “Mistreated: Why We Think We’re Getting Good Health Care- And Why We’re Usually Wrong” and a Stanford University professor. Follow him: @RobertPearlMD.

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