A Series of Concentric Circles: A Framework for Physician Payment Reform

By  |  August 14, 2009 | 

I’m just back from the ABIM Foundation’s Summer Forum in New Mexico, increasingly a who’s who of the health policy world, our Davos. I came away from the meeting with a new framework for thinking about the sticky issue of physician payment reform – specifically, how to balance the fact that we docs are ethically spring-loaded to do everything we can for individual patients with the growing imperative to conserve resources.

I’ll be addressing the challenge of improving quality while cutting costs, but let’s give the docs of McAllen, Texas a break by taking waste, fraud and greed off the table for now. Let’s also steer clear of “Obama-the-Socialist,” “Obama-the-Nazi,” “Death Panels,” and the other 3rd grade epithets and caricaturizations that illustrate that our country may no longer be capable of having mature debates about difficult but crucial issues.

Putting the Silliness of August aside, the fundamental question in health reform is the one framed by the piece in yesterday’s NY Times by Gawande, Berwick, Fisher, and McClellan: how can we craft a (sufficiently “American”) payment system that ends today’s “Expensive Lunch Club,” in which everybody – particularly but not exclusively doctors – is incented to deliver unsustainable amounts of expensive care that yields marginal or no benefit.

Recall that while physician salaries make up only 20% of healthcare costs, decisions by physicians – which medications, procedures, and tests to order – account for more than 90%, leading to the anachronistic maxim that “the physician’s pen is the most expensive piece of healthcare technology.” (Increasingly, it’ll be the “physician’s keyboard,” or perhaps her iPhone app). After IOM President Harvey Fineberg’s masterful keynote on physician payment at last week’s conference, this maxim led me to ask him a deliberately provocative, tongue-only-slightly-in-cheek question: rather than screwing around with physician payment cuts that risk pissing off the docs, wouldn’t it be politically smarter (and ultimately lead to better outcomes at lower costs) to buy the docs off with reasonably generous salaries – getting them to endorse a system that takes away their fee for service incentives? (Fineberg essentially agreed, but felt that the other stakeholders taking hits would go so ballistic that the strategy would be politically impossible.)

One of my epiphanies from last week’s conference was that healthcare is delivered within a series of concentric circles, starting with the most intimate – the doctor and patient addressing the patient’s problems – and working outward until you hit the Beltway. The answers to our central challenge must take these circles into account; particularly, I believe that physicians are capable of balancing their commitment to individual patients with the need to conserve scarce resources when, and only when, the saved resources remain within a surrounding circle whose edges they can touch. Here’s what I mean:

Americans are often characterized, and sometimes lampooned, as being a selfish breed. Our tolerance of 45 million uninsured is seen by many around the world as a reflection of this trait; other nations prize the commons over the individual (and are willing to make the tradeoffs required to generate the resources to provide universal coverage), while America is all about “me”. Yet most of us would give our lives for our kids, community service and charity are strong American traditions, and most Americans are highly devoted to their colleagues and their communities. What is true is that in our huge, chaotic, melting pot of a society, relatively few people (they’re called unabashed liberals, if you can find ‘em) will voluntarily make significant sacrifices for faceless “others”. We’re willing to give things up for our neighbor, but not somebody else’s neighbor.

That’s partly why the Mayos and Kaiser Permanentes and Geisingers are able to do what they do. It’s not just that the docs are on salary (though that helps) or that some of these organizations are sited in relatively homogeneous, non-impoverished communities (that helps too). It is mostly that well managed, integrated delivery systems create a community of people (doctors, nurses, patients, administrators) who care, at least a little, about others in their circle. 

Physicians will always be programmed to do everything possible in the service of the patient in front of them (as Levinsky described two decades ago, the “Doctor’s Master” is the patient in the room, not some outside stakeholder). Healthcare economists who think they can explain every physician decision based on economic self-interest don’t quite get this. God knows we physicians respond to economic incentives, yet we are an ethical profession. But our ethic is not a communal one; rather, it focuses like a laser on the single patient in the flimsy gown.

Yet when we are thrown into larger organizations with strong cultures and leadership, we recognize that extravagant spending on the one patient in the room leaves too few resources for other patients who are also within our larger circle. The communal feel is even more intense if we happen to be in a small town, since the next patient may be our kid’s teacher or the lady at the checkout counter. But even in larger organizations that lack that Mayberry feel, we are prompted to give some thought to the greater good (assuming the organization is well managed and sufficiently integrated). 

Docs who work in these organizations demonstrate every day their willingness to shift money to support primary care, or prevention, or coordination – even if some of the money comes out of their pockets or the expenditures constrain their ability to “do everything possible” for each patient. Moreover, these docs push back when they see overt profiteering and wasteful expenditures by colleagues, not because these physicians are any more moral or gutsy than anybody else, but because the harm that comes from profligacy is palpable: more money spent on low yield healthcare is money not available for better stuff for patients and colleagues you care about.

What this means is that getting physicians to endorse, or at least not rebel against, limits on care (and here I’m not talking about Glenn Beckian unplugging Grandma from the vent, but about whether we cath everybody with chest pain or get a chest CT on every patient with asthma because “it could be a PE”) is not simply a matter of preventing them from owning the radiology center or ensuring that they’re on salary. Rather, it involves creating structures that make the docs confident that any money they save stays in their immediate organizational circle, reallocated by reasonable people to other patients who might benefit more. The more distant the circle (reallocation at the state or federal level, for example), the more likely the docs will fight such reallocation and tar the effort as “heartless rationing” by “faceless bureaucrats”.

At one of our table discussions at the Forum, one of my ABIM colleagues, a VA-based cardiologist, spoke movingly of her patient with a serious and complex heart disorder. She had advocated that the VA pay for a cardiac procedure that would have be performed outside the VA system – a procedure that would be extraordinarily expensive and have a relatively low chance of success. What struck me about her description – the VA’s decision on her appeal is still pending – was the amount of trust she had that VA leadership would make a well reasoned decision, even if it turned down her request. If in fact that turns out to be their decision, she could live with herself, having discharged her ethical responsibility to advocate passionately for her patient. She would also be confident that the resources saved would be put to better use elsewhere in the VA system. Doctors practicing in other integrated organizations like Kaiser Permanente tell similar stories.  Roll up thousands of these kinds of interactions and you have the makings of a healthcare system capable of making reasonable prioritization decisions, one that will deliver better overall care at a lower cost. As the Dartmouth people say, we know it can be done, because it is being done today.

So the solution is obvious – let’s just create a nation of Mayos, Geisingers, and Kaisers, right? Not so easy. As Ian Morrison recently told me, the best predictor of a well functioning integrated organization is that they’ve been working on it for more than 50 years. Most of American healthcare is delivered by groups of 1-4 doctors. These physicians have no integration with their hospital or any larger system; rather, the next circle beyond their own is either in Washington or the headquarters of a major insurer in Hartford. It’s no surprise that they would fight limits on their ability to “do everything” – they have no confidence that any cost savings would be put to better use because they end up in a circle well beyond their horizon.

The Dartmouth folks have advocated for newfangled “Accountable Care Organizations”: organizations that can manage within a fixed budget to create the highest quality, safest, and most patient-centric care for a population of patients. At last week’s meeting, I began thinking about ACOs from the bottom up, rather than the top down. In the physician’s office or at the bedside, the doctor will always try to maximize his patient’s outcome and satisfaction. (He’ll also try to minimize his liability risk and maximize his income, but we promised not to talk about those things for this one post). But when the doc is operating within a larger circle and has confidence that the organization will reallocate freed-up resources effectively and ethically within that circle, he begins to practice a bit more communally. The more distant the circle, the less likely physicians will be to accept any limits on their ability to provide “optimal care” for each and every patient.

In my next posting, I’ll turn to the key role of hospitalists as models of physician-hospital integration – arguing that a good hospitalist program creates its own special circle.


  1. menoalittle August 15, 2009 at 1:52 am - Reply


    Articulate, thoughtful, provocative and simple. If cost effective care is sought, those providing it should be compensated and the doctors and community should share in the savings. The theory is a good one but there is at least one weak link.

    One of the weakest links in your theory is, that after decades of increasing the volume of each thing doctors do in response to draconian reductions in payments (try 25 cents on the 1990 dollar) for each unit of care (whether it be a test or operation), whether doctors are intellectually and emotionally capable of practicing cost effectively after trainees (now attendings) learned their art of over utilization from University academic departments of medicine that pay their faculty’s salaries from fees generated by interventionalists (as an example).

    Bob, when was the last time you told your cardiology consultant that you did not think a heart cath was cost effective and cancelled it?

    In such a model, what is the role for unreliable and user unfriendly HIT that takes health care professionals away from the bedside and increases their time spent on work arounds for defective HIT? Is that cost effective? Is it accountable that these devices have not been approved as being safe and efficacious? Is it true that UCSF CIO declared “full stop mode” in HIT implementation until the clinical IT strategy is thoroughly reviewed? Tell us more using your eloquence in prose.

    The approach to physician payment you describe at Mayo succeeds when the not for profit hospitals’ philosophy actually results in providing accountable and cost effective care to the communities they serve, in return for their not for profit status.

    It fails when “not for profit” hospitals’ leadership pressures the physicians (especially hospitalists) they employ to enhance hospital revenue by discharging patients before they are ready and by ordering unnecessary test and procedures.

    Such conduct would vitiate the potential savings from shifting from the fee for service model and concomitantly violates the covenant between hospitals and communities as the basis for the hospital’ tax exempt status.

    Best regards,


  2. jnicholas August 15, 2009 at 1:56 am - Reply

    This makes sense to me. When our hospital faced the prospects of having to layoff non clinical staff and defer capital improvements, physicians from every specialty served on committees looking to save money within their own departments. All of a sudden cardiology offered to try to limit the number of TEEs for stroke patients, a new syncope protocol was developed without neuroimaging for uncomplicated patients, more conservative blood transfusion thresholds were developed, and non-essential lab testing was deferred to the outpatient arena, or canceled. It seems that if that we are more able to conserve resources that clearly impact people we know.

  3. Eric August 15, 2009 at 8:06 pm - Reply

    To provoke discussion, what if instead of only 45 million uninsured, everyone was uninsured, health insurance was illegal and public funding unavailable. Could this work? My initial reaction was no but as I thought about it….

  4. Matthew Bowdish August 15, 2009 at 10:05 pm - Reply

    Interesting post, but I don’t think we physicians generally order CT scans to r/o PEs in patients with asthma exacerbations because we genuinely believe that’s standard of care or that we lack some community of physicians to support our decision-making process. I would argue that often such things occur out of fear of litigation.

    While that “trial lawyer concentric circle” may be further away from our fiduciary relationships with our patients, I am surprised that you wrote this entire article without mentioning the absolute need for tort reform…It’s not just about “waste, fraud and greed.” How are we supposed to practice ‘communitarian’ medicine if we are the ones being left hung out to dry?

    Furthermore, I don’t know about the VA, Mayo or Geisinger, but KP’s insurance contracts forbid almost all malpractice lawsuits. Patients who have complaints against KP docs or hospitals have signed away their ability to have a jury trial and are forced into an arbitration system, which makes claims cheaper and usually quicker for the patients. Why couldn’t the Administration address this in their supposedly comprehensive reform plan?

  5. Bob Wachter August 15, 2009 at 10:14 pm - Reply

    I agree with you, Matthew – litigation is one of the main drivers of low yield, high cost medicine. I did mention it in the middle of the second-to-last paragraph, but only to put it aside for another day as I focused this post on the more subtle, but potentially more important, issues of professional ethics, values, and norms.

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About the Author: Bob Wachter

Robert M. Wachter, MD is Professor and Interim Chairman of the Department of Medicine at the University of California, San Francisco, where he holds the Lynne and Marc Benioff Endowed Chair in Hospital Medicine. He is also Chief of the Division of Hospital Medicine. He has published 250 articles and 6 books in the fields of quality, safety, and health policy. He coined the term hospitalist” in a 1996 New England Journal of Medicine article and is past-president of the Society of Hospital Medicine. He is generally considered the academic leader of the hospitalist movement, the fastest growing specialty in the history of modern medicine. He is also a national leader in the fields of patient safety and healthcare quality. He is editor of AHRQ WebM&M, a case-based patient safety journal on the Web, and AHRQ Patient Safety Network, the leading federal patient safety portal. Together, the sites receive nearly one million unique visits each year. He received one of the 2004 John M. Eisenberg Awards, the nation’s top honor in patient safety and quality. He has been selected as one of the 50 most influential physician-executives in the U.S. by Modern Healthcare magazine for the past eight years, the only academic physician to achieve this distinction; in 2015 he was #1 on the list. He is a former chair of the American Board of Internal Medicine, and has served on the healthcare advisory boards of several companies, including Google. His 2015 book, The Digital Doctor: Hope, Hype, and Harm at the Dawn of Medicine’s Computer Age, was a New York Times science bestseller.


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