Do We Have Any Clue How To Cut The Cost Of Healthcare?

By  |  May 24, 2011 | 

At the Society of Hospital Medicine’s annual meeting last week in Dallas, Lenny Feldman of Johns Hopkins presented the results of a neat little study. His hypothesis: physicians given information about the costs of their laboratory tests would order fewer of them.

Feldman randomized 62 tests either to be displayed per usual on the computerized order entry screen or to have the cost of the test appear next to the test’s name. Some of these were relatively inexpensive and frequently performed tests. After randomization, for example, the costs of hemoglobins ($3.46) and comprehensive metabolic panels ($15.44) were displayed, while TSHs ($24.53) and blood gases ($28.25) were not. He also randomized more expensive tests: the costs of BNPs ($49.56) were displayed, while hepatitis C genotypes ($238.62) were not.

The educational intervention was surprisingly powerful. Over the six-month study, the aggregate expenditures for each test whose costs were displayed went down by $15,692, while non-displayed tests had a mean increase of $1,718. Over the entire group of 31 tests whose costs were shown to physicians, costs fell by nearly $500,000.

Coincidentally, last week’s Archives of Surgery reported the results of an intervention aimed at decreasing lab ordering on the surgical services of Rhode Island Hospital. There, simply announcing the service’s overall expenditures on non-ICU laboratory tests for the prior week at a house staff conference led to significant savings: $55,000 over an 11-week study period.

Have we found the Holy Grail, the key to flattening the cost curve? A little physician education leads to increased awareness of the cost consequences of their choices and, voila, our economy is rescued from the brink of disaster. How nice.

Before we get too ecstatic, it’s worth reflecting on the long, sobering history of cost reduction efforts in healthcare. Luckily, Steve Schroeder, now a distinguished professor of medicine and health policy at UCSF, recently did just that in the Archives of Internal Medicine. But before I get to Schroeder’s reflections on our cost containment journey, I must digress with a personal story, since his counsel was central to my career choice.

In 1985, when I was a second year UCSF medicine resident, I made an appointment to meet with Schroeder for career advice. At that time, Steve was chief of our Division of General Internal Medicine and a national leader in academic medicine and health policy. I had an idea that I wanted a career in academic general medicine, but my interests were broad and vague. I sat in his office, intimidated. He asked me about my plans. “Well, I love general medicine, seeing patients and teaching, and I’m interested in policy, healthcare economics, epidemiology, rationing, and ethics.”

Steve took a deep breath. “That’s a disaster,” he said, his tone sympathetic but unambiguous. “To succeed in academic medicine requires focus. You’ll be competing against people who do only one thing. You can’t be a dilettante.”

I grew depressed. I knew that I was wired to be a generalist; I could no more focus exclusively on ethics or epidemiology than I could be a dermatologist or accountant. My career plans torn asunder, I thanked him for his advice and began to slink out of the office. As I reached the door, wondering whether to take the GMAT, something possessed me to stop and pose a final question to him.

“Steve, what did you focus on?”

“Oh, I completely ignored that advice,” he said with a mischievous smile, as he turned and pointed to his bookshelf, which had a clinical textbook he edited, along with books – some he had written – on health policy, ethics, epidemiology, and ethics.

“Why did you give me that advice, then?” I asked, more flabbergasted than annoyed.

“Because it is the right advice for most people,” he said. “But some people, probably like you and me, need to stay broad. I just want you to understand the risks and to be prepared. As a generalist, you’ll need to move from issue to issue, reinventing yourself every few years, and you’ll constantly need to bring together teams of experts to help you accomplish your goals.”

And that’s what I did. Some days, my eyes wander to my own office bookshelf, and I realize that it looks almost exactly like Steve Schroeder’s did that day in 1985. And I smile.

Now that I’ve established Schroeder’s bona fides as a truly wise person, let’s return to his recent article on the history of healthcare cost reduction efforts. Steve has walked this particular walk in his career, beginning as founding director of the George Washington University HMO, extending to his time as our DGIM chief, and peaking during his 12 years as president of the Robert Wood Johnson Foundation. Steve begins the article by noting that cost reduction gathered steam during the 1970s, when we were, as a nation, spending – OMG – 7.5 percent of our GDP on healthcare. While 7.5 percent seemed large, the burning platform came from projections that these costs might grow to an “unsustainable” 10 percent. (In case you’re missing the irony, healthcare now accounts for 17 percent of the GDP, projected to rise to 30 percent by 2032).

In the article, Schroeder reviewed several cost reduction strategies that have been tried over the past 40 years, ranging from reducing the “pro-technology bias” of our payment system, to training more generalists and fewer specialists, to giving physicians information about the costs of care. That’s right: in JAMA in 1984, Schroeder and colleagues reported the results of an educational intervention designed to sensitize residents to the costs of their care. Combining lectures on costs with chart audit and feedback, they found a slight reduction in the use of a few selected laboratory tests like the PTT, but no overall impact on costs. The effort was a bust.

After reviewing this history, Schroeder’s conclusion is that cost reduction efforts either didn’t work, or worked for a short while and then petered out, or led to compensatory increase in costs (the proverbial “squeezing balloons”). For example, while Medicare’s prospective payment system clearly resulted in shorter hospitalizations, the compensatory increases in high-intensity outpatient care (such as in ambulatory surgery) chewed up most of the savings. Other changes, such as changing the pro-technology payment bias or training more generalists, were countered by powerful political forces, a trend that continues today.

Schroeder’s bottom-line message is sobering. While he applauds the fact that we are now trying several new strategies (curbing fraud and abuse, using electronic health records, paying for performance) layered on top of the traditional ones, he writes, “it seems naïve to assume that these latest efforts will be any more successful than their predecessors.” He continues,

In the long run, reining in costs will require mobilizing political forces that can withstand the inevitable claims of rationing sure to come from the industries currently benefiting from the 17% of the economy spent on healthcare, and from consumers who have come to expect unlimited access to what they feel they need.

Do the two new studies – ones in which educational interventions appeared to work – mark a new era, one in which an overall increase in cost consciousness among physicians, coupled with a new ability to provide real-time data via computerized order entry, will lead to meaningful, durable cost reductions? I’m not too hopeful. I’d bet that once the novelty of interventions such the ones used by Feldman and the Rhode Island surgeons have worn off, the cost data will become white noise and folks will revert back to their comfortable, profligate ways.

So what will work? To make a meaningful and lasting dent in healthcare expenditures, I believe we’ll need to change some or all of the following:

  1. Just like certain medications are “non-formulary” and thus far harder to order, certain laboratory tests and radiologic studies will need to be taken “off formulary” – perhaps requiring subspecialty blessing or acknowledgment that the ordering physician has read through a brief summary of the test’s accuracy, its costs, and the alternatives before being allowed to click “Order.” How to accomplish this without gumming up work flow and driving ordering physicians batty needs to be on the agenda of some very smart operations engineers and IT gurus.
  2. Physicians will be more careful about test ordering if the costs of the tests are partly coming out of their own hides. The trick here is to enact strategies that don’t provide too strong an incentive for underutilization and that have robust quality and safety protections. The hope is that Accountable Care Organizations and bundled payments will be just the ticket, though the response to Medicare’s initial ACO proposal did not exactly resemble the front entrance of WalMart on Black Friday. Hopefully, with some tweaks, doctors and hospitals will be willing to stick their toes in this integrated care/shared incentive pool.
  3. We somehow need to change the culture of medicine, and of training. This’ll be the hardest nut of all to crack, but there is hope. For a brief glimpse into how much the culture has already changed, one merely needs to look back at Schroeder’s 1984 JAMA article. In it, he notes that his research team chose to focus their interventions on the interns and sub-interns, not the attendings. Why not? “…As with many other university hospitals,” he writes, “most attending physicians had expressed little interest in modifying the costs of medical care.”That was 1984, when virtually all the attendings were subspecialists coming out of their research labs or procedural suites to attend on the wards for one month each year. While we haven’t exactly solved the cost problem, I can’t imagine someone saying the same thing about our ward attendings today, certainly not the hospitalists I work with.That’s progress.

As I noted recently, it is critical that physicians focus on cost and waste reduction with as much passion and skill as some have, thankfully, been applying of late to quality improvement. Our systems need to be structured to promote this work, and our culture must encourage thoughtful and ethical cost containment as a core value. It’s not hyperbolic to say that the future of not just healthcare but our overall economy hangs in the balance.

As we embark on this crucial journey, while studies like Feldman’s give us hope, Schroeder’s historical perspective should gird us for the hard work ahead.


  1. BostonMD May 24, 2011 at 11:34 am - Reply

    I want to share with you my experience at two academic hospitals in Boston. One has an ordering system, based on DOS–which is a big giveaway to those of us practicing in Boston–that displays a cost for each of the blood tests. The other hospital has an ordering system that does not display costs.

    After using both for years, I can honestly say that I was interested in the costs for the first week but then the cost display quickly became white noise and had no impact on my test-ordering habit.

    What has changed my ordering habit is not seeing any actual cost but becoming more comfortable with taking care of patients and dealing with uncertainty instead of relying on a panel of tests that I had naively believed would always provide the answers I needed. What we need is a culture in which attendings start say to the terrified medical students on rounds: “It’s ok. We don’t need to know the chem 7/CBC/LFT panel every day.”

  2. Brian Clay, MD May 24, 2011 at 6:38 pm - Reply

    I completely agree with BostonMD. We did a similar thing in our legacy EMR back in 2004; not only did the displayed cost information become “white noise” after a while, we realized that the information changed frequently enough that maintenance of the updated display became an issue.

    We need to go beyond just instructing our residents and students that all tests should have a potential impact on management, or that they should at least “know what they are going to do with the test results.” We need to instead move to a paradigm where we teach pattern recognition of patients that will not benefit from daily chemistries; where we teach clinical situations that do not merit frequent CBCs; and where we instill as a professionalism moment the expectation to check the electronic medical record for previous hepatitis serologies before ordering them again.

  3. Adam G May 25, 2011 at 2:09 am - Reply

    In response to the prior two comments – I agree that information like price that is not tied to action or insight becomes “white noise.” The issue is that any one countermeasure to most problems requires a multifaceted approach to be “sticky” – alignment, measurement, and improvement tools.

    For example, for the lab pricing data to have sustainable impact, physicians need to be aligned so that they (or their sections / departments) have a financial and cultural incentive to notice; they need measurement tools that give them granular data at the individual or section level that is validated, benchmarked and transparently reported; and then they need education or process improvement tools to change their practice patterns to better match what is being accomplished by others.

    There is no one simple tool that is going to solve the cost problem – but a simple tool like price transparency baked into a broader effort that includes alignment, measurement and improvement tools will be effective and sustainable…but it is hard work.

  4. Ken Phillips MD May 25, 2011 at 3:58 pm - Reply

    Problems abound with this approach because NO ONE really knows the ACTUAL costs

    for any single item in all of healthcare, especially in any single hospital-Administration

    doesn’t really know(including the finance department), physicians really don’t know, patients(the ultimate consumers of healthcare) don’t know, and those who believe it

    possible to micromanage health care only pretend to know.

    For healthcare to work, and for physicians to use financial information in ordering tests

    AND therapy, REAL COSTS are needed, Costs of diagnostic tests(daily total), treatment

    costs(daily total), AND opticians are required. For example, ICU patients with GNR pneumonia treated with Piperacillin-tazobactam 4.5 Gm IV every 6 hrs vs. Cefepime

    2 GM IV every 12 hrs cost comparisons AND historical effectiveness for individual ICU’s are needed to provide me with a Cost-Benefit analysis, not simply costs. This information is available, is NOT provided to ICU physicians, but CAN lower OVERALL

    costs, LOS in ICU, and improve patient outcomes.

    PLEASE, let us use real prices, real outcomes for each hospital, and tell all physicians this information: Witholding information from bedside providers raises healthcare costs, worsens patient outcomes, and lowers ‘efficiency’ of healthcare.

    Information is often kept in “silos” because knowledge is power: I believe it is time to give power to bedside providers; physicians, nurses, respiratory therapists, and other ancillary personel for benefit of patients.

  5. Gene Spiritus MD June 10, 2011 at 6:48 am - Reply

    Having sat through a lecture yesterday by Sir Michael Rawlins the Chairman of the British National Institute of Health and Clinical Excellence (NICE) titled “How much is a year of life worth” I believe focusing on individual tests is missing the point. We are all aware of the statistic regarding cost of care at the end of life. This is in fact the elephant in the room. Almost every hospital has several patients receiving futile care and until we are a society are willing to admit that we must address this issue, focusing on individual tests is never going to get us where we need to go. I know people disparage the British System but they are trying to live within there means. Dr. Rawlins made the comment that every life is precious but one must live within one’s means an provide care for all of society.

  6. faolennart June 24, 2011 at 3:52 pm - Reply

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  7. alfredhodd July 20, 2011 at 6:19 am - Reply


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About the Author:

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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