How UCSF is Solving the Quality-Cost-Value Jigsaw Puzzle

By  |  May 27, 2013 |  14 

I sometimes explain to medical students that they are entering a profession being transformed, like coal to diamonds, under the pressure of a new mandate. “The world is going to push us, relentlessly and without mercy, to deliver the highest quality, safest, most satisfying care at the lowest cost,” I’ll say gravely, trying to get their attention.

“What exactly were you trying to do before?” some have asked, in that wonderful way that smart students blend naiveté with blinding insight.

It is pretty amazing that healthcare has been insulated from the business pressures that everybody from Yahoo! to my father’s garment business have experienced since the days of Adam Smith. We experienced a bit of this pressure in the mid-1990s, when pundits declared healthcare inflation “unsustainable” (sound familiar?) and we invented managed care to slay it. We know how that story ended – the public and professional backlash against HMOs defanged the managed care tiger to the point that it could barely produce a “meow.” The backlash was followed by a 15-year run during which efforts to slash healthcare costs have been remarkably meager.

That run has ended.

Luckily, while we’ve been let off the hook on cost-reduction, we’ve not been given a free pass on improvement. Beginning with the Institute of Medicine reports on safety (2000) and quality (2001), we have been under growing pressure to improve the numerator of the value equation: patient safety, quality of care, and patient satisfaction. Particularly for those of us who work in hospitals, we now feel this pressure from many angles: from accreditors (more vigorous and unannounced Joint Commission inspections, residency duty hour limits), transparency (Medicare’s Hospital Compare), comparative measurement (HealthGrades, Leapfrog, Consumer Reports and many other hospital rankings), and, most recently, payment policies (no pay for “never events,” penalties for readmissions, value-based purchasing, and “Meaningful Use” standards for IT).

These initiatives have created an increasingly robust business case to improve. Hospitals everywhere have responded with new resources, committees, ways of analyzing data, educational programs, computer systems, and more.

In my own Division of Hospital Medicine at UCSF, we have powerwalked this walk. Faculty members from my division now lead our division’s QI committee, our department’s QI efforts, our medical center’s QI/safety and patient satisfaction programs, and our hospital’s IT implementation.

While our commitment to improvement has been inspiring, about three years ago I started worrying about the balance of our value improvement activities. At one of our DHM at HM 2013weekly lunches, I asked about 30 of my faculty a series of questions.

“How many of you are involved in a project designed to improve quality?” I asked. Virtually everyone raised his or her hand.

“Great, how about patient safety projects?” About half raised their hands. “Fabulous.”

“Projects whose primary goal is to improve the patient experience?” About a third.

“OK. How about projects whose primary goal is to reduce the cost of care or decrease waste?” One or two people sheepishly raised their hands.

“Wrong!” I barked, nearly banging my shoe on the table. “If we’re serious about improvement – and we need to be – then we should be attacking the denominator of the value equation with as much passion as we are the numerator.” The next day, we launched our efforts to rebalance our portfolio.

We’ve been at this value improvement business for a couple of years now, and there are some lessons regarding how to structure a program that I’d like to share with you. I suspect that if you’re not deeply engaged in this work yet, you will be, and soon.

The first question we faced was this: where should the various components of value improvement “live” in our org chart? We faced this at the divisional level, but this question is relevant to departments, to medical centers, and to healthcare organizations. Is cost reduction work its own thing or is it a branch of the existing QI workflow?

As I described in my closing address at last week’s Society of Hospital Medicine annual meeting, there are some fundamental differences between quality and cost work. First, the latter requires the acquisition of some new skills, including methodologies such as Lean (more on this later). Moreover, to do cost reduction well, you need to know something about accounting and payment policies, or make sure there is someone on your committee who does.

Perhaps more importantly, cost reduction work requires that you pay attention to diplomacy. One can spend a lifetime improving quality and safety and not make anyone too upset. But the minute you begin to tackle “unnecessary” procedures or “wasteful” practices, you are attacking someone’s livelihood and budget, and you have to be prepared for pushback. When our division decided to take on unnecessary CT scans, it was only a few minutes before the chair of radiology gave me a ring, inquiring about what we were doing and how he could help. Key stakeholders need to be identified before you get too far into their space, either bringing them into the tent or figuring out ways to manage their objections.

Despite these differences, if you already have a strong quality/safety/improvement infrastructure (as we did), I strongly recommend that you roll your cost reduction work into it. Many of the core skills (literature and best practice reviews, change management, IT, data analysis) are the same, and building a new infrastructure would be, ironically, wasteful. Perhaps the largest threat to rolling the cost work into the existing quality/safety/patient experience work is the chance that the former will be under-resourced – significant new work being covered under the old budget. But the alternative, I believe, is worse.

Our division created a “High Value Care Committee” – a multidisciplinary group co-chaired by an extraordinary young faculty member, Chris Moriates, and our fabulous division administrator, Maria Novelero. In its first year, Chris, Maria, and the energetic committee members have tackled a half-dozen targets, areas in which our practice was costly and added little value: using nebulized bronchodilators when metered-dose inhalers would do, ordering far too many ionized calcium laboratory studies (at $100 a pop), leaving patients on proton-pump inhibitors for far too long (or putting them on inappropriately in the first place), excessive and near-reflexive use of telemetry beds. Some of our choices were informed by the lists produced by the ABIM Foundation’s “Choosing Wisely” campaign, while others were chosen by the committee after brainstorming and literature review. As Chris described at the recent SHM meeting, the results to date are impressive, including a nearly 50 percent reduction in the use of nebs. More importantly, these projects have gotten the attention of our trainees (who increasingly find cost awareness “cool”) and the other services in our medical center. I will be surprised if other major departments, and the medical center itself, don’t launch equivalent committees within a couple of years.

The High Value Care Committee’s work “lives” under the umbrella of our QI director, Michelle Mourad, and we treat it as one of the components of our quality work, along with safety and patient satisfaction. (The nomenclature is a source of perpetual confusion. I think of value as being the integration of quality, safety, patient experience, and cost. Yet the oversight committee is often called a “quality” committee, and the cost/efficiency group is often called a “value” committee. As we did, these choices should be made pragmatically, and based on local culture and preferences.) As hoped, keeping the work connected has created many synergies (such as shared personnel, data, and infrastructure), and a high level of physician engagement. As this work goes medical center-wide, I will lobby to stick with the same philosophy: not to wall off cost-reduction in a corner of the organization (such as under Finance, which would disenfranchise the clinicians) but to make it a critical component of our value improvement activities.

Another part of the jigsaw puzzle – one I didn’t anticipate – comes in the form of Lean. Many healthcare leaders, most prominently Virginia Mason’s Gary Kaplan, have embraced Lean with near-religious fervor, to great effect. At UCSF, under the leadership of Adrienne Green, a hospitalist and the medical center’s Associate CMO, we’re just beginning to use it to attack complex processes. One of our first Lean projects involves mapping out all of the wasteful steps in our discharge process. As you know, Lean’s philosophy begins with this kind of mapping, followed by identification of non-value-added steps to be purged. While I worry that Lean is being a bit overhyped, it is a powerful tool to address complex, multifaceted, multidisciplinary processes. I’m quite sure that every healthcare organization will need to adopt it, or some similar methodology, to help organize its cost and waste reduction activities in the next few years.

So this is another part of the puzzle that needs to be solved: some efficiency activities will resemble the ones that Chris and Maria are working on: attacking discrete targets like overused nebulizers, CT scans, or laboratory tests. The steps here are relatively straightforward: choose the target (via literature review, inclusion in Choosing Wisely, or faculty consensus), analyze the consequences of overuse (including cost but also patient harm and wasted clinician/patient time), build a campaign around curtailing its use (including education, audit and feedback, computerized decision support, administrative or other barriers to use, and perhaps incentives), anticipate and address pockets of resistance, analyze the outcomes, disseminate them (if the program worked; retool if it didn’t), and implement a strategy to maintain the gains.

This process works well when you’re trying to get the docs to order fewer hematocrits, but is all but irrelevant when you’re trying to improve the registration process. For the latter, a Lean-type effort will be necessary. Whether the same committee manages both of these kinds of programs is going to be determined by local circumstances, including the interests and skills of the leaders. For our division, Chris and Maria’s committee is currently driving the target-specific work, while Adrienne and the medical center are managing the Lean projects. My hope is that we will ultimately integrate the two types of work under a single structure, though the Lean projects, particularly the big ones, involve so many departments and disciplines that they are likely to require co-management at a higher level of the organization.

Value org chart

Click to enlarge

Yes, culture does trump strategy, and a great org chart will not guarantee a great program. But a bad one can nearly guarantee failure. As we move aggressively into value improvement, making sure this work is organized and resourced correctly will markedly increase the odds of success.

And succeed it must. Given the estimate that 30 percent of healthcare expenditures produce no benefit for our patients, we are, quite literally, Too Big to Fail.


  1. Barry Carol May 27, 2013 at 1:43 pm - Reply

    Where does UCSF stand regarding disclosing actual contract reimbursement rates so both patients and referring doctors can more easily determine the most cost-effective high quality providers in real time? Currently, such disclosure is precluded by confidentiality agreements which I think need to be abolished by regulators or, if necessary, legislators.

    Second, I think it would be useful if doctors practicing within the hospital can see the prices that the hospital actually pays for medical devices and prescription drugs, including expensive biologics, before they order them. They should also be able to see the fully allocated cost for imaging and labs. Even if marginal costs are far lower than fully allocated costs, if these services are used more judiciously, the hospital can treat many more patients without having to spend millions of dollars to expand capacity,

    The bottom line with respect to costs is that doctors need to treat patients as they would treat a member of their own family and if they were paying the bill out of their own pocket. Sensible tort reform is an important part of this equation but that’s a separate discussion.

    • Ben June 22, 2013 at 9:19 pm - Reply

      I agree that the physicians need to see fully allocated costs for the organization. Bob does a wonderful job describing the need to bring cost into the overall view with quality. I am concerned that he mentions that he does not want to wall of this process into finance, but is regrettably walling off finance by making that statement. I see the lean initiatives as “finance light”. A form over function effort that starts the discussion between clinical and finance that will eventually need to happen as funding tightens. Yes we in finance are truely hated as our assertions are tied to the cash out the door, and we cannot drift off smiling into entertaining fancy and powerpoint diagrams under the ambiguous title of “quality”. This eventuality will not be all bad, as I find that the clarity of accurate accounting supports the science minded physicians over the fashionable political ones, which ultimately improves the system.

  2. Robert Ley May 27, 2013 at 4:08 pm - Reply

    Once again Dr. Wachter has written a lucid, informative column.
    Unfortunately, as with some of his previous columns, maybe I just don’t get it, but I have trouble envisioning its application to the non-academic hospital world.
    Why will non-salaried physicians spend time on committees deciding when their colleagues should stop proton-pump inhibitors? Who is going to compensate them for their lost time? Committee service is already a non-financially productive burden in many institutions and I don’t see that adding more committee time reviewing literature, parsing data and counting pills will be welcomed. For salaried university hospital teachers, fellows, residents and medical students (employees), “It all pays the same”. Clearly the rest of us can’t say that.
    So hospitals can pay for committee service, just like they now pay for ER call coverage (remember when taking ER call was ‘part of the job’ and non-compensated?). Why would a hospital pay for serving on a committee which will decrease its own reimbursement?
    I would again humbly suggest to Dr. Wachter that things which apply in the rarefied atmosphere of teaching hospitals oft times have little applicability to the rest of the medical world. Good idea? Sure. Applicable to ‘the rest of us’? I just don’t see it.

  3. Bob Wachter May 27, 2013 at 4:41 pm - Reply

    Thanks for your comments.

    Barry raises the issue of cost transparency, both internal and external. As you know, Mt. Sinai Hospital in Miami just announced that it will make all of its charges public; I expect other hospitals will follow suit. UCSF has not, to my knowledge, taken a position on this.

    Regarding internal transparency, although early studies found little benefit to showing clinicians the costs of drugs and tests, a recent Johns Hopkins trial did show a benefit. We are experimenting with this – it does seem like a good idea.

    Robert questions whether these strategies are relevant to the real world of community practice. I think they are. The pressures to reduce costs are hitting community hospitals as powerfully as they are hitting academia, and they will soon hit individual physicians too as the payment system changes. I’m on the board of a mid-size community hospital (Salem Hospital in Oregon), and we are struggling with these issues just as we are at UCSF. When your hospital is going to go out of business if it doesn’t deliver high-value care, the community physicians will become engaged. The hospital, of course, needs to recognize that some of the physicians have a great interest in how the hospital fares (physicians on salary or high utilizers of the facility), while others have a more muted interest (those who run their own office practices and don’t come to the hospital much). I suspect the former will be very involved in the hospital’s value improvement/cost reduction efforts, and the latter will tend to sit on the sidelines. To the degree that the hospital wants these office-based physicians to be engaged, it will have to compensate them for their time.

    Within my division, we expect all faculty to be active participants in system improvement work; it’s baked into their job description and their compensation arrangement (they have a reasonable amount of “protected time” with the expectation that some of this time will be spent on improvement activities). For faculty members with leadership roles that cause them to spend more than 10-20% of their time on this work, we try very hard to cover an appropriate portion of their salary.

    Sure, some things are different in academia: we think about engaging trainees and about our academic output. And it is easier to get salaried faculty members involved in committee work than private practice docs. But the bottom line is that – in both academic and non-academic healthcare organizations – nobody would have worried about creating a value infrastructure (or compensated physicians to participate in it) when the hospital and the doctors did well by doing more. The world of exclusively volume-based compensation will soon be a fading memory, and successful organizations will be ones that rapidly figure out how to deliver high value care. I don’t see how they can do this without engaging key members of the medical staff, academic or otherwise.

  4. Robert Ley May 27, 2013 at 6:10 pm - Reply

    Thanks for your reply to my comments.
    I embrace the thrust of your post. I have read Christensen’s seminal work and agree that the system has to and will change, focused largely on value, pretty much as you define it. I applaud your efforts at UCSF. My reaction to your column just reinforces the observation Christensen makes that the current hospital business model is broken, particularly as it applies to non-academic institutions. You can’t be all things to all people. Figuring out where your ‘value proposition’ is focuses the institution. But getting the administration of the hospital to recognize that their model is broken? That’s a whole other thing. As it is, they adopt things that sound meaningful and wonderful, that sound like value-oriented change (“Transformational Care” “Relationship-Based Care” “System Analysis”) but which cost loads of money, waste valuable person-hours and deliver virtually nothing.
    I’m delighted to hear that you’re on the board of a community hospital. I hope that you spend some time with a few of the docs in the trenches there and not just the selected, generally obedient and not very perspicacious, few that sit on the board. A little glimpse of the rest of the world, the world of ‘the rest of us’, is sometimes helpful.

  5. william reichert May 28, 2013 at 3:17 pm - Reply

    I attended a speech by the CEO of our hospital a few months ago.In the speech he complained that doctors do not practice cost effective medicine.Two weeks later
    the CFO was in a smaller meeting with our group of hospitalists . At that time I asked him
    if we could have a list of what things cost ( drugs, tests, X-rays, procedures,etc) and he
    replied “No, you cannot have such a list because we do not know what things cost”.

    It is frustrating to hear someone say when they get in your car to “Hurry, take me to where
    I need to be” and when you ask them where they want to go they say “That I cannot tell you.”

    • Jordi May 29, 2013 at 6:33 am - Reply

      Hey Cmdr Reichert, Have you checked out

    • Ben June 22, 2013 at 9:41 pm - Reply

      Mr. Reichert, you should not accept that answer.
      Two good cost accountants can assign costs to patient charges using a cost accounting system such as avega within three months starting from scratch if they are allowed to work with the department directors on gathering usage information. A Hospital CFO should make sure that this information is recosted on a montly basis, and ad hoc reporting is available from final monthly costs. Notice I said two good cost accountants. Purchasing cost accounting software does not mean that it will be used correctly any more then purchasing HIM software does. Often software is sold as a solution or information system, when it is actually just a blank tool. That realization of the need for human cognition and process for information to exist is the biggest drag I’ve witnessed as a finance professional to the implemenation of IT solutions in healthcare. The words “automatic” and “cutting-edge” should be banned, as often the solution for an information system is human perspective and not software.

  6. Marc S Frager MD May 29, 2013 at 12:17 am - Reply

    Dear Bob, How is the ABIM/ABMS solving the quality/cost/value jigsaw puzzle when the value of MOC is minimal, the cost of MOC is exorbitant, and the quality of MOC is unproven now and likely to remain so far into the future?

  7. […] our own environments by just changing our “optics” on what is possible. Dr. Bob Wachter, in his blog last week, related a conversation he had within the UCSF Department of Medicine when he took a […]

  8. Sherri Vance June 17, 2013 at 10:34 pm - Reply

    I read this column originally in, and while I think it’s a lucid, helpful analysis, the doctors commenting on it sure HATE it. It would be helpful and interesting to read your reply to those comments. Thanks!

  9. Abhay Padgaonkar July 15, 2013 at 9:03 pm - Reply


    As you have said yourself, these are usually obligations on top of an already jam-packed day. In my experience, I have found most hospital administrators to be incapable of extracting cost and utilization data in an accurate and meaningful way, isolating root causes, mapping end-to-end processes (notwithstanding the lip service to “lean”), engaging physicians in a respectful way, and investing in improving core skills (literature and best practice reviews, change management, IT, data analysis). They are, however, eager to scapegoat the physicians. That is not to say that there isn’t an opportunity for cost/waste reduction, but it is not going to materialize by randomly demanding cost reductions or by jerking the physicians’ chains.

    An even bigger question is what will all the cost reductions achieve? It is one thing if it’s going to result in visible price reductions. It’s a whole different matter if it’s going to further pad the profits of the hospital systems, regardless of whether they are for-profit or non-profit. If it’s going to simply maintaining/increasing profits, which I presume it is, the cost curve will hardly bend.

  10. Lakshmin Nandagopal August 29, 2013 at 11:58 pm - Reply

    Dear Dr.Wachter,
    I have read your first book on understanding patient safety, and am a big fan of your writings. Your essay above gives an excellent introduction on how to establish a culture of cost effective care. As a chief resident in quality and safety at Detroit, one of my goals is to teach cost- effective care principles to internal medicine residents. I was thinking of giving them end of the month ‘report cards’ discussing how to reduce possible waste. Do you have any suggestions / advice?
    Lakshmin Nandagopal

  11. Bob Wachter August 30, 2013 at 5:58 am - Reply

    Dear Lakshamin – thanks for your nice note. Chris Moriates at UCSF and colleagues have developed a terrific cost-conscious curriculum, which he’s delivered at UCSF and the ACP has adopted for national use. It’s worth taking a look here to start:

    Best of luck.

    — Bob

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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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