Can Physicians Help Cut 20% to 30% from Overall Health Care Spending?

May 25, 2011 - Since Medicare was enacted in 1965, health care spending has grown inexorably, far beyond the $9 billion projected originally by 1990 to $543 billion in 2010. Over these years, two percentage figures – 20% and 30% - keep cropping up in the health cost management literature.

• First, the 20% figure. As Victor Fuchs, PhD, and Arnold Milstein,MD, those venerable West Coast management gurus, state in their May 26 New England Journal of Medicine article, “The $640 Billion Question – Why Does Cost-Effective Care Diffuse So Slowly,” “There are individual U.S, Physicians and health care organizations that deliver high-quality care at a cost roughly 20% lower than the average.” Presumably, if the rest of the U.S.followed suite, spending would drop from 17% of the GDP to 13% - by $640 billion from $2.5 trillion to $18.6 trillion. To avoid a financial Armageddon, say the authors, two “escape routes” exist: one, tax-supported universal coverage, and two, disciplined managed competition. Neither solution, they lament, is politically feasible without “robust physician support.”

• Next, the mythological 30% number. This has grown out of the work of John Wennberg, M.D., and colleagues at Dartmouth. Using Medicare claims data, since 1972, they have shown that costs vary by 30% from high cost to low cost regions. They have repeated this 30% variation figure so often and so loudly that it has become accepted gospel that 30% of U.S. health spending is due to “unwarranted,” i.e. due to waste, greed, and unnecessary expenditures. “Buzz” Cooper, MD, a respected professor of Internal Medicine at the University of Pennsylvania, has argued the 30% number as representing “unwarranted care “ is nonsense and as more readily traceable to poverty and greater expenses secondary to delayed treatment of more advanced diseases.

As you might guess, now that government, health plans, managed care organizations, new business models, and the constant chatter about care “variation” of 20% to 30% have failed to bend the cost curve, attention is focusing on physicians.

Fuchs and Milstein ask, ”Are U.S. physicians sufficiently visionary, public-mined, and well led to respond to this national fiscal and ethical imperative?”

This is not the right question. The right question may be, “Are U.S. physicians sufficiently informed about what things really cost?”

In a May 24 edition of The Health Care Blog, Robert Wachter, MD, a West Coast academic and co-founder of the hospitalist movement, asks, “Do we have any clue how to cut the cost of healthcare?” He cites a study presented last week at the Society of Hospital Medicine by Lenny Feldman, MD, of Johns Hopkins. Feldman’s study indicated that doctors, given information about the cost of 31 laboratory tests, ordered far fewer of them. Over a six month period, lab costs fell by nearly $500,000 for the 31 tests.

I was asked by The Health Care Blog to comment on Wachter’s remarks and Feldman’s study.

Here was my comment,

" I am a great believer in the philosophy 'If you have a nail to hit, hit it on the head.'

Accordingly, I would:

1) Develop an automated online program that lists the costs of drugs, lab tests, imaging and other tests at the point of care for both physician and patient to see.

2) Use the approach of Jerry Reeves, MD, chief medical officer of Hotel Employees and Restaurant International Union (H.E.R.E. I.U), who confronts physician cost and care outliers with data comparing them to colleagues in their same markets. My interview with Jerry appeared in this Health Care Blog and in medinnovation blog in April 13, 2010. The title of my interview as ‘Using Comparative Data to Reduce Medical Practice Variation and to Save on Health Costs.'

3) Encourage patients employers, employees, and patients to join health savings accounts with high deductibles, in which patients have “skin in the game” and show them the costs at the point of care and on physician websites.


Even with this said, physicians have limited ability to contain costs. Among other things, they are saddled with crippling educational training costs of $150,000 to $200,000; and 50% overhead costs, mostly stemming from burdens of hiring employees to deal with third party constraints. Then, too, physicians must deal with soaring patient expectations, heightened by media hype. Finally, there is the reality of the malpractice cloud, with what might happen if you don't do something or order something.

There is not much physicians can do directly to change the behavior of other health care players of market conditions. But we can become more acutely aware of what things cost and act appropriately to contain costs. Sensitizing physicians and patients to true costs of care at the point of care is an important first step in bringing down overall costs.