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Healthcare Leadership: Following The Money Can Lead To Positive Change (Dr. Robert Pearl)

In the United States, patients aren’t getting what they pay for. Not even close.

Today, healthcare costs more than $12,500 per year per American. The returns on that investment? The U.S. has the worst rates of child mortality, maternal mortality and chronic disease among 11 of the wealthiest nations. American life expectancy has barely budged in the past 20 years, lagging not only wealthy peer countries but poorer nations, too, including Poland, Lebanon and Cuba.

I recently wrote about the power of technology and effective leadership to reverse these troubling outcomes. But before doctors will fully embrace 21st-century tech solutions, healthcare leaders must change the way doctors and hospitals are paid.

This article, part of a series on leadership in medicine, focuses on the necessity for financial reform and explains how doing so can simultaneously increase clinical quality, improve access and make healthcare more affordable for patients.

Following the money

At the heart of the problem in healthcare today is the nation’s current payment methodology, called fee-for-service.

The name says it all. A physician who performs a back surgery earns a fee, say $5,000. A physician who performs two back surgeries makes twice as much. The more a doctor does, the more that individual earns, whether it helps patients or not.

These “pay-for-volume” incentives distort clinical priorities and compromise patient care. In today’s fee-for-service world, quantity is rewarded with far greater gusto than quality.

Here’s an example. Imagine that same surgeon examines a patient with back pain. Numerous clinical studies have demonstrated that treating this problem with physical therapy often proves just as successful as operative intervention—and with fewer risks. But, for the surgeon, there’s a 10-fold difference in pay between those two actions. Whereas surgery would net the doctor $5,000, a non-invasive approach would earn just $500.

Behavioral economics research demonstrates that this level of pay differential would influence physician perception and actions far more than objective, scientific data. And that is what we see. Clinicians overvalue intervention while under-valuing disease prevention and reducing complications from chronic illnesses. Rather than demanding technology that can make medical care continuous and quick (“Alexa, help me manage my health.” – patient), they continue to bring patients to their offices at a slow, episodic pace. (“I’ll see you in four months” – doctor).

Before moving forward, leaders who want physicians to use technology to lower costs will have to explain why doing so won’t negative impact doctors’ incomes. That will demand changing the payment model.

A call for capitation

An alternative reimbursement methodology, capitation, pays a group of doctors (either in a single specialty like primary care or in a multispecialty medical group) a set, upfront fee to fulfill all medical needs for a defined population of patients.

Think of it like an all-inclusive resort where everything you need for your vacation (hotel, food, activities, entertainment) is included for a single price, paid in advance.

Contrary to fee-for-service, doctors who are prepaid on a capitated basis do best when they help patients stay healthy—thus avoiding or better managing medical problems. And by flipping the financial incentives (from volume to value), capitation becomes a furnace for innovation. Suddenly, physicians can see how important it would be to have an Alexa-like device in patients’ homes providing regular updates on their health, reminding them to take their medications and assisting with important lifestyle changes (be it diet, exercise, stress relief or smoking cessation).

Dealing with risk and change

As positive as all this sounds, leaders seeking to make these changes will encounter hurdles.

That’s because capitation requires doctors to (a) take on greater financial risk for the health of their patients, (b) work in teams to better coordinate patient care (when they’ve long preferred to work alone) and (c) purchase financial reinsurance in case there’s another viral pandemic or unexpected acceleration in costs.

And because capitation rewards prevention and chronic disease management above all else, primary care physicians benefit proportionately more than, say, spine surgeons. And yet, leaders will need to attract skilled specialists who can minimize surgical errors and reduce post-operative complications.

Ultimately, the move to capitation is more complex than fee-for-service and the financial benefits aren’t guaranteed. But success is possible with effective leadership.

The anatomy of healthcare leadership

To shift how the doctors in a medical group or healthcare system are paid, leaders will have to use the following anatomical parts differently than they do today.

The brain: A logical case for capitation

The process of change—be it with a reimbursement methodology or the adoption of health technology—begins when the leader uses logic, reasoning and facts to persuade colleagues.

For example, capitation will make logical sense to primary care physicians because the payment model rewards the time they invest in keeping people healthy, focusing on prevention and helping patients avoid the many perils of chronic disease. For specialists, capitation offers the chance to focus on those patients who are most likely to benefit from their expertise. Ultimately the saved costs generate sufficient dollars to reward both cognitive and procedural physicians.

But once the model and its advantages are clear, leaders must avoid the trap of lingering on the details. Clinicians will only take the leap to capitation if it resonates in their hearts.

The heart: A way to ease the doctor’s suffering

Though the brain is best at making logical decisions, the biggest changes are powered by emotions. That’s where the heart comes in. For doctors, no issue in medicine is more emotionally charged than burnout.

A recent Mayo Clinic survey found that nearly 70% of physicians report feelings of hopelessness, fatigue and professional dissatisfaction. What’s causing this burnout? According to doctors: (1) seeing too many patients each day and not getting paid enough, (2) prior authorization requirements, and (3) clunky computer systems that slow them down.

The leader of the medical group or health system need not remind doctors of the pain they feel. Among clinicians, burnout is rampant and universally understood. Instead, the leader must paint a realistic picture of capitation that shows the future as brighter than the present.

In talking with the physicians, the leader might ask them to imagine their work and lives going forward.  Imagine, for example, earning as much income as before while having more time with each patient—a reality that is possible when doctors in a capitated system succeed in preventing disease and avoiding complications like heart attacks, strokes and cancer from chronic illnesses.

Then imagine never having to request “prior authorization” from an insurance company since the payment has already been received. Think about never having to submit claims or use the EHR to code for billing. Not only will this reduce office overhead, but it would also allow clinicians to trade in their clunky computer systems for more agile, clinically oriented technologies.

Finally, imagine patients prospering from better health and lower out-of-pocket costs, and being able to spend the savings on their children.

If leaders want to connect with the doctor’s heart, they can demonstrate how capitation replaces burnout with a renewed sense of purpose and greater professional satisfaction.

The spine: The courage to change

In fee-for-service, everyone does what’s in their own best interest. In a capitated model, nothing works without collaboration.

And because collaboration is not currently built into the physician culture, the move to capitation requires that the leader maintain a strong spine.

In most organizations, there are those who feel they are special and act as such. They view themselves as superstars, not team players. This toxic attitude undermines performance. A leader with a strong spine has to stand up to self-serving individuals in order to maximize group excellence.

The best way forward

Medicine’s current reimbursement system elevates the individual doctor and the volume of services that person provides. A capitated approach rewards teams of clinicians for the impact they have on the health of the patients.

In this alternative model, the incentives for doctors and patients align.

But before taking the leap to capitation, and enjoying the fruits of technological change in medicine, there’s one more step leaders must take. They have to help clinicians understand the day-to-day operational changes needed to lower costs and improve clinical outcomes. Success will depend on the ability of leaders to use their brain, heart and spine in ways that convince physicians to maximize collaboration and cooperation.

Making medicine a team sport will be the topic of the next article in this series.

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This article was originally published by Dr. Robert Pearl.

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