PERSPECTIVE ON HEALTH CARE : Raise Quality by Lowering Costs : Incentive for providers now is to use the most costly treatment. There’s no reward just keeping people healthy.

To improve quality in health care, cut costs. Sounds counterintuitive, but in health care, as in most businesses, quality and economy go hand in hand. One of the biggest misconceptions in the health-reform debate is that if you cut the cost, quality will suffer.

Right now, providers--hospitals, doctors and other practitioners--work in a system in which everyone is rewarded for providing more, not necessarily better, care. This traditional fee-for-service, remote third-party-payer model pays per procedure, regardless of the outcome. In a world such as this, providers, no matter how ethical, have an unavoidable incentive to provide the most costly treatment.

Wide variations in practice patterns among physicians suggest that more procedures are not necessarily related to better outcomes. A medical director of an East Coast health-maintenance organization studied practice patterns and observed a fivefold to tenfold difference in the costliness of practice patterns of different doctors, usually with no evidence of difference in outcomes.

Also, the traditional system does not allocate resources rationally. Instead, hospitals purchase expensive equipment even if they cannot fully utilize it, and beds go unfilled while hospitals continue to build capacity. There is no incentive to keep individuals healthy because there is no reimbursement for it. Providers are paid less for pursuing a less invasive, but equally effective, non-surgical treatment.

In the current system, there is no match between resources and needs. This country has trained too many specialists and too few primary-care physicians. A surfeit of specialists is bad for your health and bad for your pocketbook. If there were fewer, we could pay them well and give them full schedules. They could care for the same population at less cost. Because they would be proficient, their work would be of high quality. Because they would be busy, there would be less unnecessary surgery.

To make matters worse, there is no accountability for cost or quality because providers are not paid on the basis of either. Problems in health-care delivery, such as lack of immunizations and other preventive measures, are viewed as isolated issues. They are not. They reflect a systemic problem: No one is accountable for getting the job done.

Even physicians have come to dislike the traditional fee-for-service model because it sets them up in an adversarial relationship with payers. Physicians routinely must respond to calls from lesser-qualified insurance company representatives who question their choice of treatments.

Better care at less cost is possible through integrated financing (that is, insurance) and delivery systems (hospitals and physicians). Under the new rules of the game, all would benefit by keeping individuals under their care healthy, or, once sick, by making them well in the most efficient way possible. Such a system would give providers responsibility for individuals’ comprehensive care for a fixed periodic payment set in advance, put providers at financial risk for the cost of care and, therefore, for the “cost of poor quality,” and hold providers accountable for quality outcomes.

With this new set of incentives, accountable health plans would seek to attract committed and responsible physicians. Finding, training and retaining the most qualified group possible in the right quantities and specialty mix for the population served would be key to financial success. Accountable health plans would give doctors incentives to provide high-quality, low-cost care and the tools they need to do so.

Information systems could be used to identify and adopt cost-effective care. Quality management and improvement techniques would be employed routinely. Providers would study variations in practice patterns to determine and adopt what makes sense. They would be held accountable for quality outcomes because the remuneration of the entire group would be at stake. Technological redundancy would be eliminated.

Costly specialized procedures would be concentrated in efficient regional centers where physicians are busy enough to maintain proficiency and achieve administrative economies of scale. There is a well-documented correlation among high volumes, low mortality and low cost. The Pennsylvania open-heart surgery study, for example, studied 35 hospitals doing coronary artery bypass graft operations. The procedure at the hospital with the best risk-adjusted mortality rate cost $21,000; at the worst it was $84,000, and on average was $44,000. If every hospital performed at the level of the most proficient hospital, Pennsylvania alone could save $350 million in one year for this one procedure. A similar result could be true for other states.

We do not mean to suggest that any means of cutting costs is acceptable. Arbitrary cuts put quality at risk. The Clinton Administration’s proposal for health-care reform sets unrealistic limits on health-plan premium increases, given the incentive scheme and time frame for other reforms they propose.

Price controls would limit premium increases to the consumer price index plus 1.5% in 1996, phased down to the index plus zero in 1999. Such targets and better could be met a few years later by a thoroughly reformed competitive system with the strongest possible market incentives, without price controls.

There is a great deal of waste in the health-care system and big opportunities for cutting cost without cutting the quality of care. To realize potential savings, the industry needs time to reorganize, restructure, retrain and install programs of continuous quality and productivity improvement. This cannot happen overnight.

If the Clinton plan succeeded in meeting its cost-containment goals, likely consequences would be arbitrary cutbacks in service and care, then queues and rationing in the form of spending reductions not thought through for lack of time and incentives, especially in the short run. Quality of care would suffer.

In addition, expenditure limitations should not be confused with cost reduction. While a country can limit the cost of treatment, as Britain and Canada have done, by shifting the cost of illness back onto patients in the form of treatments delayed or denied, the only way to reduce the total social cost of illness and its treatment is to improve the efficiency and effectiveness of care delivery. What is best for society is to minimize the cost of illness and treatment.

In general, the rationale that high-quality health care must be expensive is flawed. In fact, often the opposite is true. Mistakes cost lives and dollars. Providers must be given tools and held accountable for doing it right the first time. We believe that this can only be achieved through market forces and accountable health plans.