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A major regional medical center has gone as far as it can go - without significant physician involvement - to reduce variable cost per case for cardiac and ortho-spine cases. Due to new financial pressures, renewed cost management needs to occur on a rapid timeline. The biggest cost opportunities still unaddressed are the major physician preference items: total joint implants, spine implants, cardiac rhythm management devices, and coronary stents.

Clearly, the organization has millions in cost reduction opportunity, but it will not be realized without motivated physician leadership. The specialty physicians have a number of political issues pending with hospital administration. A previous “gainsharing” initiative came to an abrupt halt following the OIG ruling in July, 1999, but it increased expectations for the physicians, who now believed they should be rewarded for their role in cost management efforts. A strategy is needed to focus the physicians on helping to achieve the cost savings potential.

Aspen performs a baseline analysis and identifies $7.6 million in potential cost savings. Approximately 60% of the cost opportunity is physician-preference items (implants, devices, key supplies).

The next step is to craft a Physician Engagement Strategy that is OIG-compliant, satisfies the hospital’s legal counsel, and motivates the physicians to reduce costs. Using Physician Engagement methodology, Aspen implements a combination strategy. Physicians are compensated on a fair market value basis for time spent on specified cost management activities. In addition, a defined percentage of realized cost savings is placed into program accounts that will benefit the cardiac, orthopaedic and neurosurgery clinical service lines. Finally, Aspen ensures that the arrangement will succeed, by facilitating the physicians through a structured process to reduce variable costs per case.

The hospital achieves variable cost savings of $4.2 million in the first year of the plan. The physicians are paid approximately $72,000 for their time. In addition, the hospital contributes $1.1 million to the clinical service line accounts. Net cost savings to the hospital in the first year: $3.0 million. Benefit to physician-hospital relationships of implementing the long-sought “physician engagement” model: priceless.