Home > Business of Medicine, Cost of Healthcare > An Operating Room Without Incentives is Very Expensive

An Operating Room Without Incentives is Very Expensive

Last year I wrote about a few strategies for decreasing costs in the operating room.  Since being in fellowship operating many days per week, I’ve come up with a new idea, this time a bit more radical.

In Freakonomics, Leavitt and Dubner posit that in all things, human beings respond to incentives.  If you want to understand human behavior, all you have to do is identify the incentives that drive them, be they emotional, financial, or social.  In that vein, I wonder what incentives drive us to spend so much money on healthcare, and to waste resources when they need not be wasted.

I found a potential answer in another book, Chris Anderson’s “Free: The Future of a Radical Price”  In this work Anderson investigates how an economy is affected when the marginal cost of production of a good approaches zero.  Specifically, he investigates the economy surround digital goods, that while costing resources to develop, have a marginal cost of zero to produce and distribute.  He proposes that in such a system, it is quite natural that the price of such goods will eventually approach zero, and if it doesn’t, the goods will be routinely stolen rather than paid for.

The corollary to this idea is the concept of optimal use of a resource when its cost is zero.  That is, if one gets a real benefit from the use of a resource but it costs nothing whatsoever to use it, what is the right way to use that resource?  Anderson suggests that the correct course is to use that resource to its maximal extent, and even to waste it without thinking despite diminishing returns.

While that sounds quite impractical, it is not so far from the system that governs equipment use in the operating room. Every time a surgeon has a task to do, there are many kinds of equipment that can be used.  One can use nondisposable metal instruments, or one can use disposable electronic devices.  One might think that these choices might affect patient outcome, but in most cases they do not.  In fact, countries that lack these fancy pieces of equipment often are able to do complex surgeries just as well as we can in America, they just do them for less money.  The difference is that by using the fancy equipment, the surgeon may be able to finish faster, and perhaps even enjoy performing the surgery more.  After all, we all like our toys.  In some cases, the expensive equipment provides a benefit to the patient, but in many cases not.  The same surgery could be done with less expensive toys.  Its just slower and less fun.

The problem here is one of incentives, and to whom the incentives apply.  Using expensive disposable equipment has only positive incentives for the surgeon.  It has negative incentives for the hospital, who must pay for these devices, but as the hospital is not making the decisions in the operating room, these incentives do not affect decision making.  As such, the surgeon finds themselves in the very situation that Anderson describes.   They have a positive incentive resource that costs nothing to use – and so the economically correct behavior is the wastage of that resource.

So in order to tackle this problem, per Freakonomics we must change the incentives.  Somehow we must create a positive incentive to saving money in the operating room.  If we can do that, surgeons will respond, and the entire system will save money.
Some would suggest that we somehow tie how much money a surgeon makes to how much of the hospital’s money is spent in the operating room.  That might work, and in hospital employed practices that use profit sharing, this in fact goes on to some extent.  The problem with the idea is that it is a bit vulgar.  Patients don’t like the idea that a physician would be rewarded for spending less money on them, and rightly so.

I would prefer to appeal to the competitive nature of surgeons everywhere.  I propose that a cheap digital toteboard be installed in every operating room in this country.   At the start of the case, that toteboard would read how many dollars have been spent on that case at that moment.  It would start with the attributable cost of opening the operating room, buying and maintaining the non-disposable equipment, and the marginal cost of the staff required to complete the surgery.  It would tick forward with the marginal costs of keeping the surgery going.   Every time a piece of disposable equipment were opened, its barcode would be scanned and the cost of that equipment would go up on the board.   At the end of the case, the surgeon would get a printout of what the case cost to perform, and where the money was spent.

The final piece of the puzzle would be internal publication of each surgeon’s average cost figures for the various surgeries that are performed.   If one surgeon is doing a laparoscopic hysterectomy for $7500 and another is doing it for $4000, we should know that.  These two surgeons should get together and figure out what is so different, and if the more expensive surgeon is doing anything differently that actually benefits the patient.

So some might ask “is measurement really an incentive?”  In some ways no, but in many ways yes.  Surgeons are by nature competitive, both with themselves and with each other.  We all want to decrease the cost of healthcare, but we don’t know how. I truly believe that given the opportunity to know exactly what they are spending, surgeons would compete to spend less wherever we could.  It could actually be good fun.

So is this practical?  Perhaps its a little ambitious to think we’re going to have digital toteboards in every OR, but just like countries that do advanced surgery with minimal tools, its entirely possible to implement the spirit of this idea with far less technology.  To start, the surgeon could get a list of each disposable they used and what they cost the hospital.  Some hospitals keep this data already – they just fail to make an incentive out of it.  And by failing in that regard, they make wastage the common behavior.
It is said that everything we measure we will improve.  So let’s start measuring.

  1. October 21, 2011 at 3:07 pm

    Very nice. I would recommend that you check out one YouTube video from the American Association of Physicians and Surgeons in the same vein. Very informative, and what I think would help to bring costs down across the board. As you say, when there is no incentive to save money, costs rise. In a free-market system, there would be balance between saving money / cheapest costs, and best service/outcome. Currently, with patients not knowing how much health care and surgeries cost, most of them not paying out-of-pocket, and with insurance companies not being the ones using the health care, there is a huge disconnect in the health care market that there isn’t in most of the other markets in the U.S.


  2. Vicky
    October 21, 2011 at 3:11 pm

    This might work but I think that you need to publish mortality and morbidity or another outcome measure along with the average cost of a surgery per physician. Otherwise the surgeons who spend the most will just claim that their expenses are higher because their outcomes are better. Vicky, CNM


  3. Ellen
    October 21, 2011 at 3:22 pm

    I’d like to the whole life cycle being considered by HCPs & hospitals. Is there a such thing as disposable, really?


    • October 22, 2011 at 3:22 am

      A great number of surgical tools are one use only. In some cases it is because their mechanism precludes resterilization, but in most cases it is because there is no business model for making a device you only can sell once.


  4. Lawrence M. Slocki
    October 27, 2011 at 11:35 pm

    There will, as a matter of course, be a mechanism to roll in the cost of sharpening a nondisposable pair of laparoscopic scissors on to the toteboard, I am sure. Or indicating the added costs from screwing around and wasting precious OR time with a dull and poorly maintained pair. Just saying, cost, price and value are oft confused in bottom line analysis.


    • November 10, 2011 at 5:29 am

      Noted, but I think those costs are trivial compared to the cost of repeatedly disposed of instruments at several hundred bucks a pop. One can use a scissors with a new $15 disposable tip as well.

      I think we have to keep in mind that the concept of “dollars per minute” for OR time is a completely made up idea. These are fixed costs that are amortized in that way to make the books work, but are not actually paid in a differential way depending on use. The OR is already built, and the anesthesiologist is already employed. The anesthesia machine is already bought. It doesn’t cost more to use them for a shorter or longer period of time, within reason.

      Disposable instruments, on the other hand, are entirely variable costs. If I do a TLH with a harmonic scalpel and three disposable ports, I have spent about a thousand dollars. If I do it with a disposable Gyrus Lyons dissector, a disposable tip scissors, and only one disposable port, I am spending only about $400. That’s pure savings, with no change in patients outcomes or surgical efficiency.

      (Not that I am shilling ACMI/Gyrus – only that their Lyons dissector is very cheap and very efficient in combination with scissors for doing a cheap and quick TLH)


  5. ds
    November 1, 2011 at 4:28 am

    Great post, I have seen this work in other areas and it would be a step forward for our healthcare system.


  6. November 15, 2011 at 3:45 pm

    I believe you about the competitiveness of the surgeons. I’m just wondering what would happen if they competition focus ended up going in the other direction, toward spending more money than others? Is that a possible outcome?


  7. November 24, 2011 at 6:46 am

    Playing devil’s advocate here, could this not backfire a bit in that the competition would be who could perform in less time for less amount? Then I can see a downside for the patient. After all, this is not a “see who can clean up their room fastest with the least amount of effort.” I am old enough to remember as a nurse, having to wash and send for re sterilization instruments used in surgeries. It ought to have cost less to do that than it does to open an entire prepackaged kit to obtain one disposable Kelly clamp, for example. But pitting one surgeon against another by clocking the progress and cost containment sounds a little iffy to me.


  8. steve das
    January 29, 2013 at 6:34 pm

    Nobody wants you to know the cost of the operation. Thats why you dont know.


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