Changing the incentives in the operating room

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.

Nicholas Fogelson is an obstetrician-gynecologist who blogs at Academic OB/GYN, where this article originally appeared.

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  • Rebecca Alleyne

    The most expensive item in present day ORs is time. If the disposable equipment makes the case faster and the OR time saved is more pricey than the piece of equipment used to save time the disposable instrument has paid for itself.  Also a lot of the Medicare reform models are looking at post op expenses.  We don’t want rushing due to competition to lead to expensive (and of course dangerous) post op complications.

    • Anonymous

      @Rebecca … when all the surgeons want to use the OR between 0700 and 1400 … then the biggest waste of an OR … and $$$ … is between 1400 and 0700. 

    • Nicholas Fogelson, MD

      I hear this a lot, but wonder how accurate it really is.  The operating room is a fixed cost, already owned and maintained by the hospital, as is all the equipment.  We can amortize what every minute of OR time costs, but most of that money is spent whether or not we use the OR. 

  • Anonymous

    A few points — 1. many hospitals already do this. Ours used to give “report cards” with your average costs compared to peers but stopped because it cost money to generate and didn’t change behavior. 2. You are assuming that surgeons wouldn’t compete to be the MOST expensive. 3. I agree with Rebecca in re: OR time. I used to do thyroidectomies with nothing but resusable instruments and 4-0 silk taking the time tie hundreds of tiny capsular vessels, now everyone uses a harmonic scalpel which cut time in half. How do you bill that?

  • Jeff Hurley

    The problem with this from a surgeon’s perspective, is all the other incentives we have working against us.  Like constantly decreasing payments for procedures and no end in sight.  So in a perfect system, I would love to “compete” in the operating room to be the most cost-effective surgeon in the hospital.  But when I have the choice to do a procedure (that every year I get paid less and less for) at a greater cost to the hospital, but in a more time-efficient way for me, I’m going to do it that way most of the time.  Now if I could compete to bring my payments up, either in the OR or in surgical care in general, then we’ve got something to talk about.  In other words, you can’t just change the incentives in one area of health care, you have to change the incentives across the system.

  • Jeff Hurley

    The problem with this from a surgeon’s perspective, is all the other incentives we have working against us. Like constantly decreasing payments for procedures and no end in sight. So in a perfect system, I would love to “compete” in the operating room to be the most cost-effective surgeon in the hospital. But when I have the choice to do a procedure (that every year I get paid less and less for) at a greater cost to the hospital, but in a more time-efficient way for me, I’m going to do it that way most of the time. Now if I could compete to bring my payments up, either in the OR or in surgical care in general, then we’ve got something to talk about. In other words, you can’t just change the incentives in one area of health care, you have to change the incentives across the system.

  • Chris Porter

    The supply and demand curve really falls apart when you can’t identify buyer and seller.

    The patient, his/her insurance, and the hospital are, in aggregate, the buyer of a disposable clip applier. Yet the surgeon has great influence in choosing which applier is used, and the patient has no say. And the seller is Ethicon, the hospital (who charges the patient), and to a degree, the surgeon. 

    Somewhere early in our training we should get a brief lesson on the costs surgeons are involved in. I’m still learning, and totally on the fly. Awareness alone is a good part of incentive.

  • Anonymous

    This reminds me a lot of the issue with convenience foods – it’s not really that much easier to mix together the three ingredients in a cake mix than the five in a from-scratch cake.  Manufacturers have an incentive to convince you that cooking is hard.  People who make disposable tools can overemphasize the problems with re-using tools, and have a similar effect on buying patterns.  


    i agree with rebecca, also. operative time is the most precious fungible commodity. it has puzzled me how varied the time is for surgeons to do the same operation. i had associates that took 3 hours for a cabg and others 5 hours for the same number of grafts, and with fairly comparable outcomes. when you take away the fee for service system and reward getting people better or healthier, the perverse and competing incentives go away, the stars align to make the or as efficient as possible. i do not think it beneficial for patient outcomes nor professional to have what is in effect a race to a cheaper operation model driving hospital costs, surgeon compensation and resource allocation.

  • jmlump

    This concept has been used in business for some time and is commonly called Gainsharing.  Where ProfitSharing focuses on the gap between revenue and expense, Gainsharing focuses on earning a piece of the $$$ saved–so the measures can be more specific, creating a focus that can impact behavior, as you suggest.  

  • Anonymous

    I think those are called physician owned facilities. 

    I also think they have been outlawed by the ineffective and inefficient general hospitals through their AHA lobby of Congress. 

  • Christina Wagener

    Realistically what I see everyone is missing here is the patient.  To bladedoc’s point, doing a surgery can take a lot longer for a surgeon with certain instruments and less advanced technology.  To a patient this is less table time, less anesthesia and less opportunity for complications.  Would you, as a patient go with a MD that states they can do the surgery at half the cost, or half the time?  

  • Rich Beery

    From a hospital administration point of view, doesn’t it seem strange that the doctors get to choose whatever piece of equipment they want and the hospital gets to pay for it?  As an orthopedic service line director I was charged with addressing the cost of total joint implants which were all across the board.  Different surgeons chose to use different implants based on such diverse  rationale as their relationship with the rep, they had used this company’s product for a long time and was familiar with it so didn’t want to change, and even because a distant relative was working for (a different division of) a particular manufacturer.  
    My suggestion is this, let hospital administration, including the CFO and Director of Materials Management, and the involved physicians get together and agree on a target cost per procedure.  This cost would include cost for OR time, materials and personnel, including anesthesia.  This target cost, after a period of trial, would then become the hospital’s operational cost and the physician would benefit from the variance.  If the actual cost was lower than the target, the doctor would reap a positive benefit.  If the actual cost was higher than the target, the doctor would suffer a negative benefit.  The hospital benefits because now they know what each procedure will cost and can try to achieve additional cost savings from increased efficiencies elsewhere.  The physician benefits by having control over their own degree of positive or negative benefit.
    That is what I would call an incentive.  It is an incentive based on financial reward, not just a competitive nature.

  • samd

    To me the error is the use of statistical avarages and class thinking as it applies to patient care by physicians. This is the error used by politcians and atheists.. After fifty years in the practice of anesthesiology for cardiovascular surgery which distictively demands a one to one relationship between physician and patient, I am forced to conclude that neither political nor humanism has a place in the practice of medicine since neither has a valid contribution to the care of the individual suffering patient who seeks a solution from a single care giver for the imperfections of humanity known as illness. The polititcian has only the ability to decrease the ability of the physician to aid the patient with their single   talent of creating fallible verbiage called law. The atheist electively deselects mankinds only hope of conceiving perfection and the answer to all human ill. The net net of those kinds of human thought thus becomes nothing more than a hinderence to the fallible human who attempts to be of use to his fellow man through the only available means.

  • Anonymous

    I suggest a somewhat different approach.  What follows is an outline of a sidebar article that appears in the July-August 2011 issue the Harvard Business Review, an issue devoted to the theme of building a culture of trust and innovation through collaboration.  The story outlined is from a Kaiser-Permanente facility (Irvine Medical Center).  For this collaboration to be successful all members of the team, regardless of status, rank, education, or ego, had to set aside what was best for them (“This is best for me”) and replace it with “What is best for the patient and the organization that serves this patient within the overarching context of Kaiser’s shared purpose (called their Values Compass).”  Far, far too few organizations (IMHO) use their own core values as leadership tools. Kaiser shows you how it can be done.


    the basis for trust and organizational cohesion that is more robust than
    self-interest, more flexible than tradition, and less ephemeral than the
    emotional, charismatic appeal of a Steve Jobs, a Larry Page, or a Mark

    i.     Kaiser Permanente’s Value Compass
    succinctly defines the organization’s shared purpose this way:




    place to work

    ii.     This is an expression of what everyone in
    the organization is trying to do

    iii.     It guides everyone at all levels of the
    organization from the top to the bottom

    iv.     This is less a vision than a recognition of
    the challenges that every member of the group has the responsibility to meet
    every day

    v.     Total Hip and Knee Joint Replacement

    Streamline its costliest and most time intensive surgeries

    requited collaboration among specialists who normally fight for resources

    multiple surgeons from multiple practices, each wanting to do things their own

    needed union cooperation so no top down approach from management or from the
    surgeons would work

    a Labor Management Partnership – a joint governance structure involving
    management and most of Kaiser’s unions

    created a team that examined every aspect of the process





    has a voice and no one was drowned out

    gained by making three types of changes

    parts of the sequential process that could be done simultaneously

    triggers: cues to a staff member about when to begin a specific task, such as
    alerting the post-op and transport departments that a surgery is ending and the
    patient will be ready for transport in 15 minutes

    in a “floater” nurse who could move between OR’s to provide extra help or
    relieve staff on breaks.  That added
    capacity is costly but pays off in cycle-time reductions


    of total hip or total knee replacement surgeries increased from one or two up
    to four a day

    turnaround time between procedures dropped from 45 to 20 minutes

    coordination freed up 188 hours of OR time year, at an average annual savings of
    $132,000 per OR

    satisfaction with outcomes rose

    increase in employee job satisfaction

    were scalable, i.e., could be used in other OR specialties

    purpose must be articulated in a fashion that everyone understands it and gets
    what it means to them in their job. 
    Takes lots of communication and discussion – widespread discussion and a
    shared understanding 0f the company’s competitive position within the industry,
    the evolution of customer’s needs, and the distinctive capabilities of the

    shared purpose is multidimensional, practical, and constantly enriched in
    debates about concrete problems.  You
    have gotten there when you ask an employee why they are working on a given
    project and they do not answer “Because that’s my job,” or “That’s where the
    money is.”  They talk instead about how
    the project would advance the shared purpose.

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