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California Health Chief Looks Within For Solution To Rising Health Costs

A hundred managers at Scripps Health jam shoulder-to-shoulder into a vending-machine break room in San Diego. CEO Chris Van Gorder goes at them like a football coach down by 3 at halftime.

“What are we trying to do in our health care system?”

“Reduce costs!”


“Health care is too expensive.”

“The solution is going to come from Washington D.C., right?”

“Ha ha ha ha.”

“Sacramento then, right?”


“The solution,” says Van Gorder, pumping an index figure toward his team, “is going to come from right here.”

Van Gorder, an ex-cop turned hospital executive, rescued troubled Scripps from near insolvency a dozen years ago as its new CEO. Now, he’s put Scripps in the middle of a cultural transformation aimed at saving hundreds of millions of dollars a year by — get this — coaxing physicians and managers at Scripps to work together, and standardizing care across every hospital in the system.

Corny? Yeah. But a health care industry so expensive it threatens to bankrupt the nation could use some corny, if that’s what it takes to get hospital management’s attention.

And they could use the attention. The health care industry is the worst managed in America. It wastes near $765 billion a year due to inefficiencies, mistakes, duplicative and unnecessary services and fraud, according to the Institute of Medicine. That’s nearly a third of total health care spending.

But the game is changing, and not just because of the health care law. Anxiety over the national debt is putting pressure on how much Medicare pays hospitals, while fed up employers, who pay the bulk of health care premiums, are negotiating tougher contracts with providers.

Van Gorder’s strategy is to root out what he calls “unnecessary variation” at each of Scripps’ four hospitals in five locations and 23 clinics in southern California, and then cut expenses that add nothing to patient outcomes. “There isn’t a doctor that doesn’t believe he’s doing the best thing” for the patient, he says. “But there’s enormous variation in the way physicians practice.”

Scripps isn’t the only hospital system trying to get control of health care costs, but it’s one of the leaders. “Scripps is on the cutting edge of health system management today,” says Chas Roades of The Advisory Board Company, a health care consultancy.

Fixing Unnecessary Variation

In most industries, uncovering useless spending and promoting cross-functional teams have been standard procedure for decades. In health care, where the relationship between price and costs can seem almost random, this counts as cutting-edge management innovation.

In California, for instance, the same routine joint replacement costs between $15,000 and $130,000 for the same procedure depending on the hospital, with no correlation between quality and price, according to the School of Public Health at the University of California-Berkeley.

Price variation among hospitals within the same system is even harder to explain. At Scripps, there was a cost difference of $6,000 between two Scripps hospitals performing the same cardiac procedures, using the same protocol, even with the same surgeon.

And that’s standard: Most health care systems still manage each hospital or clinic as its own silo — each with different management, operations and clinical procedures. Even vast national hospital chains are run this way, according to Roades. They might share back office operations like purchasing, but in terms of clinical care, they are largely islands unto themselves.

Van Gorder, 60, tells his staff that major change is inevitable. Political leaders, employers and patients themselves are fed up with health care costs. Given federal budget deficits and the calls for entitlement reform, Medicare margins will continue to be under pressure. Politicians fearing a backlash from cutting benefits to consumers will take aim at hospitals and other providers. The Advisory Board Company predicts the typical hospital will see its margins collapse by as much as 20 percent over the next 10 years as reimbursements drop.

“Hospitals that can’t find a way to deliver their product less expensively and with better quality are going to go out of business,” Van Gorder says. “It’s as simple as that.”

The $6,000 Cost Difference

Consider the $6,000 cost difference for the cardiac valve and coronary artery bypass graft procedures. No one paid attention to it, because there was no incentive to do so. When a cross-system team dissected hospital-to-hospital variations in 2010, they found that the Scripps Memorial Hospital in La Jolla required that nitric oxide be administered to the patient, ostensibly to boost oxygen intake in the blood.

Fourteen miles away, at Mercy Hospital in downtown San Diego, such patients received no nitric oxide. A look at the data showed the outcomes were the same. Today, a doctor at any hospital in the Scripps system can still order up nitric oxide, but it’s no longer required. Savings: $400,000 per year.

Some of the other savings that netted $150 million in the first year:

  • The ER: Once, the wait could be as long as eight hours. Now, it averages 30 minutes. Scripps requires doctors and nurses to see patients at the same time, early in the process, instead of forcing them through a gauntlet of information-takers, where they’d repeat the same complaints over and over. Fewer handoffs mean better communications, fewer errors and more patients seen for a $29 million revenue boost.
  • Radiology: For imaging tests, each hospital stocked its radiologist’s own favorite contrast agents — the iodine, barium, gadolinium and other chemicals used to highlight structures and fluids in a patient’s body. After doctors agreed to use a few brands, volume discounts saved $1.5 million a year.
  • Surgery: OneScripps focused on three cardiac surgeons at one hospital and studied their work habits for needless variation. Voluntary best-practice protocols were established which have decreased length of hospital stay by almost a day and saved the system $3.6 million a year.

A Story With Twists And Turns

Van Gorder’s campaign has not been without challenges, but then, he has never been a stranger to conflict. Responding to a domestic disturbance in his squad car at age 25, a crazy driver intentionally rammed him head on. He saw it coming and threw the car into reverse, although he was still seriously injured. Suffering severe nerve damage (from which he has substantially recovered), in and out of hospitals for more than a year, he left the street beat and pursued a health care career, wrangling a security job at the hospital that was treating him. He liked hospital work. After grad school at the University of Southern California, with a master’s degree in health services administration, he quickly climbed the industry ladder.

By 1999, he was chief operating officer at Scripps, although initially, he thought he’d made a huge mistake. His first address to the physicians as new chief operating officer was interrupted when a doctor burst into the meeting room, yelling at another physician, who hollered back “I’m quitting” and stormed out. That night, he asked his wife and kids, “Should we really bother unpacking? Because this doesn’t sound like it’s going to go very well.” The doctors later kicked out the CEO (a physician) with a vote of no confidence, and the hospital board chose Van Gorder to replace him. Regaining doctors’ trust was the first order of business.

Historically, doctors have felt threatened by changes imposed from outside the profession, which they fear will undermine their autonomy and income. “You can’t force feed doctors,” says Brent Eastman, recently retired chief of medicine at Scripps, now president-elect of the American College of Surgeons.

Doctors do, however, trust hard evidence. An entire discipline, evidence-based medicine, has arisen to assemble and package data results and recommend treatment.

Sensitive to this culture, Van Gorder created what he called a Physician Leadership Cabinet “to share the responsibility of running this company together.” The board includes the medical staff and physician members elected by their peers because “We don’t want ‘yes people’ sitting on the group.” The key to cooperation, says Van Gorder, is transparency — sharing all information.

Early on he was tested. The doctors demanded $4 million to pay for on-call doctors for the emergency rooms. Van Gorder said he couldn’t afford it, and laid out the numbers. The doctors cut the demand in half.

Van Gorder trusts that sharing financial information, especially on costs, along with data on treatment and outcomes, will usually lead doctors to the best-outcome-at-lowest-cost decisions.

So far, that strategy has inspired buy-in. “Probably only once every hundred years will there be a generation that can truly change the way health care is delivered,” says Eastman, the physician. “We are that generation.”

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Cost and Quality Health Industry