Here we go again.  Another government panel points out an obvious way to cut costs.  Take a quick look at last week’s New York Times report that talks about how Medicare is looking at discrepancies between charges for the same service inside and outside of the hospital setting.  It does seem very odd that physician visits are reimbursed 70% higher in a hospital outpatient setting than in a private physician office.  How about the echocardiogram costing more than twice as much in the outpatient clinic than in the private office?  It does seem weird, right?

Looking at the comments from the American Hospital Association spokesperson does not seem to assure us that there should be such significant differences in price, does it?  It seems like actions speak louder than words.  The hospitals are buying practices so that they can charge higher rates for the same procedure.  It is interesting how the tests in the office have gone down while the tests in the hospital have gone up.  It does appear that physicians and hospitals are working the system and it does seem appropriate that the pricing structure should be leveled.

One of the cleverest ways this could happen is with the full implementation of the Accountable Care Organizations (ACO) where physicians begin to share greater levels of financial risk with the government and other payers.  It is obvious from the report that doctors will definitely follow the money, as would most of us.  If the payers want the physicians to act a certain way they just need to set up the proper payment or reimbursement scheme and they will follow with great care.  Note how the generic drug usage has jumped so dramatically over the last decade.  Ask a physician how much generic vs. brand drug they write and I will bet they can tell you because they read their “report cards” as they are motivated to do so.

There is so much to learn from this brief article regarding the role financial rewards could play in the cost control area.  The beauty of Accountable Care Organizations is that cost controls need to be balanced with quality of care improvements.  Who can argue against greater quality and lower costs?  Do you think anyone in an ACO is confused as to what is expected of them when they see patients?   If Medicare paid the same or more for services rendered in a private office, how often would these procedures be done in the hospitals?  Only when absolutely necessary, right?

By the way, the same theory that works with physicians works in your companies as well.  It is so critical that a sales representative’s compensation be tied with what they are expected to do.  Trust me, they always figure out how to make the most money and they will follow that route despite all other direction given by different product teams.   If compliance is an issue then put a policy in that there is no incentive compensation if regulations are violated.  If innovation is desired, give incredible bonus money if people come up with ideas that significantly impact profits.  It really is pretty simple. It is all about alignment.  Experts will tell you that money is not a motivator but it clearly tells you what is expected.  Watch this very carefully as a lot of organizational dysfunction is caused by dysfunction in the compensation area.  It really is pretty simple.