A calculus of unnecessary echoes: application of management principles to health care.

Abstract

We studied the clinical utility of echocardiography in children and applied principles of business management to draw conclusions that are applicable to health care in general. A significant number (13% in this series) of expensive medical diagnostic tests could be avoided without harm to patients. Cost reduction in medicine is possible in many situations without compromising quality of care. Care pathways (i.e., practice guidelines or clinical algorithms) provide one useful modality. However, for the safety of patients, all cost reduction methods must start with practicing physicians (or involve them at conceptualization) and an escape clause must be available to the treating physician for the atypical patient. The analytic approach used--concurrent assessment of percentage cost, charge, and payor--is applicable to all components of the health care value chain. The use of "percentage of charges" as an indicator of collection effectiveness is unrealistic and should be changed to "percentage potential reimbursement" because health care is effectively a fixed-reimbursement industry rather than a system subject to standard microeconomic (supply and demand) forces. The current reimbursement structure provides conflicting incentives both to health care institutions and to providers, creating an insurmountable barrier to any effective incentive system. Colloquy between practicing physicians and experts in operations management will stimulate cost reduction and can optimize the delivery of health care.