Editor's note: William B. Weeks, MD, MBA, is Associate Professor of Psychiatry and of Community and Family Medicine at Dartmouth Medical School. His research centers on business and economics in health services delivery and how they apply to physician education, veterans in rural settings, and the quality and safety of care. We asked him to speak with us about the business case for improving patient safety.

Dr. Robert Wachter, Editor, AHRQ WebM&M: Tell us how you got interested in the business and economic aspects of health care.

Dr. William Weeks: I was always interested in the business and economic aspects of health care. I was the only kid during medical school who would be reading the Wall Street Journal in anatomy class while we were doing dissections. I continued to follow more of the business aspects in medical school and residency, and then went and got an MBA because I was fascinated by that aspect of health care.

RW: Can you describe the patient safety movement's emergence, as seen through a business lens?

WW: I saw the lack of a financial argument as an impediment to implementation of quality improvement or patient safety projects. It seemed that the clinicians didn't really know the financial language to make a persuasive argument to their CFO [Chief Financial Officer]—or whoever held the purse strings—to implement their quality improvement projects. While there may be some marginal improvement in quality, the cost aspect was just ignored. In an era of rising health care costs, we should want to be more efficient with the use of scarce resources, and incorporating a financial analysis would be a good idea.

RW: In the last decade, what changes have you seen that try to create a business case to improve patient safety?

WW: There have been some efforts to identify and elucidate the costs of preventable medical errors—to consider not only the financial burden to patients and perhaps the lost revenue but also the impact on the organization's longer-term viability—given brand recognition, marketing, and legal aspects. Over the last 10 years, I've seen a greater awareness that there might be a financial argument. I also think that patient safety is kind of a moral imperative. It ends up being a cost of doing business. Which mission do we prioritize from a financial perspective to be able to use our resources most efficiently?

RW: It's an interesting tension between the ethical argument and the business argument. It sounds like the point you're making is that even if it costs the organization or the individual providers, the ethics are such that it's a cost organizations should be willing to bear.

WW: It's a cost they have to bear. There's not a choice anymore. You cannot decide not to do something if you want to get accredited by The Joint Commission. But again, certain efficiencies might be attained if people think it through.

RW: As you began to look at the economic consequences of errors and saw that they really did cost someone money, how much of the problem was that, from the standpoint of the provider who would have to bear the expense, there was no return for the investment?

WW: That is exactly the problem in a nutshell. The investment is expected from the provider, and the benefits are likely to accrue to the insurer. Those incentives need to be aligned, or there needs to be a cost-sharing or cost-savings–sharing approach to make more of a financial argument for the health care providers. Justin Dimick and I wrote a paper that looked at complications in surgery, and we found that when there were complications at the hospital, the profit margin for the hospital was reduced but not eliminated. Things were not as lucrative, but they still were able to generate a positive return on that particular procedure because they charged the insurers so much more. The study suggested that the providers might lose on certain patients, they might gain on others, and overall they were able to more than break even.

RW: Various policy initiatives have been put in place to catalyze a greater business case. What do you think of the strategy of not paying for certain kinds of adverse events?

WW: That will provide a nice incentive for hospitals to address the issue. My concern is that it's based purely on coding, that we'll have a change in the coding practices but not a change in the care. So that will have to be carefully monitored.

RW: Is that just the devil in the details, or do CMS [Centers for Medicaid and Medicare Services] and others have to do certain structural things to be sure that the system is not gamed?

WW: They do some chart reviews that get the QIOs [Quality Improvement Organizations] involved in examining this, particularly if there's a precipitous decline in some kind of historic norm of adverse events. The challenge I'm familiar with is that these are exceedingly rare events. One counterargument might be that, because they're so rare, if there's a high expense to implement something that would prevent such events, then there is no business case—you take the risk.

RW: On the flip side, there's a parallel movement to pay more for better care, under the heading of pay for performance (P4P). What do you think of P4P as a general thread in health care policy?

WW: That it's a good idea, but thus far my understanding of the percentages is that they're relatively modest—you know, 1% or 2%. I don't know how much this is going to incentivize, particularly smaller providers. It may make a difference to a large health care system, but not to smaller providers.

RW: In your studies of other industries, what percentages are generally necessary to lead to major changes in the way people think about and organize their work?

WW: Most organizations are looking for returns on investment of up to 20%. In a return-on-equity kind of concept, that's a good number to shoot for. I would assume that would be highly motivating.

RW: In a system that doesn't have enough money to do what it needs to do, is it feasible politically and otherwise to have cuts to poorer performers to create those dollars?

WW: Being from Dartmouth, I obviously have a concern about overuse of health care and am inclined to believe that there is plenty of money in the system. Dollars are being unnecessarily expended on overutilization of health care services. We could include mitigating the overuse of health care services by, for instance, not paying people for services that are not needed but instead paying for high-quality services that are needed. That could actually shift internally without costing a whole bunch of money. It would be a very different incentive. It would require right-sizing in a number of places, like Los Angeles, Miami, and New York, but it would actually free up monies to be put into quality improvement efforts and to ensure that people are getting evidence-based and effective care before they start getting care that they don't really need.

RW: As you look at evidence from the Dartmouth studies of what appears to be overuse in certain markets, why is this so hard to fix?

WW: We've gone to places and suggested that they need to reduce their utilization. So think of yourself managing a hospital, and people from Dartmouth come in and say, "You need to reduce your revenue." You've got to make your payroll. You have the same number of people employed. You have the same hospital that is mortgaged, and you're paying the same mortgage whether the beds are 100% full or 80% full. You have an incredible number of short-term fixed costs to cover, and that's how you make your money—on admissions. So there's a considerable amount of wariness about just saying, "No problem, we'll just reduce our utilization." In addition, if one health care system were to do that in, say, Miami, the others would be thrilled because now they would have increased demand that they could pick up.

Another problem might be that they're not owned medical staff, if you will. They are out there in the community practicing like everyone else in their community, and they are going to continue to do so. If someone tries to restrict their privileges or requests that they not admit as frequently, they may just withdraw their overall privileges and go to a different hospital. So there are very few incentives for high-utilizing places to reduce their utilization patterns because they'll lose money and they may alienate their staff that generates the money for them.

RW: Do you believe that providers continue to have enough power to prevent change from happening?

WW: I think you can do a shared cost-savings model so that the hospital doesn't go bankrupt as it becomes more right-sized. That would probably be the appropriate mechanism. So you establish what your previous norms were, and you move toward a more realistic norm for the population. While you're doing that, you get some payment for not doing work. It's like a corn subsidy to pay people to not plant corn in the field. But it would have a 5- or 8-year endpoint, which allows the organization to right-size without bankruptcy.

RW: When we look at why hospitals or doctors have not computerized, the argument always is economic—that nobody pays them to do this and these are substantial costs. But nobody pays other industries to computerize. They just find it in their interest to do that in terms of improving the value of their product. Why is health care so different?

WW: I agree with others who say that this is part of doing business and we ought to be there. Part of it may be a generational issue, where it takes physicians so long to become established and to become practiced. They have such a sense of autonomy that they really don't want someone else telling them that they need to be typists. When the electronic medical record was first initiated in the VA, that was one of the biggest complaints: "I'm a physician, not a secretary." The newer generation of residents, they're used to this, so they would expect it. In fact, they find efficiencies in it. Organizations that can design medical records allowing for better and easier data mining can actually have a wonderful asset to improve their processes of care and shave costs out of their systems that other organizations would not have.

RW: If you were in charge of the payment system and you wanted to focus on this particular issue of getting computers into every doctor's office, would you get doctors to see it as in their own interest to computerize or would you somehow be trying to promote that through more economic levers?

WW: As things go on, they will see it as in their own interest because they just won't be able to keep up. So I wouldn't actually change the amount of payment, but I would reduce the float so they can get paid faster or quicker if they do it electronically.

RW: You have spent a fair amount of your time and energy trying to teach economic principles to clinicians. What have you learned and how would you change the educational process so that people have the skills that you think they need?

WW: I would introduce some kind of business course as a requirement for all medical schools and familiarize them with some of the language and the ways that the financial guys look at things. Physicians can make very persuasive clinical arguments but not very persuasive financial ones, because they just don't know how the CFO thinks. So incorporating that into medical school and even residency would help.

RW: In the same way that clinicians sometimes don't know the way the CFO thinks, do you think that the CFOs understand the way clinicians think?

WW: Not necessarily. They understand that health care is very important and that clinicians have big fiduciary relationships to do the best for their patients. But at times, the CFOs don't see that balance. At Dartmouth, we're having practice managers and section chiefs go through a process together to learn each other's languages, if you will, and to be able to partner a little better in considering how to prioritize.

RW: Is part of the problem that the people who come into health care from a business background don't understand the professional motivations and tend to see all of the decisions through an economic lens?

WW: Yes, in business, the motto is caveat emptor: let the buyer beware. And in health care it's primum non nocere, which is first do no harm. Those mottos are antithetical. These two groups come to it with a different lens. Many of the health care organizations are obviously nonprofit, so I think they collect a certain type of businessperson. Nonetheless, there may be a lack of understanding. When I went to business school, I don't think I would have learned anything about health care if I had been just a straight business guy. I know when I went through medical school, I learned nothing about business. So there need to be opportunities for those two worlds to interact earlier and to partner just like physicians are partnering with nurses in interdisciplinary teams. I could see the finance people being part of that team.

RW: As the safety and quality fields began, there was a lot of interest in what health care can learn from aviation and what we can learn from Toyota and Alcoa. How useful are those models and where do you see them translating? Where do you see the translation falling short?

WW: The Toyota model is a good one because it allows for change at the sharp end where health care delivery actually occurs. At Alcoa, the issue was around making safety one of the key aspects of the CEO's job. Without leadership involvement at the very highest level, patient safety will just be some kind of a silo in which we'll fill out reports and nothing meaningful will change. The aviation industry has some interesting parallels. One of the huge differences is that when the plane crashes, the pilot is the first guy at the scene of the accident. When the patient crashes, that's not the case for the physician. That may sound a little cynical, but there's not quite the level of coordinated incentive in that analogy. But clearly examining the system's vulnerabilities and then mitigating those vulnerabilities is a better approach than that of picking out individuals and shooting them because they did something wrong.

RW: Do you think that over the next 10 years there will be a real market in quality and value? I see a relatively small segment of the population with the wherewithal to get on a plane for care; I see the rest of the population still thinking locally. It's nice to think about the highest quality provider and comparison shopping, but sometimes the access is such a problem.

WW: I think that employers will force that, along the lines of the Leapfrog group efforts, where they will say, "We will send you to this hospital because it has better outcomes." They'll cut a volume discount to go with that hospital, and the hospital will make money on the volume and the insurer will have better quality. You'll have less employee turnover, fewer sick days, and better outcomes for the employees. There will be a way to attract employees to work there. Assuming that we don't go to a national health care plan, my sense is that bigger employers will do this, and there will be coalitions of smaller employers that will try to do the same thing and try to force this.