‘risk vs return’ or ‘when the shit hits the fan’ in the OR

Taken from a Linkedin post of mine with the HFMA group:

Sandra,

The ‘general’ rule is that ASA 1-3 is ok for free standing facilities. That rule is effectively bent for rational reasons.  The ASA classification has a lot of subjectivity to it, and the risk of a particular procedure can be unrelated to the reason for an ASA classification of 4 or 5. For those reasons, different classification systems of risk have be suggested (and used) over the years.  The concept of increased risk vs cost still holds.

In finance the concept is risk versus return.  The greater the risk of an investment, the greater the return should be.  Lots of people have PhDs in finance from research and papers discussing that concept (Nobel prizes, too).  Bond ratings (risk) and subsequent return (interest rate) are based on that.  The current Greek solvency crisis and possible crash of some European banks (like the crash in 2008) revolve around that. Insurance premiums for healthcare (and investments) are based on that.

In healthcare reimbursement, the cost of risk seems to be ignored when compensating for the care of a patient. Is that due to ignorance of those paying for the service, or just an attempt to not pay for something.  Specific risks are often not understood by those not highly trained in a specific area or for a specific event.  A major source of stress for anesthesiologists is derived from surgeons who do not understand why anesthesia sometimes takes longer for certain patients in order to decrease risk of serious morbidity and even mortality.

If a surgeon doesn’t understand the risk…should we expect someone in the insurance industry to understand the risk (and associated compensation) increase?  Even if they don’t, the anesthesiologist does and may ‘game’ the system so as to not be on the wrong side of the risk-return curve.

Then there’s the concept of ‘game theory’ which, when applied to risk in anesthesia, involves proceeding through a specific serious of steps in anesthesia —any one of which can be halted or backed out of safely so that the patient never need to be coded. Game theory (strategy) is not taught as well as it should be in many places, and some anesthesia providers are much better at it than others (due to better training resulting in more techniques, or just better strategy skills).  The result being that the same case for one anesthesiologist may not be as risky to the patient as for another anesthesiologist.

Back to finance:

The reason why a portfolio of stocks, bonds, mortgages, or insurance contracts can be less risky than a single stock (etc) and hence earns less return (interest paid) is that the systemic risk has been decreased.  Along the same lines, if the risk of a patient can be decreased by application of game-theory, should the anesthesiologist be compensated less?

Even if the insurers do not take any of this into account, the facility hiring the anesthesiologist or anesthesia group should recognize this and choose to contract with those that give more value by decreasing risk (and inversely increasing return).  Usually, though, the shit has to hit the fan before any of this risk-return analysis takes place (same thing happened in 2008 with the economy).  Waiting for malpractice premiums to go up, dropping of coverage, or a massive law suit  to signal risk (or dropping of coverage) is too late for all concerned.

But even if the evaluation of these costs in a procedure are difficult to measure (though need to be taken into account), some of the other costs which are more easily quantifiable and can be followed but generally aren’t–should be.

About Brian D Gregory MD, MBA

Board Certified Anesthesiologist for 30 years. TOC design and implement for 30 years. MBA from U of Georgia '90: Finance, Data Management, Risk Management. Practiced in multiple US states and Saudi Arabia at KFSH&RC and KFMC Taught residents in two locations. Worked with CRNAs for 20 years.
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3 Responses to ‘risk vs return’ or ‘when the shit hits the fan’ in the OR

  1. Don Jarrell says:

    I am not a physician, so I do not have a personal stake, but I acknowledge that some doctors have commented that they do not want their decisions, diagnoses, or creativity constrained as that entails. Since we were speaking here in broad theoretical terms, objectively “playing the numbers” does involve slicing off both ends of the curve.

  2. Why would EBM ‘blunt the possibilities of the most brilliant’?
    And…yes, there are so MANY common analogies to be made that EBM should be obvious. Compensation, however, can get a bit sticky.

  3. Don Jarrell says:

    Fascinating post. Thank you. I think you have made a strong case for the efforts associated with Evidence Based Medicine, which many argue reduces collective risk and total costs over the variances of physicians’ actions – even though it blunts the possibilities of the most brilliant.

    Perhaps to better understand why your risk/payment paradox persists, you might want to consider an additional analogy in a bookie. Bookies make money on both sides of a bet – the foundation of which is uncertainty, or risk. Bookies don’t take bets *after* the game because the risks have shifted toward facts. As for insurance, or other reasons for calculating risk-associated monetary value, whatever medical outcome occurs, the “risk” has become zero and EVERYONE likes to forget it then.

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