Doctor James Reinertsen became CEO of CareGroup in 1998, arriving from Minnesota, where he had been CEO of HealthSystems Minnesota in Minneapolis. Known for his ability to balance cost-cutting and patient care, he has been termed a visionary leader who embraces modern efficiency techniques like Continuous Quality Improvement, or CQI, and puts them into effect in the hospital setting. In Boston, he is facing the biggest challenge of his career, promising to bring CareGroup to a point of break-even by this fall. He says that the biggest money-loser in the CareGroup panoply is the Beth Israel-Deaconess Medical Center. In November, he took over as President of BID to quicken the pace of change - and, many assume, cuts -- there.

Yet everybody's going broke. Health plans are going broke, like Harvard Pilgrim. Tufts is laying off people, you're laying off people. You're running in red ink. Other groups are running in red ink. What's wrong with that picture, and why are we where we are?

The health care institutions in Boston . . . are in trouble because of three things. One is that the expenses of the technologies that we're bringing to bear on caring for our patients are much higher than people are willing to pay for. The employers, the individual consumers, and a variety of others are not paying for what they're getting, fundamentally, in pharmaceuticals and in new technologies.

The second reason is that we have accepted on the delivery side greater discounts for our services than we should have from managed care payors that have more clout than we do. In effect, we have an uneven sort of negotiating platform. And we lined up accepting payment rates that are below our costs.

The third reason is that the federal government has not been happy with its costs for medical care and has dramatically decreased the payment rates through the Balanced Budget Act that we received.

If you add those three things together--federal cuts in payment, decreased rates of payments in managed care contracts, and rapidly rising costs for new, exciting technologies like pharmaceuticals and other things--that's the triple threat that we have faced, which has caused the red ink in the Boston market.

In effect, you're saying that everybody wants more than they're willing to pay for--the government, the employers and the patients.

We have an interesting health care economy. I've described it, and many others have described it, as a health care economy in which everybody will consume all the care that somebody else will pay for. That's precisely the spot we've now gotten ourselves into. We've allowed that to run to the point where people are getting far more than their employers and their government are, in fact, paying for.

We need to either provide a more limited form of treatment from the form of everything we always wanted, or we need to actually remove the waste from the system that is currently there. My own preference is to assume that there's waste and to remove it, rather than to assume that there is excess and ration it in some way.

It's very easy to very quickly start blaming the consumer for this problem. And that's not really where we should go. The truth is that the way in which the services are being provided to the consumer causes the consumer to believe that they are necessary and, therefore, they want those services. And the way they are provided is also extremely inefficient. Also, it costs a tremendous amount.

The consumer wants the services, x-rays, pharmaceuticals, hospitalizations, visits to doctors, and all of these things we do far more today than we did 20 years ago. The exception is hospitalization--we don't go into the hospital as much. But we visit the doctor more. We get far more prescriptions per year than any population in history, and we pay very little for those out of pocket or have any other recognition of what the costs actually are.

So the demand is unchecked, the supply is inefficiently organized , and the result is that it costs us a lot more to deliver them than we're getting paid for.

. . . Are we as consumers, and you as providers expecting and delivering a greater level of services than before? Never mind the cost of additional high tech--just volume. Do we expect more, and do we do more in terms of tests and drugs and so forth?

I don't think there's any question but that we do more tests and provide more services to the average patient with a particular condition or illness today than we did 20 or 30 years ago. We do most of those on the outpatient rather than the inpatient level. We don't hospitalize people as much as we used to. But we provide a tremendous number of tests.

Think about knee aches or pains. That's a common problem that former high school athletes and others might have. It's very common today to have a special x-ray, called an MRI, of one's knee to try to diagnose what the problem is. That x-ray might cost anywhere from $500 to $1000. That x-ray wasn't available 30 years ago and it is now in routine and common use for the knee, the shoulder, and a variety of other bones and joints where aches and pains occur.

[Is it a problem that patients want more, or more expensive, treatment than may be necessary for them, because they're heard about a particular drug or technological advance?]

It is a problem that patients are tempted to want medical services which may or may not be good for them, just simply because they've heard about them or had them recommended to them from a source that may or may not be reliable.

I used to use the story that health care was a lot like the toy industry, in that the person receiving the service is not necessarily the person paying for the service. . . . The child wants every glittering box on the shelf. But the moms and the dads are the ones who have to put the dollars down at the checkout counter.

The employers and the taxpayers are those who have to put the dollars down at the checkout counter. But when we, as individuals, are walking through that store as patients, we tend to be more like the six-year-old.

That metaphor can only go so far. . . . Of course, the patients should want these things. They want to get better. They care about getting the very best treatment. The difficult part is to use evidence to sort out what is really best for them, as opposed to what looks really glittery and has a nice package on it, but might not do any good whatsoever.

We have lots of examples of that. Probably the most telling example is the whole controversy over bone marrow transplantation for breast cancer. Now, more than ten years later, we still don't know whether it's the right thing to do for many women with advanced breast cancer, because the overwhelming demand for the procedure literally swamped our ability to do research about whether it really worked or didn't work. In effect, you couldn't compare doing the procedure to not doing it.

Is there any ready cure to tame the appetites of the consumers?

It seems to me and to a lot of other people that one of the only ways we will tame the appetites of the consumers is to provide the consumer with some stake in the decision, from a financial standpoint.. . . At some level, the only way we can constrain costs ultimately, is by having some brake applied by the consumer saying, "That's a nice fancy thing, but I just don't want to pay for it. It's just too expensive to get that MRI for my knee. I just don't think it's going to help."

We've tried alternatives to constraining costs. We've tried managed care, where the managed care company, the HMO, decides whether you should or shouldn't have access to a particular service. That's obviously not been a very popular idea and basically isn't done, because the public has risen up and said, "We won't stand for that."

Another alternative would be to have a government commission decide whether you should or shouldn't have access to a particular set of services. But that's a fairly un-American idea.

So from a practical standpoint, perhaps the only way to really resolve this cost question is to put a certain amount of the cost back on the consumer and say, "If you really want to have this MRI done, the system will pay for half the cost and your Visa card will pay for the other half of the cost."

In the CareGroup set-up, and specifically at Beth Israel Deaconess Medical Center, what's your mandate from the board in terms of dealing with these same issues that we've been talking about?

The board of this institution has asked me, as CEO, to make sure that we deliver the mission of this institution--to provide care, do research and to train the next generation of professionals to deliver that mission, and to do it in a way that makes us the extraordinary institution that we've always been. It doesn't allow us to become ordinary. That's the mandate from the board.

The most obvious threat to our being able to accomplish that mission is a financial threat. It's the old "No money, no mission" issue. We need to right our financial circumstances before we can move forward with that mission. So we need to correct our financial situation very quickly in order to be able to return to our long-time focus on excellence in care, innovation in research, generating new knowledge and training new professionals.

How quickly is "very quickly" to get into the black?

We need to get into the black by next fall. We have given ourselves about a nine- month assignment here to move from our current rate of losing in the neighborhood of four million dollars a month to breaking even--at least a break-even rate by next fall.

To do that, what's your biggest problem?

The biggest problem is making sure we establish and maintain a sense of urgency without going all the way over into a state of panic. It's one of the more interesting challenges for a leader. You've got an organization that has tried certain things, and they've always worked for decades, and all of a sudden those things aren't working anymore.

So you have to jar the organization out of its complacency, and say, "We have an urgent problem. We have to address it. We have to be resolute about it. We have to move through this very quickly."

When an organization has been in a state of relative complacency and stability for decades, when you originally communicate that message that we have a problem that we need to deal with urgently, it's very easy for the organization to swing all the way over into panic.

In order for us to make a rapid financial turnaround, we must take action on a number of fronts. It isn't just one big grand strategy to achieve this. So the broad categories of action we need to take are the following: We need to achieve a sense of operational discipline--which we have not had before--around how we manage our time, our schedules, what the doctors are doing with their time, and the like. And we have to manage the dollars that we have in our trust. That's the first thing that we have to do.

The second thing we have to do is to grow strategically. We have to grow those services that actually bring some dollars into the organization, rather than continuing to grow services that are hurting us every time we enroll a new patient.

And the third thing we need to do is to engage the hearts and minds of everybody in the institution on these activities. It cannot be the case that this is the assignment given to administration to fix this problem. So a big part of the strategy for rapid turnaround is to get everybody's heart and mind focused on this goal, what they can do to achieve it, and start getting there.

It's interesting that you say that. One of the things that we've heard repeatedly from your colleagues is that conversation among doctors is striking today in its difference from the conversation among doctors ten or 15 years ago. . . . I'm told that, in the old days, they were talking more about medicine. Now they're talking almost constantly about money--how do they handle capitation, what the health plans are doing, their compensation, the cost of patients--money, money, money. It sounds as though they're focused on the issues you're talking about.

Doctors today are talking about money, because money is the crisis that we're facing. . . . The pressures they're getting come from payors, from administrators, and from their department chairs. They come from everywhere.

For that reason, the physician's focus of conversation has been financial, much more today than it would have been 20 years ago. It isn't necessarily the case, however, that just talking about it gets us moving in the right direction. You need to talk about it in a healthy way.

If we discuss a problem like our financial challenge out of a posture of victimhood--"Woe is us, look what they're doing to us. The place is not what it used to be. It's all their fault. Look at what they're doing it to us again," then we will never get there.

We need to change that conversation so that the conversation is more like, "Okay, we've got a problem. This is our part of the problem, this is their part of the problem. Let's work together on this. If we take these sets of actions, we know it will help the institution, so let's go do it." That's a different conversation.

What's the importance of what Kim Saal has been doing in terms of that whole operation over at PSN--the information systems that he has developed--how important is that in achieving the efficiencies that you want to achieve?

One of the things that we've been able to do in CareGroup is to provide an answer to the question that doctors ask, which is, "How can I help? How can I do better? If it costs so much for health care in Massachusetts, what's my contribution to that?" Dr. Kim Saal and his colleagues have provided a sort of a feedback loop to the physicians.

They've taken all of the data from all the health plans, put it into a big database, sliced and diced it, and they're able to provide feedback down to the individual physician level to each doctor. They can say, "Dr. Jones, you did a great job last year or last month . . . on the cost of hospital care and the quality of the outcomes for your patients, and a variety of things. But you are in the top two or three in the world for cost of prescriptions. And you might want to take a look at that. In fact, here are the types of prescriptions that you write more than any doctor known to mankind. And here are some helpful hints about that."

Physicians have never gotten feedback like this before, not regular feedback, on their performance in a variety of dimensions of their work, including the cost of their work.

Ultimately, somebody is paying if those prescriptions are unnecessarily costly. Somebody is paying for them that probably shouldn't be paying for them. We're devoting the resource there when it could be going to something else. That's a waste and that should be something the physician should be aware of.

You talk again and again about waste and inefficiency here. A lot of stuff has been cut out in the last eight or ten years. Where is the waste and inefficiency that can be cut out?

The waste and inefficiency in our system is largely in unnecessary complexity. I'll give you some examples. The average doctor's office of a couple of doctors has six additional employers. It's doctors, and six staff: nurses, receptionist, medical records and the like.

Of those six staff, only 1.5 on average ever touch or talk to a patient. Four and a half of those six employees are dealing with the complexity of the system, getting referral authorizations, making sure the bill is right, dealing with the 132,000 pages of regulations in Medicare law, as opposed to 13,000, by the way, in the entire Internal Revenue code. They're making sure that the payor the patient is allegedly covered by is, in fact, the payor that they're currently covered by. It's a long, long list of things that are going purely towards what I would call administrative waste. We've got a lot to do there.

Another area I could describe has to do with the complexity of our inpatient procedures. For a variety of reasons, we've made things very complicated. For example, if I order a prescription in the chart today in the hospital, for a patient to receive a medication, there are between 45 and 60 steps between that order and the patient actually receiving the medication.

Any one of those steps is a potential error point and, in addition, the double checking and triple checking that has to go on because of the complexity of such a system creates an enormous layer of cost.

I cited two very specific examples of complexity. And I think that's our major opportunity to remove waste. If we were to make these things simpler, a simpler administrative system for payment, a simpler oversight and regulatory system, simpler processes to flow the core processes that work in our hospitals, we'd reduce cost dramatically.

In this circumstance with your red ink, can you continue as a group or as a medical center to subsidize primary care doctor practices? You now have a few that are money losers.

One of the really lousy ideas in hospital management in America for the last ten years has been to go out and buy practices that are delivering primary care and then make sure that those patients then, of course, use your hospital.

On average, doctors in hospitals across America are losing $100,000 to $200,000 thousand per doctor on those practices, based on the purchase agreements they made, and the way they've managed the practice. We are doing a little bit better than that, but not much. One of our jobs over the next several years is to reframe the deal, in effect, that we have made with our physicians in that respect.

It's going to be difficult but it needs to be done. We need to return those wonderful small businesses called doctor practices back to their previous state, where they were actually making ends meet and managing to run themselves better as a small business than we as hospitals have been able to run them as a big conglomerate.

Are you talking about getting people out of the hospital even faster than now?

No, I don't think we will be able to get people out of the hospital a lot faster than we now do. We've pushed that idea about as far as it can be pushed. The issue really is to decrease the complexity of the care system that actually is responsible for the patient while they're in the hospital.

Another area where you're in effect subsidizing care is the senior programs, like Secure Horizons, and Medicare HMOs, where some years ago those were reasonably profitable. Patients have gotten older, care has gotten more expensive and now those practices are losers. . . . We've talked to people in the pod. Like many others, they just happen to have a large concentration of these folks. Can you keep accepting those kinds of patients . . . under the deals that you got from the HMO, or are you going to have to either renegotiate the deals or let the patients go elsewhere?

We've asked ourselves several times whether we can continue to do Medicare/HMO work. And each time we have decided that we will continue to do it. We are hoping that that will be the case, because it would be very disruptive to our patients to have them completely change their insurance mechanism and still be able to come and see us.

On the other hand, it's very clear that this is an increasing loss item for us. It may well be the case that our efforts on all these other cost fronts and everything else will not be enough, and that we will also need to go back to our Medicare patients and say, "We're sorry, but we need to have you go to sort of regular Medicare rather than this Medicare/HMO idea. The Medicare/HMO payments just simply don't cover the costs anymore."

What do you say to your colleagues who said to us, "We've gone as far as we can go. We're right at the limit to what we can cut. If we go any further, no matter what we say about it, we're actually going to be cutting into the quality of care or into the caring relationship itself."

I hear a lot from nurses and from doctors and pharmacists that we can't go any faster, we can't cut any more, or we will start hurting quality. And when I hear that, I listen to what they're saying. I'll often ask them a question that goes something like, "Tell me, on this shift today, are you doing anything as a nurse that you regard as pretty much a waste of your time." . . . And they'll start to tell you about something that's a complete waste of time.

For example, . . . a nurse told me that each nurse on each shift . . . might spend over 20 minutes a shift making several calls to the pharmacy to get needed medications. . . .

If you add up a number of events like that . . . I think we've got a lot of waste in your work that we could improve. They would have more time at the bedside with patients if we eliminated all of that. And I ask them, "Is that what you most care about in your work?" And they always say, "Absolutely."

So what we're working towards is maximizing the amount of time a nurse or a doctor does real value-added work, touching a patient, holding a hand of a dying patient, talking with them through a difficult problem. Eliminate the administrative waste of having to call the pharmacy back, or trying to figure out what the doctor meant in his handwritten order that they can't decipher, or whatever else that's taking their time away from their patient work.

How did doctors respond to what we were talking about before--what Kim Saal has done with this feedback loop?

When we have given physicians feedback on their performance, such as their costs per outpatient visit, their frequency of lab tests and x-ray ordering, or the frequency of prescription ordering, what we have found is something very interesting.

The report card system we have has gotten very little challenge form the doctors about the credibility of the data. They're very responsive to report cards. Doctors spent many, many years getting very good report cards, and they want to get good report cards. And their behaviors change rather rapidly when they realize that their colleagues are doing better than they are on a quality measure or a cost measure. So they'll go to their colleagues and say, "What are you doing differently that allows you to show me what's a better way?"

And they learn very quickly and adapt, and we've seen dramatic improvements in a variety of these areas just in the first few months of the report cards.

Do you think it's a good idea for doctors to be thinking simultaneously about care and about the cost of care?

I think it's important for doctors to know the value of the services they're providing. That means they have to know both the quality of the care and the cost of the care. Let me give you a specific example.

I used to take care of a lot of patients in a first-dollar coverage situation in Minneapolis, insured by Cargill and General Mills. And they had no out-of-pocket costs for most care, and maybe a five-dollar co-payment for any prescription. I developed a certain way of taking care of them. After a few years, I started going out into the country, a couple of hours away, to take care of patients and see them in a small town one day a month. I did exactly the same sort of practice methods that I did in the city.

After I saw patients back on the return visits, though, I began to learn something about the country insurance that I didn't understand about the folks in the city. The farmers out there would have catastrophic coverage, in which they would have a $5,000 deductible. After that, things were covered. They bought insurance so they wouldn't lose the family farm.

When I'd come back to see them a month or two later, they'd say, "Doc, do you know how much that pill you gave me costs?" And my bad answer was, "I don't know, what did it cost, John?" And he'd say, "Sixty bucks." And then he would ask a very important question: "Do you have something that would work just about as well, but would cost less?"

And it turns out I did, but I just hadn't thought about it. He was paying out of pocket for this prescription, and I'd never had any mindset at all about what things cost, because my patients didn't have any mindset about it.

It's very important in the doctor/patient relationship for us to be in sync on this one. I can be a value adviser for my patients if they have concerns about the costs of the treatments or the interventions or the diagnostic methods that are being used.

Your doctors consistently say they're most worried about the doctor/patient relationship, that patients no longer trust me to give them the best care. They think the doctor is worried about the bottom line.

We've had an interesting transition in the country from the old days. There wasn't any insurance at all, and the doctor just took care of the patient in return for whatever they could pay, in which case the doctor's interests economically were, in an interesting way, not necessarily all aligned with the patients.

And then there was an era where third-party payors paid on an indemnity basis for whatever the doctor and patient decided they want to go and get. Then managed care came in and said, "No, you can't get these things," after the doctor ordered them.

The second era of managed care put the risk on to the doctor, so the doctor's pocketbook was now paying for the decisions. And that's the point that you're describing where the distrust starts to get into the room. We need to get past that phase of things, very quickly, and many plans are doing this. We are working at ways of getting out of such arrangements, where we, in effect, are aligning our interests with those of the patient.

Let me be sure I understand where we are now. Tell me again where you say, "We are now with the doctors," and how you get that.

The real critical thing for patients to understand is that when they walk into a room with a doctor and they sit down and the doctor's evaluating them, how that doctor is paid is a very important thing for the patient to know.

The very best way for a doctor to be paid is on a salary, where whether the doctor makes decisions to do something for the patient, a procedure, an x-ray or something, or not to do something for the patient is totally irrelevant to the doctor's income.

The doctor is simply there to make the best judgment possible on behalf of the patient. That is the very best method of payment. It's not silly or unwise for the doctor to be aware of costs when doing that, because ultimately the patient and the taxpayer literally pays for all of these costs one way or another. But there's no personal income at stake. A firewall needs to be drawn . . .

It's very important for a patient to know how a doctor gets paid.

It's very important when a patient sits down in a doctor's office to know how the doctor is being paid--not how the institution is being paid, not how the group practice is being paid so much, but how that individual physician is being paid. If the individual physician has an incentive to provide more care to you, then you, as a patient, need to be on the alert for recommendations from a physician for unneeded or unnecessary services.

That's a distrust-engendering event, although, interestingly, less distrust-engendering than if the physician has an incentive to withhold services from you. Personal financial incentives tend to engender a great amount of distrust. Both sides of that set of incentives have real problems associated with them, but for a variety of reasons, probably the main one being we tend to equate doing more things with quality. . . .

Patients tend to have less distrust if a physician has an incentive to do more things for you and is rewarded economically for doing more things on your behalf.

How do you get out of the situation where you're in now--that a lot of your doctors say they're in now--where the financial incentives are on them to limit treatment, particularly primary care physicians?

Probably the only way, ultimately, that we can get out of a situation where physicians are put in this bad guy role of limiting treatment is to put the patients back into a role of having a stake in the cost of the treatment. Then the physician's and the patient's interests once again become aligned, like my rural farmer. That farmer had a problem, and he knew that I could make recommendations one way or the other. If I made a very costly recommendation, I knew and he knew that he was paying the bill.

And he might ask me to try a different tack here, and see how it goes, and I could counsel on the advisability of that. And I can tell you, very interestingly, I never ever encountered wanting to do something expensive because I knew it was potentially lifesaving or was really important, and had one of those people with catastrophic insurance coverage in my farmer population ever say, "No, I'm not going to do it, Doc, it costs too much."

I never had trouble convincing them about what the right thing was to do. They often reminded me about how expensive my recommendations were, and I would often be able to find a less expensive path for us to go in. That aligns those interests. I didn't lose any trust with those patients. In fact, we had a better trusting relationship than I had with first-dollar coverage HMO patients in my practice in Minneapolis.

The only people making money in health care right now are the pharmaceutical companies and the device manufacturers. They're able to sell their wares to an intermediary, in this case to a hospital, who then delivers their products. If it's a device, the hospital puts it into the body of a patient to help them get better, or gives them the medications to cure their cancer. And then has to go to try to collect the bill.

We do treatments here that cost us $50,000 just for the treatment in the hospital, for which the total payment from the federal government and from the payors for the whole hospitalization is $11,000. And we do those every day. We're probably doing several today, such as giving chemotherapy like Interluken-2 for some advanced cancers. The people that are making the drug are getting their investment repaid. We bought it from them. It costs us $50,000, we're putting it into a patient, and getting paid $11,000 for it.

And when you're saying that the patient needs to be a co-payor, it's a fact that people are complaining about paying higher health insurance premiums. Employers are shifting more of the burden onto their employees to pay more of the premium. We have 44 million people who have no insurance in this country today. . . . We have over-insured 80 percent of the public, and that costs us so much that we can't buy it for the rest of the 20 percent.

By over-insurance, I mean they have access to a lot of stuff that simply has little or no value, and it is being done every day all over the place--x-rays, knee arthroscopies, and procedures of one kind or another are being done all over America today that have relatively little value, although they are evidence of quality in the sense that they show that we're trying hard.

And the reason they are being done to the extent they are, and the reason that they are priced as highly as they are, is because none of them have had to stand the scrutiny of a patient market saying, "Wait a second, if I have to buy that, I'm not paying $800 for this x-ray. I might pay $300 for it."

I think several things would happen if patients bore a greater portion of the costs for certain kinds of interactions at the time they happen. One is that the price would come down, because the market wouldn't sustain it. If patients judge many things as having no value, the market would not sustain the prices.

And the second is the frequency with which they're done would dramatically decrease. The total cost would go down so far, we could extend coverage to the other 20 percent who now don't have it.