The Hospital That Could Cure Health Care

The Cleveland Clinic, where president Obama went in July to see high-quality, cost-efficient medicine in action, has miniaturized robotic tools that can repair a heart valve through an incision less than an inch long, a computer system that allows doctors to read patients' charts and write orders from anywhere in the world, and the last word in networked, interactive supply closets. Any time a nurse takes something from a shelf, it's recorded by a program that keeps a running count of 350 items in hundreds of locations, and can dispatch a self-guided robot cart to bring replacements from the warehouse. A century after Henry Ford began building cars on an assembly line, Cleveland Clinic has brought that technique to medicine, updated to reflect the latest Japanese-inspired thinking on "lean manufacturing" and "continuous-cycle improvement." Cleveland Clinic is a hospital trying to be a Toyota factory.

In his efforts to improve the efficiency of medical care, Cleveland Clinic president and CEO Dr. Delos M. Cosgrove, a former cardiac surgeon, has enlisted every tool of modern management, obsessively tracking metrics of performance from blood-bank usage to market share, even redesigning hospital gowns in an initiative to "improve the patient experience." He has expanded the system to nine community hospitals and 15 "family health centers," plus satellite facilities in Florida and Toronto and one under construction in Abu Dhabi. Riding roughshod when necessary over the prerogatives of the existing staffs, he has consolidated some services (such as cardiac surgery) in the 1,100-bed main hospital campus and distributed others (including primary care and routine obstetrics) to the communities.

He has even taken on the most intractable driver of American health-care costs: Americans. Having already banned the hiring of smokers (a dictate enforced by urine tests for nicotine), Cosgrove declared this year that if it weren't illegal under federal law, he would refuse to hire fat people as well. The resulting outcry led him to apologize for "hurtful" comments. But he has not backed down from his belief that obesity is a failure of willpower, which can be attacked by the same weapons used to combat smoking: public education, economic incentives, and sheer exhortation. "You have to be an optimist to be a cardiac surgeon," says Cosgrove. You also need a measure of self-assurance, bordering on arrogance, to take a beating heart into your own hands, and Cosgrove—who is imposingly tall and fit, with an unsettlingly intense, unblinking stare—gives the impression he wouldn't hesitate to snatch a potato chip from the hand of anyone who dared pick one up in his presence. It would have to be brought from home, though, because under his administration, potato chips have been banished from the clinic's vending machines.

As Cosgrove told a Senate hearing in June, the clinic's business practices offer a potential model for the American health-care industry as it strains to bend the ever-rising cost curve. The evidence was in the 2008 Dartmouth Atlas of Health Care, which reported that of the five medical centers ranked best by U.S. News in 2007, Cleveland Clinic provided the most cost-efficient care, measured by expenses incurred during the last two years of life—$31,252, nearly 50 percent below the most expensive. The clinic's distinctive feature is that in contrast to most other American hospitals, where doctors are essentially autonomous professionals, at the clinic physicians work on fixed salaries and yearly contracts. An outsider might describe this relationship as "employer-employee," although Cosgrove prefers a teamwork analogy; he calls Cleveland Clinic "the world's second-largest group practice" (after Mayo Clinic, which is organized similarly). This saves money in many small ways, such as on expenses for medical supplies and devices. "Because we're all on a team," says Dr. Joseph Sabik, chairman of thoracic and cardiovascular surgery, "instead of stocking 30 different heart valves, we can stock two or three, and unless there's a good medical reason to do otherwise, that's what we use." And it saves money in one large way, by divorcing doctors' income from the number of procedures they perform. That, in turn, reduces the incentive for unnecessary tests, whose cost to the economy was estimated at $210 billion a year in a recent report by PricewaterhouseCoopers.

That's an eye-catching number, even in the context of $2.2 trillion in overall health-care expenditures. Along with many other health-care experts, Cosgrove worries that the bills now making their way through Congress won't do enough to control expenses. "They set out to improve quality, access to health care, and cost control," Cosgrove said after the House bill passed. "I give them an A so far on access, a C on quality, but I'm not sure they're going to get a passing grade on costs." A number of proposals have been floated to improve cost efficiency by "bundling" reimbursements—paying hospitals a fixed amount to treat a given condition, rather than require itemized bills for each test and procedure—or rewarding hospitals for improving care and holding down expenses. Cosgrove believes even more fundamental reforms are needed, including better coordination among hospitals and doctors, and between hospitals—along the lines of what the clinic has already achieved. But a broad reorganization of American health care may be a bridge too far, at least for now.

The same study estimated that another $210 billion is wasted each year on medical paperwork. That, though, is one potential savings that has mostly eluded Cosgrove. At the clinic's patients' accounts office, rows of cubicles are piled high with file folders and printouts, testimony to its dealings with thousands of different health plans from hundreds of insurance companies all over the country. Thousands of times a day, clerks pick up the phone and get put on hold like anyone else who calls an insurance company. Industry estimates put the average cost of handling a phone call at $3, to each party. This is the hidden cost of competition; whatever else a government-run health-insurance system would accomplish, it would impose a uniform billing system on the current one, in which clinic's 2,000 doctors require 1,400 clerks to handle their billing.

Cleveland Clinic works so well as a business in part because it works so well as a hospital. Cardiac medicine and cardiac surgery are its crown jewels, a major reason that it attracted 39,309 patients from other states and 2,380 from 102 foreign countries last year. Many were transferred from other hospitals aboard the clinic's fleet of helicopters and jet transports, outfitted as flying intensive-care units and kept on 24-hour standby. They will pick up any patient not actively receiving CPR, including one who was flown to the clinic on heart-lung bypass. When they take off, they don't know and don't ask whether they're coming back with a homeless drug addict, whose care may run into hundreds of thousands of virtually unrecoverable dollars, or a senior partner in a law firm. Like most hospitals, the clinic counts on privately insured patients, who generally are profitable, to balance those on Medicare, which pays about 6 percent below cost, and Medicaid, whose payments average about 14 percent below. Unlike most hospitals, though, its reputation assures it a steady stream of wealthy patients, including foreigners, whose bills do not have to pass the needle's eye of an insurance-company claims examiner.