...the hospital revamped how it treated some expensive ailments, cutting down high-tech tests and high-end specialists.
But a troublesome pattern emerged: The more cost-effective it became, the bigger financial hit the medical center took. "Everyone gained but Virginia Mason," says its chief of medicine, Robert Mecklenburg.
With each MRI that Aetna and the employers avoided at around $850, Virginia Mason lost about $450 in profit. The payment system of government-sponsored Medicare, which private health plans also use as a template, tends to reward the big capital expenses of buying high-tech machines such as MRIs. The more the machines are used, the bigger profit margin they pack. Meanwhile, reimbursement fees for doctors' visits have stagnated.
"The payment system is so toxic," says Francois de Brantes, a former health-care program director at General Electric Co. "Unless you tackle it, any health-care reform doesn't have much chance." Mr. de Brantes coordinates a program funded by employers that pays doctors bonuses based on patients' outcomes.
