When The Mathematician Had No Clothes

There are very few moments in life when you are witness to your own metamorphosis as a human being.  I can count very few:  a near-fatal car crash, the births of my children, watching a plane hit a tower on live television.  One such moment occurred while completing an internship with the president of a major teaching hospital.  This comes to mind because I ran into the man recently having not seen him for nearly thirty years.  Although I count him as one of the most important mentors and inspirations in my life, to him I was a distant memory. 

I came to this prominent hospital leader to conduct important research in length-of-stay.  I was a shy student, not at all confident in my abilities, my knowledge, or my experience.  It was a testament to his dedication as a leader that he not only tolerated me, but also took the time to explain hospital dynamics and expose me to the politics of Board meetings, confidential discussions of hospital issues, and his true opinions of the people around him.

It was pre-managed care.  The golden age in the healthcare industry was waning and cost-based reimbursement would soon come to an end.   DRGs were on the horizon; our State devised a complicated reimbursement formula to win an exemption from Medicare DRGs, at least until the next election cycle.   The final phase of my work was to project this legislation's financial impact on the hospital. 

It is an understatement to say that no one had high expectations for the work I was doing.  The tricky reimbursement formulas—designed by a top mathematician—had been vetted to death in public forums.  Most of my professors had reaped large consulting fees for advising either the Rate Setting Commission or the dozens of hospitals across the state about what would happen next.  Hospital executives were fearful about planned expansions and construction projects already in progress; visions of bankruptcy loomed large.  Dutifully and well under the radar I ran the numbers of my analysis, merging the cost behavior analysis I had learned in class with the newly published reimbursement guidelines.  Nothing was adding up as advertised.

The new State "all-payor system" was designed to offer incentives for hospitals to reduce inpatient volume and to shift care into lower-cost outpatient settings.  Accordingly, the payment system punished hospitals for volume increases by reimbursing less than the full average cost per day.  My analysis took exploited true cost behaviors, showing that costs for certain types of care were “front loaded” during the patient’s stay, thus creating a mismatch between cost savings and payment adjustments. A full occupancy hospital could increase patient volume to the extent that they could lower length of stay.  Although not reimbursed at full cost,  payment for volume increases was favorable at the margin. The punch line is that despite its intentions, the legislation actually offered a bigger incentive to increase, rather than decrease, inpatient volume.

I called my mentor’s secretary to make an appointment so I could share my findings.  He was in closed door meetings for the foreseeable future, as the hospital was bracing against the threatening impact of the impending legislation.  I happened to see a poster by the elevator at school announcing an upcoming roundtable discussion where all the local hospital presidents would appear on a panel to discuss how their hospitals were preparing for the future.  As a special guest, the mathematician who was architect of the plan would describe his formula.  I decided to ambush my mentor at this event.

I fidgeted through the lengthy event.  The mood in the hall was somber as each administrator described the belt tightening that needed to take place.  The presentation by the famed mathematician only reinforced what I already knew.  Finally, the crowd began to disperse and I cornered my mentor.

“I must talk to you immediately about what I’ve found,” I said, now breathless with anticipation. 

“You make it sound like you’ve solved all the problems of the universe!” he chuckled, half-mocking me.

“A lot closer than you may think,” I answered.  “I need you to see this before I show it to anyone else—especially my professors.”

“OK,” he laughed.  “Meet me at 7am in my office and we’ll see what you’ve got.”  I went away satisfied, but in no way convinced that he was really taking me seriously. 

The next morning I arrived with a single page of typed notes clipped to a twelve-inch-thick stack of worksheets.  I had run the numbers so many times I no longer needed the cheat sheet.  Without prompting, I went straight to the flip chart and began listing key assumptions.  The formulas were so complex that I used a simple representative department as a model, extrapolating results to other areas.  In the end, on a single piece of paper, I demonstrated that an anticipated loss to the hospital could instead be a gain ten times greater—by doing the opposite of the conventional wisdom.

He asked only one question: “How is it possible that the greatest minds in the State have been debating this for months and no one saw this?”  “Well,” I answered, searching for an answer, “the architect of the formula is a mathematician.  He sees all costs as equal; he does not understand what accountants know about cost behavior.”

Without another word he picked up the phone, ordering his secretary to summon the Finance Committee of the Board of Directors to his office for the next morning.  I asked what I could do for him to prepare him for the meeting.  “Me?” he asked, surprised.  “I have no intention of presenting this.  It’s your work.  You will present it.”

“I can’t present it,” I said, visibly terrified. 

“Sit down,” he said, gesturing to the chair where I normally sat at our weekly meetings, thus reducing me from prophet back to my actual student size.  “Always remember this.  You know far more about this topic than anyone else in the room.  In fact, at this moment, there is no one in the world who knows what you know about this.  Why would you be afraid of them when they are ignorant and you are the expert?”

In that one moment by that single statement, this man changed my life forever.  To many who read this story, I am perceived as commanding and convincing in front of a room.  In fact, this confident stance was a priceless gift bestowed that day by my mentor.  Through his patience and generosity he taught me the power of being secure in my knowledge and convictions.  The young lady who left his office was just slightly taller than the one who tiptoed in. 

A few weeks later, my distinguished mentor sat behind me as I presented my resulting thesis to the faculty. It set the school buzzing.  The sector was hungry for analysis; it was a great time to be emerging into the healthcare market with a shiny new graduate degree.  I accepted a job with the same authority that built and administered the State all-payor system. When it came time for the legislature to renew the contract, it was passed unchanged with one exception—the flawed volume incentive calculations were quietly removed.

We live in a world of information excess, instant gratification, and quick fixes.  It is easy to get caught up in the tide.  Every once in a while I like to remind my children to trust in themselves and what they know to be true.  In the end, the stock you build in yourself is the only investment that never loses value.


Tomorrow's blog:  Grammar or Not, Here I Come