Physician Finances Physician Retirement Planning

Planning For Retirement For Physicians Part 3: How Much Money Do You Need To Save For Retirement?

This is the third in a series of posts made in preparation for a presentation I will be making for physicians in fellowship training. In the last post, I made the argument that a physician making $250,000 per year now will need about $9,000,000 in retirement savings 30 years from now in order to maintain the same standard of living that he or she has now. In this post, I’m going to outline the path for getting to that $9,000,000 number.

A $9,000,000 retirement fund is not that difficult for a physician to achieve, as long as the physician starts saving early in their career, saves regularly and invests wisely. And it is all due to the wonder of compound interest.

Let’s again start with an example of a new physician making $250,000 a year currently. Assume that the hospital or group practice employing that physician has a retirement plan that automatically puts away 10% into a retirement plan. That is $25,000 per year right away. Now let’s assume that the physician also puts away an additional $15,000 per year in a 403(b) plan each year. That is a total of $40,000 per year in retirement savings each year. In other words, 16% of your annual income is going into saving for retirement. Let’s further assume that the physician is 30 years old and plans to retire in 35 years at age 65.

Because retirement is a long way away, you can tolerate a lot greater year-to-year volatility in the value of the retirement fund than you could if you were 5-10 years away from retirement. This means that your retirement fund should be primarily invested in stocks as opposed to bonds at age 30. Historically, over the past 90 years, the stock market has averaged a 10% return per year. However, this is an average and there is a lot of year-to-year variability and even decade-to-decade variability so a more realistic return is lower, for example, 7.5%.

At the optimistic 10% average annual rate of return, the $40,000 invested in a retirement fund today will be $1,306,000 in 35 years. At the more realistic 7.5% annual rate of return, that $40,000 will become $548,000 in 35 years. But you will not just be investing into your retirement fund this year, you’ll be investing every year up until retirement.

So, let’s assume that you invest $40,000 per year every year for the next 35 years. At a 10% annual return, the value of your retirement fund will be $14,000,000. At the more realistic 7.5% annual rate of return, the value of your retirement fund will be $7,360,000.

But the reality is that you are unlikely to just put $40,000 into retirement every year for the next 35 years. As inflation gradually increases your salary over time, the amount that you put into your retirement plans will also increase over time, even if your retirement contributions stay as a fixed percentage of your total salary. Therefore, if you keep up with your current investment contributions of 16% of your annual income, you will easily exceed the $9,000,000 retirement fund goal in 35 years.

The good news is that reaching your projected retirement fund balance is achievable. The bad news is that many physicians fall prey to the 2 biggest obstacles in achieving their goal: bad advice and bad judgment. In the next post, I’ll outline some of the common ways that physicians’ annual rate of return gets eroded, leaving them with less money in their retirement account than they had planned on.

August 20, 2016

Physician Finances Physician Retirement Planning

Planning For Retirement For Physicians Part 2: Retirement Fund Options

This is the second in a series of posts about physician retirement planning that I created as part of a presentation that I am giving to fellows in training at the upcoming American College of Chest Physicians annual meeting. In this post, I am going to define some of the common retirement options that physicians may have available to them.

For many physicians, the decision you make on the first month of your job will dramatically affect your retirement decades later because some these retirement planning decisions are permanent. After going through medical school, residency, and maybe a fellowship, physicians are not trained in how to invest for retirement and when they finally sign a contract for their first job out of training, they don’t understand the nuances of the retirement options that they are about to choose from. This blog post is a primer on the different choices that you have. In future posts, I’ll go into some of the unique pros and cons of several of these different options that physicians face.

  1. Pension plans. In these plans, the employer, employee, or both put pre-income tax money into a pension fund and when the employee retires, he or she can draw down on the fund, paying income tax as the money is withdrawn. There are two general types of pensions:
    1. Defined benefit pension plans. In these plans, the employee and employer contribute a percentage of the employee’s income into the pension plan every year that the employee is working. The employer usually controls how the money is invested. Then, when an employee retires, they get a fixed annual income (the “benefit”) every year for life. The amount of the benefit is usually based on the amount of the employee’s final salary before retirement plus years of service to the employer.
    2. Defined contribution pension plans. In these plans, the employee and employer contribute a percentage of the employee’s income into the pension plan every year that the employee is working but the employee controls how the money is invested. Unlike a defined benefit plan, when the employee retires, they can determine how to withdraw money from their pension account but when that money is gone, they no longer have any benefits.
  2. Annuity plans. These are really an insurance plan for retirement income. In these plans, a person purchases an annuity and then when they retire, the annuity pays them a certain amount every year. In this sense, it is sort of like buying into a defined benefit pension plan. Some people who have a defined contribution pension plan with their employer will take the money out of their account at retirement and purchase an annuity to ensure that they always have some annual income for as long as they live. An advantage is that it gives the person a fixed annual income for life after retirement. A disadvantage is that annuities can have a lot of overhead expenses.
  3. Social Security. In reality, this is just a big defined benefit pension plan. It was originally created as a safety net to address the high poverty rate among older Americans by providing them with a minimum basic income. It is funded from payroll taxes. But the amount of income a retired person gets from Social Security is fairly low and barely enough to live on. For physicians, social security will only be a very small part of their retirement income. And for physicians who are employed through state governments that have state-affiliated pension plans (for example state teachers retirement systems), the Social Security annual benefits are reduced and in some cases, non-existent (since the government pension takes the place of Social Security).
  4. 401(k) plans. These are deferred compensation plans used by companies. They are a way for employees to carve off a chunk of their take-home income to save for when they retire. When you contribute to a 401(k), your taxable income for that year drops by however much you contribute to the 401(k). So, for example, if you make $200,000 and contribute $15,000 to a 401(k), then you only have to pay state and federal income tax on $185,000 that year. The 401(k) money can then be invested and grows but you pay no taxes on it until you retire. When you take the money out in retirement, you pay regular income taxes on it. So, for example, that $15,000 you invested today may be worth $250,000 when you retire due to interest, dividends, growth in stock prices, etc. If you take money out of your 401(k) before age 59 ½, then you have to pay a penalty for early withdrawal. Some companies will have a policy of matching some or all of your 401(k) contributions so if you put $10,000 in your 401(k), the company will contribute an additional $10,000 but if you don’t contribute to your 401(k), the company contributes nothing. The maximum you can contribute to a 401(k) in 2016 is $18,000 per year if you are under age 50 years old and $24,000 if you are over 50 years old. You can decide how much you want to put away into a 401(k) each year from as little as $100 or so to as much as the $18,000 (or $24,000) limit. You may have to pay local income tax on the money you put into your 401(k) even though you don’t have to pay state or federal income tax on it.
  5. 403(b) plans. These are very similar to 401(k) plans except they are used by not-for-profit companies. Like the 401(k), you contribute to the 403(b) pre-tax and then pay regular income tax on the withdrawals you make after you retire. The maximum contribution is also $18,000 per year (or $24,000 if you are older than 50 years old) for 2016 and there is a penalty for withdrawal before age 59 ½.
  6. 457 plans. These are also similar to 401(k) plans except that they are for state and municipal employees. They have the same contribution limits. The one important difference with a 457 plan is that there is no penalty for withdrawal before 59 ½ years of age.
  7. 401(a) plans. These are retirement plans that are set up by the employer and usually have a fixed percentage of the employee’s salary going into the 401(a) plan. These plans are tax-deferred so that the employee does not pay state or federal income tax when contributing to the 401(a) but do pay income tax when withdrawing money from the plan after retirement. 401(a) plans are for non-profit organizations, government organizations, and teachers.
  8. 415(m) plans. These are retirement plans for public employers (colleges, universities, etc.) that allow for additional pre-income tax money to be put into a tax-deferred account after an employee has exceeded the contribution limits set by the IRS for other retirement plans (such as a 403(b). The 415(m) plans do not get lot of press because they don’t really apply to the vast majority of employees, only the highest paid employees. However, at a university, physicians are often the among the highest paid employees so these plans may be available.
  9. Traditional IRA. This is money that you put away for retirement. Unlike the 401(k), 403(b), and 457 plans that usually have a limited number of mutual funds or other investment options, you have total control over what you invest your IRA money in. If you are single and make less than $61,000 a year ($98,000 if you are married filing jointly), then you can make the entire IRA contribution pre-tax and then pay regular income taxes when you withdraw money in retirement. If you make more than $71,000 a year ($118,000 if you are married filing jointly), then you can still contribute to an IRA but you have to pay income tax on the money first (i.e., use post-income tax dollars); when you take the money out in retirement, you pay regular income tax on however much the IRA appreciated over the amount that you initially put into the IRA. Most physicians have an annual income that is too high to allow pre-tax traditional IRA contributions but they can still contribute to a traditional IRA with post-tax dollars. The most you can put into a traditional IRA in 2016 is $5,500 per year ($6,500 if you are over age 50).
  10. Roth IRA. Like a traditional IRA, this is money that you have total investment control over. Unlike a traditional IRA, you don’t have to pay any income tax on it when you take withdrawals in retirement. Also unlike a traditional IRA, anyone who puts money into a Roth IRA has to use post-income tax dollars. There are limits of who can contribute directly to a Roth IRA: the income limit to do this in 2016 is $117,000 if you are single and $194,000 if you are married filing jointly. However, current tax law allows a person who would not normally qualify to put money in a Roth to open a traditional IRA using post-income tax money and then immediately “convert” it to a Roth. This is sometimes called a “backdoor” Roth.
  11. Self-employment plans (SEPs or SEP-IRAs). This is a retirement plan for self-employed persons. Physicians frequently have the bulk of their clinical income from either a hospital or group practice that they work for but may also have some income that they make on the side, for example, money from giving talks or from outside consulting. The SEP is an option for investing part of that self-employment income for retirement. Each year, the physician puts away a part of his or her pre-tax income into the SEP. The SEP money grows untaxed, similar to a 401(k), and then when the physician retires, they take money out of the SEP and pay income tax on the withdrawals. The maximum amount a person can contribute to an SEP in 2016 is 25% of their compensation for that year up to a maximum contribution of $53,000.
  12. Regular investments. These can take a lot of different forms, such as stocks, bonds, and mutual funds. The money you invest is all post-income tax. You may get annual interest or dividend income from these investments and you may sell them for a profit in the future. Interest income is taxed at your regular income tax rate. Dividend income and the profit from selling one of these investments at a higher price than you originally paid for it is taxed at the capital gains tax rate, which is generally lower than the income tax rate.

If you are wise, you’ll have retirement investments in more than just one of these and preferably, in more than half of these. In future posts in this series, I’ll tell you which options I think make the most sense for physicians.

August 18, 2016

Physician Finances Physician Retirement Planning

Planning For Retirement For Physicians Part 1: How Much Money Will You Need In Retirement?

I was asked to give a presentation on financial planning to fellows attending this fall’s annual meeting of the American College of Chest Physicians. In preparation for that presentation, I am preparing several posts about retirement planning for physicians. This is the first of these posts. As a disclaimer, I am not a financial planner but after more than 30 years of being a physician with 15 of those years spent as the treasurer of our Department of Internal Medicine, I have seen physicians make a lot of good choices and bad choices so I have a few thoughts on the subject.

The question everyone asks when planning retirement income is: “How much money will I need?”. The answer is… a lot. Before you can even begin to try to answer the question, you have to consider a number of variables including:

  1. How long will you live in retirement? Somehow, this one always gets me queasy whenever I have to consider it. Currently, the average life expectancy for an American who is 30 years old is age 77 for a man and age 81 for a woman. Since you are a physician, you can probably add a couple of years to that since you are likely a non-smoker and have reasonably healthy eating and exercise habits. So, if you are looking at retiring at age 65, then you’re going to need 15-20 years of income saved up. And if you’re planning on living to 100 like me, then you’re going to need to support yourself for 35 years.
  2. What is the inflation rate? The consumer price index goes up each year with an average inflation rate for the past 100 years of 3.1% per year. But remember, that is an average. The year I started medical school, the inflation rate was 13.5% and a couple of years of that rate will dramatically erode your retirement account. For the sake of simplicity, let’s assume the consumer price index goes up the same amount in the next 30 years when you get ready to retire as it has in the past 30 years when I was a resident. If that is the case, then an annual income of $250,000 this year will be equal in purchasing power to an annual income of $549,813 in 30 years.
  3. Will your fixed expenses change? Hopefully, you’ll have the house paid off, the kids out of the house and their college paid off. Once you retire, you won’t have to be setting aside a big chunk of your annual income for retirement savings since you’ll be drawing off of those savings. But things happen and it is possible that you’ll have different fixed expenses in 30 years. But for simplicity sake, subtract out your current mortgage payments, retirement contributions, and kid’s college savings contributions from your current income to determine what percentage of your current income is used for your activities of daily living in order to determine what you will need to maintain that level of daily living in retirement.
  4. What portion of your retirement income will be subject to income tax? As you will see in a later post, there are taxable and non-taxable retirement savings options for you but most of your retirement income is likely to be subject to income taxes, just like your current income is.

So, for the purposes of example, let’s assume you are a physician making $250,000 a year currently. And let’s further assume that you are spending $30,000 a year on your mortgage, you are putting $40,000 a year away for retirement, and you are saving $10,00 a year for your children’s college savings and all of those expenses are going to go away when you retire with your house paid off and your children graduated from college. That means that your effective current income is $170,000 per year. If the consumer price index goes up at the same pace as it has for the past 30 years, then in order to have the same lifestyle in 30 years as you do now, you’ll need to have $374,000 per year. The good news is that your annual income will likely be also going up each year for the next 30 years and presumably the amount that you are contributing into your retirement fund will also so it won’t be quite as much of a sudden shock to your finances.

There are a lot of formulas for estimating how much of your retirement account you should plan to take out each year. A commonly quoted number range is 3-5% of your total retirement portfolio.  Let’s go with 4% as your initial withdrawal rate and you estimate that you will live for 30 years in retirement. In order to have $374,000 per year, starting 30 years from now, you’ll need to have about $9,000,000 in your retirement account in order to fund yourself entirely out of your retirement savings.

If you are a physician and you and your spouse are making a lot more than $250,000 per year, then your retirement target may be closer to $15,000,000 or $20,000,000. These are really scary numbers but as I’m going to show you in the next several posts in this series, it is actually pretty do-able as long as you start saving early and you save smartly.


August 16, 2016



Medical Economics

What You Didn’t Know About Medicaid Expansion

ACAThe Patient Protection and Affordable Care Act of 2010 has been one of the most polarizing pieces of legislation in recent history. Whether you call it the ACA or Obamacare, you probably either love it or hate it. One of the features of the Affordable Care Act was Medicaid expansion which was particularly objectionable to many Americans who believed that it was a threat to the idea of personal responsibility that has been central to American cultural identity. But there is a hidden side of Medicaid expansion that most people don’t realize, one that has left many critical access hospitals in the U.S. in danger of closing.

The Affordable Care Act left the decision of whether or not to participate in Medicaid expansion up to the individual states. Most states elected to participate but 19 states elected to not participate in Medicaid expansion. Through 2016, the federal government covered all of the cost of Medicaid expansion but by 2020, the federal government will only cover 90% of the cost of Medicaid expansion, leaving 10% up to the individual states. One of the main reasons that states opting out of Medicaid expansion offered was that they could not afford the 10% additional state portion of the Medicaid expansion.

On the surface, it might sound like the argument offered by these 19 states was correct. But under the surface, things are a lot more complicated and it all comes down to the “disproportionate share” funds.

There are 5,686 hospitals in the United States. Of these, about 250 are “safety net hospitals” that serve a disproportionate share of poor and uninsured patients. The federal government has long provided support for these hospitals in order to keep their doors open and provide care to those patients who cannot pay for it themselves. It makes sense: if you own a restaurant and a customer comes in asking for dinner but says he can’t pay for it, he doesn’t get served; but if a patient comes in to the emergency department with appendicitis and can’t pay for the appendectomy, the hospital and the doctors are legally required to provide care for him. The federal program that supports these safety net hospitals is the “Disproportionate Share Hospital” or DSH program that was enacted in 1981 as part of the OBRA act. Although 3,109 American hospitals have received some DSH funding, most of it is concentrated in hospitals in urban areas. Last year, federal DSH payments were $11.9 billion.

One provision of the Affordable Care Act that most people don’t realize is that it greatly reduces the federal DSH funds as it expands Medicaid, in fact, this is one of the ways that Medicaid expansion is funded. Under the original Affordable Care Act, Medicaid DSH allotments were to be reduced by $0.5 billion in 2014, $0.6 billion in 2015, $0.6 billion in 2016, $1.8 billion in 2017, $5 billion in 2018, $5.6 billion in 2019, and $4 billion in 2020. There have been some additional laws affecting DSH fund reduction since the Affordable Care Act with the net result of delaying the reductions in DSH funds. Currently Under current law, the aggregate reductions to the Medicaid DSH allotments will be $2.0 billion in 2018, $3.0 billion in 2019, $4.0 billion in 2020, $5.0 billion in 2021, $6.0 billion in 2022, $7.0 billion in 2023, $8.0 billion in 2024, and $8.0 billion in 2025.

Up until now, DSH expenditures have been concentrated in just a few states: New York, California, Texas, and Louisiana account for half of DSH expenditures and 10 states (one of which is Ohio) account for 75% of DSH expenditures. There has been a lot of legislative jockeying in the 6 years since the Affordable Care Act with the result that the DSH funds will eventually be reduced but not eliminated and the future DSH funds will be largely redirected to a different group of states, namely those that did not expand Medicaid.

On the surface, this might sound like a victory for those states that opted out of Medicaid expansion but there are two problems.

First, DSH funds are a lot less than Medicaid funds so the increased DSH funds in states that did not expand Medicaid will not offset the lower federal Medicaid funds that these states would have received with Medicaid expansion. Last year, the federal government spent $300 billion on Medicaid but only $11.9 billion on DSH.

Second, there is an important difference between how DSH funds are used versus how Medicaid funds are used. DSH funds go to hospitals, where as Medicaid funds not only goes to hospitals but also pays for doctors and medications. As a result, DSH covers the cost of being sick but Medicaid covers both the cost of being sick AND the cost of keeping people well.

Let’s see how this plays out for a patient with coronary disease. When he has a myocardial infarction, DSH funds help to pay for his cardiac catheterization and coronary stent placements but once he leaves the hospital, he has no way to pay for Plavix or a statin and he has no insurance coverage to see a primary care physician for on-going preventive care. On the other hand, Medicaid funds pays for the cardiac catheterization and stent but also pays for the Plavix, statin, and primary care physician. In a DSH model, the patient keeps coming into the hospital with more myocardial infarctions requiring additional cardiac catheterizations and ultimately ends up disabled whereas in the Medicaid model, the patient does not have additional myocardial infarctions, stays out of the hospital, and remains in the workforce.

In Ohio, our legislators and our governor understood all of this and realized that failure to expand Medicaid was going to result in our safety net hospitals facing budget deficits or closing and Ohioans’ federal income tax dollars going to the other states that did expand Medicaid. But the legislators also knew that the average Ohio taxpayer did not understand all of the nuances of DSH funds and Medicaid expansion so they were in a bind: if they didn’t pass Medicaid expansion, federal funds were going to go to other states and not Ohio but if they did pass Medicaid expansion, they were going to have a hard time being re-elected because of the visceral reaction that many Ohioans had against the Affordable Care Act.

The solution was nothing less than brilliant. The legislature voted against Medicaid expansion thus saving face and ensuring their reelection and then the governor found a way to expand Medicaid via executive action thus ensuring Ohio did not lose out on the federal Medicaid expansion funds in a time of reduced DSH funds. In return, the legislators did not excessively criticize the governor or attempt legislation to overcome the executive action. Everybody won.

The major flaw in the opponents of Medicaid expansion is that whether or not you have Medicaid expansion, people are still going to get sick and when they get sick, hospitals and doctors are still going to be morally and legally obligated to take care of them when they are hospitalized, even if the patients can’t pay for it. With the reduction in DSH funds, there is a danger that those hospitals will close without the off-setting Medicaid funds. But even more concerning, without Medicaid expansion, states have no way to keep low income patients well.

Our medical students and residents realize this and it makes Medicaid expansion states a lot more attractive to start a medical career in than those states that did not expand Medicaid.

August 15, 2016

Hospital Finances Inpatient Practice

How Many Patients Should A Hospitalist See A Day?

doctor-with-tablet-14619131467C0This is a burning question that every hospital CEO and medical director wants to know since most hospitals end up subsidizing hospitalists. And the answer is… it depends. Anyone who tells you categorically that the right number for every hospital is 15 patients a day is wrong.

What the hospital wants from the hospitalist is good value for the amount of money that the hospital pays to support the hospitalist. If the hospitalist is seeing too many patients per day, then there is a risk of bad things happening including medical errors, physician burn-out, increasing length of stay, worse patient satisfaction scores, and patient bottlenecks caused by later times of discharge. If your hospitalists are seeing too few patients a day, then you are not getting your money’s worth from them. Here are some of the variables that I look at when I’m deciding if our hospitalists are seeing the right number of patients.

  1. Patient case mix index (CMI). This is a pretty easy number to get from your hospital’s billing office. The higher the number above 1.0, the more medically complex the patients. It will give you an idea of the complexity of patients that the hospitalist is seeing and as a result, how much effort the hospitalist needs to put into the care of a given patient. Here is an example of 3 inpatient services from our own hospital. Service A is an attending-only (non-teaching) service that covers general medical admissions and the ICU – their CMI is 1.45. Service B is a teaching service with residents and a hospitalist attending that takes general medical admissions but does not cover the ICU – their CMI is 1.21. Service C is an attending-only (non-teaching) service that takes mainly cardiac admissions and a consequence, they have a high percentage of observation chest pain admissions – their CMI is 1.10.
  2. Teaching or non-teaching service. The ACGME limits the service census to 10 patients per intern. There is a time trade-off for hospitalists on teaching services: the residents will do a lot of the time-consuming work for the attending hospitalist but the hospitalist has to do uncompensated teaching time; in a healthy teaching service, these should balance out. A teaching service with a cap of 10 patients is rarely a full-day work for the attending hospitalist so he or she has to have some other income generating activity.
  3. Admitting service versus consultative service. Patients with medical illnesses requiring admission to the hospital are by definition sick. On the other hand, those coming in for an elective joint replacement generally have minimal medical conditions or their medical conditions are in good control. The hospitalist co-managing medically stable patients in for elective orthopedic surgeries can see considerably more patients per day than the hospitalist managing medical admissions coming in from the ER.
  4. Advanced practice providers. Physician assistants and nurse practitioners can allow a hospitalist to see more patients per day but they come at a cost, generally one-third to one-half the salary of a hospitalist. A physician assistant that allows a hospitalist to see 25 patients a day rather than 15 patients a day is probably worth it. However, if the use of a physician assistant only allows that hospitalist to see 18 patients per day rather than 15 patients per day, it may not be worth it.
  5. ICU or non-ICU. In the ICU, patients need to be re-assessed multiple times a day by the physician, there will be more bedside procedures to be done, and there will be more minute-by-minute orders to be placed. A hospitalist in the ICU may only be able to cover 12 patients a day whereas that same hospitalist may be able to take care of 20 patients a day on a general medicine nursing unit. That has to be tempered with the availability of additional consulting physicians – a general internal medicine hospitalist in the ICU may be able to see more patients if there is a critical care medicine consultant also rounding on the patients.
  6. Day shift versus night shift. There is a lot more work per patient on the census during the day than during the night. During the day, patients need to be rounded on, there are family meetings, and patients need to be discharged. During the night, the hospitalist does emergency admissions and deals with urgent/emergent inpatient issues. A night shift hospitalist may be able to cover 60 patients but a day shift hospitalist, only a quarter of that.
  7. Observation versus regular admission patients. This is a tricky one. On the one hand, observation patients are less medically complicated than regular admission patients and don’t have as much discharge complexity (need for home health, nursing homes, etc.). On the other hand, observation patients have a much shorter length of stay so a hospitalist with a lot of observation patients will be doing more time-consuming admissions and discharges per day than a hospitalist with mostly regular inpatient admissions. Currently in the U.S., the average hospital has 26% of their average patient hours being observation patients. Our hospitalist service that sees primarily cardiac patients has 50% of their patients in observation status; another hospitalist service that sees general medical admissions has 20% of their patients in observation status.
  8. Ease of documentation. If a hospitalist has a really good electronic medical record with vital signs, medication records, progress notes, lab reports, etc. then it can be far more efficient to take care of patients than if medical records are fragmented. For example, at one hospital in our community, the physician progress notes are handwritten in a paper chart, the vital signs and medication records are on one computer system, and the lab and radiology reports are on another computer system. It is neither possible or safe for a hospitalist to see as many patients in this environment as they can in a hospital with a single, integrated electronic medical record.
  9. Patient captivity in the electronic medical record. By this, I mean whether the hospital and the primary care physicians caring for the patients who get admitted to that hospital use the same electronic medical record. If they do, then it is much easier for the hospitalist to do admissions and discharges since much of medical history documentation is already in the electronic medical record. It is much faster to do an H&P if you can draw in the entire past medical, surgical, family, and social history plus all of the patient’s current medications and doses with one click on the computer rather than having to manually enter all of the information.
  10. Non-clinical duties. A hospitalist that is spending 2 hours a day in committee meetings cannot see as many patients per day as a hospitalist who has no committee assignments.
  11. Shift duration. A hospitalist working a 12-hour shift may be able to see 20 patients a day (1.7 encounters per hour) comfortably but that same hospitalist working an 8-hour shift may only be able to see 14 patients a day (1.7 encounters per hour) comfortably. Shift duration also affects the number of shifts per month you should expect your hospitalists to work: if you expect your hospitalists to work 2,300 hours per year, then that is 16 12-hour shifts per month but 24 8-hour shifts per month.
  12. Hospitalist experience. All hospitalists are not equal. A new hospitalist right out of residency is not going to be as efficient and see as many patients as a hospitalist with 20 years of practice experience. High hospitalist turn-over means more new physicians who cannot see as many patients per day as experienced hospitalists. If you force your hospitalists to see too many patients per day, they will quit and you will end up with excessive hospitalist turn-over.
  13. Hospital geography. It can take a hospitalist caring for 15 patients on 6 different nursing stations more time per day to manage than a hospitalist caring for 20 patients on a single nursing station.
  14. Encounters versus census. We often focus on the hospital midnight census to measure hospital capacity. But that only measures the patients who are in a bed at midnight and over the course of the day, there is going to be bed turnover as patients are admitted and discharged. If the patient length of stay is long, then the midnight census will be close to the number of daily patient encounters per physician. If the length of stay is short, then the hospitalists will have a lot more patient encounters per day than the midnight census.
  15. Census variability. Too often, we look at census averages and although this is useful, it doesn’t tell the whole story. For example, last Monday, we had 109 medical/surgical beds occupied and by Thursday we had 140 – that is a 31-patient swing in just 3 days. This means that the hospitalist services all had more patients per hospitalist on Thursday than they did on Monday. So, if your hospitalist census averages 15 patients per physician but the census fluctuates between 8 and 25, there are going to be days that the hospitalists will have a hard time safely caring for those higher numbers of patients. If there is not a surge plan to bring in “risk call” hospitalists on those high census days, you may need to settle for a lower average daily census per hospitalist in order to accommodate those unpredictable days when the hospital census is usually high.
  16. RVU productivity. This is also a tricky metric because it does not capture all of the work done by a single hospitalist but at least it gives you a ballpark comparative to determine if your hospitalist program as a whole is meeting productivity benchmarks. The MGMA reports that the median total RVUs generated by a hospitalist is 5,900 and the work RVUs are 4,100. These numbers are affected by day versus night shift and other variables.
  17. Robustness of case management. Case management has to happen whether or not a hospital has case managers. A hospitalist who has to do a lot of the discharge planning because of a lack of case managers cannot see as many patients per day.
  18. The local market. If your town has several competing hospitals, then each hospital will be competing with the others for hospitalist and if the hospital down the street has an expectation of 15 patients per day and your hospital’s expectation for the same patient population is 20 patients per day, then you are going to lose valuable hospitalists.
  19. The patient demographic. If your hospital mainly sees patients with good commercial insurance and good primary care providers, then it is easier for the hospitalist to focus on the acute problem that brings the patient into the hospital and it is easier to make discharge arrangements. On the other hand, if you have a high percentage of uninsured or Medicaid patients, then the hospitalist taking care of a patient with pneumonia is likely going to also be spending time tuning up that patients diabetes, heart failure, or hypertension since the only time the patient sees a doctor each year is when he/she is in the hospital.

So what does a medical director or hospital CEO do? I recommend starting with an assumption of 15-18 patients per hospitalist and then working up or down from that number based on the unique features of your own hospital, community, and hospitalist program structure by taking into account the variables I mention above.

August 13, 2016

Life In The Hospital

Screening Physicians For Drug Use

cannabis-sativa-plant-1404978607aklJune and July are busy months for our medical center’s credentialing department. Every year, we have more than a hundred new residents, fellows, and attending physicians who apply for privileges. Part of the application process is a mandatory urine drug screen. Positive drug tests for marijuana are becoming more and more common in physicians coming to Ohio from Colorado and other states where recreational marijuana is legal. We are now in a quandary about how we handle these physicians.

Most hospitals have adopted a zero tolerance policy for drug and alcohol abuse. Not only do we do urine drug screens for all new physicians but any physician can be required to undergo on-the-spot drug testing if anyone (colleague, patient, nurse, etc.) reports them as possibly being impaired at work. This is an incredibly powerful tool to prevent impaired physicians from harming patients but the testing does have the potential for abuse. For example, a couple of years ago, an inpatient who was seeking opioid medications threatened one of our hospitalists with reporting her as being under the influence of alcohol unless she prescribed oxycodone for him. She refused to prescribe it, he called the medical staff office reporting her, she underwent immediate testing for drugs and alcohol, and she passed her testing with flying colors.

Until recently, the drug policies were pretty straight forward, if your urine test was positive, you were determined to be abusing drugs or under the influence of alcohol at work. All that has changed with legalization of marijuana in some states. The issue is that cannabinoids (the main chemical in marijuana) are detectable in the urine for days and in some cases, as long as a month, after marijuana use. Let me give 2 examples of where this can be a problem for physicians.

  1. A medical student in Colorado might legally smoke marijuana for recreational purposes on an occasional basis. If that medical student then goes to another state to do his or her residency and undergoes mandatory drug testing, cannabinoids will be detectable days or even weeks later.
  2. A physician goes to Colorado for a ski trip and while on vacation, smokes marijuana. He or she then returns to their own state the following week and is accused of being under the influence of drugs at work. That physician provides a urine sample and it tests positive for cannabinoids.

In both situations, the physician legally used marijuana but because cannabinoids are so lipophilic, the urine drug test was positive long after the effects of the marijuana have worn off. However, as a medical director, I cannot tell from the urine test whether the physician smoked marijuana 4 days earlier in Colorado or 30 minutes earlier in a hospital bathroom. In order to protect patient safety, I am going to have to assume the worst, that the physician is illegally using marijuana in Ohio and may be practicing medicine under the influence. That means that the physician will likely need to be enrolled in a drug treatment program and undergo regular drug testing for the foreseeable future.

As a general rule, cannabinoids will remain in the urine for 2-5 days for the infrequent uses, 1-2 weeks for the frequent user, and up to 4 weeks for the habitual uses. However, because cannabinoids are so lipophilic, marijuana users who are obese will have positive urine tests for much longer than non-obese users and even relatively brief marijuana use in obese people can result in positive drug tests for up to a month.

It is also easy to see how the long detection period for cannabinoids could be used to intentionally cause harm to a physician. For example, if a vindictive former partner, a former spouse, or a patient who is suing a physician wanted to damage a physician’s career and knew that the physician had recently vacationed in a state where marijuana is legal, all they would have to do is to anonymously report them to their hospital as being under the influence.

So my advice for senior medical students at medical schools in Colorado, Oregon, and Washington: the marijuana smoke you inhaled in June might have been legal but your urine won’t be legal in July. And for the physician vacationing in Alaska, Colorado, Oregon, or Washington, stick with the local craft beer and pass on the marijuana.

July 12, 2016

Inpatient Practice

Pain, The Most Regulated Vital Sign

PainIn 1996, the American Pain Society introduced the concept of “pain as the 5th vital sign” in order to increase awareness of insufficiently treated pain. As a consequence, in 2001, the Joint Commission for the Accreditation of Healthcare Organizations (JCAHO) added a requirement for healthcare providers to ask every patient about their pain in order to avoid under treatment of pain while in the hospital. In 2006, the Center for Medicare and Medicaid Services required hospitals to ask patients questions about how well patients reported that their pain was treated as part of publically reported CMS hospital quality scorecards. But more recently, for too many patients, attempts to control chronic pain has resulted in opioid addiction. So who is to blame: the JCAHO? Medicare? Hospitals? The pharmaceutical industry? Individual physicians? Well, the answer is… all of the above.

The American Pain Society’s “pain as the 5th vital sign” initiative came out at a time before palliative medicine had really emerged in the United States. Prior to the mid-1990’s cancer pain management was frequently inadequate and there were limited medication options for treating chronic pain. Oxycontin was approved by the FDA in 1995 and released in 1996, the same year of the “pain as the 5th vital sign” initiative. Oxycontin was initially marketed as an “addiction-proof painkiller”. The combination of a powerful new long-acting oral opioid plus the messaging that physicians have not been treating pain adequately rapidly led to excessive prescription of oxycontin which recently has had sales of over $2 billion per year. And the “addiction-proof” opioid turned out to not be addiction-proof at all.

Next enter the JCAHO which publishes standards that hospitals are evaluated on during their every three year hospital site surveys. One of the standards addresses how well the hospital deals with patients’ pain:

JCAHO Standard PC.01.02.07 The hospital assesses and manages the patient’s pain:

  1. The hospital conducts a comprehensive pain assessment that is consistent with its scope of care, treatment, and services and the patient’s condition.
  2. The hospital uses methods to assess pain that are consistent with the patient’s age, condition, and ability to understand.
  3. The hospital reassesses and responds to the patient’s pain, based on its reassessment criteria.
  4. The hospital either treats the patient’s pain or refers the patient for treatment.

It is point number 4 that has led hospitals and physicians to overzealously treat pain. Because a large number of hospitals do not have easy access to inpatient pain management specialists, many feel backed into a corner by point #4, interpreting it as saying that if you do not have a pain service, then you have to treat the patients pain… period. Needless to say, hospitals are strongly motivated to err on the side of overtreatment of pain rather than risk undertreatment which could result in penalties levied by the JCAHO.

Medicare also weighed in on pain management. In 2002, it created the HCAPS patient satisfaction survey that was then implemented in 2006 and the results became publicly available in 2008. The HCAHPS survey asks patients 32 questions about their hospitalization. The Center for Medicare and Medicaid Services requires hospitals to administer the survey to patients and then CMS uses the results of that survey as part of the “Hospital Compare” scorecards on the CMS website. In an effort to measure the quality of care provided by physicians, many health systems also use the HCAHPS survey results for individual physician evaluation and in many health systems, physician bonuses and compensation is tied to how well the physician scores on the HCAHPS survey. There are three pain-related questions in the HCAHPS survey:

  1. Did you need medicine for pain? 
    1. Yes
    2. No
  2. During this hospital stay, how often was your pain well controlled?
    1. Never
    2. Sometimes
    3. Usually
    4. Always
  3. During this hospital stay, how often did the hospital staff do everything they could to help you with your pain?
    1. Never
    2. Sometimes
    3. Usually
    4. Always

It is easy to see how physicians, whose income is tied to how well patients’ pain is controlled, will do everything they can to eliminate pain, including prescribing excessive opioids since there is no penalty for overtreatment but a financial penalty for undertreatment.

So where does that leave us? In Ohio alone, 3/4 of a billion pain pills are prescribed each year – that is 65 pills for each Ohioan. 20% of chronic opioid users are addicted. The State Medical Board of Ohio has implemented several rules and guidelines to reduce the abuse of prescription opioids including an opioid prescription limit of 3 days for pain associated with emergency department or acute care hospital visits, the use of signed “pain contracts” by patients receiving opioids for > 3 months, regular interrogation of the State’s database of opioid prescriptions by outpatient pharmacies for opioid prescriptions > 7 days, and periodic urine drug testing.

One of our medical center’s trauma surgeons, Dr. Danny Eiferman along with one of our pharmacists, Lisa Mostafavifar, have been champions for the responsible use of opioids. When used for brief periods of time in post-op and injured patients, these medications can greatly improve patients’ quality of life. And when used for patients with chronic cancer pain, they can also improve the quality of life. But when overused, opioids can ruin a patient’s life. Here are some concrete recommendations from Dr. Eiferman and Lisa Mostafavifar:

  1. Set realistic patient expectations. A 30% reduction in pain intensity should be the goal (for example, a reduction from 10 to 7 on a pain scale). Complete elimination of pain is rarely achievable and should not be what we tell the patients to expect.
  2. Non-steroidal anti-inflammatory drugs and acetaminophen are often as or more effective than opioids in many types of pain.
  3. Multi-modality therapy (massage, physical therapy, etc.) is effective.
  4. Escalating doses of opioids often does not reduce pain scores.
  5. The function of opioids declines after 6 weeks of use.
  6. A PCA pump may be appropriate if repeated doses of a parenteral opioid are anticipated.

Pain management requires a careful balance of meeting patients’ often very real pain needs and avoiding contributing to the epidemic of chronic opioid pain pill addiction. Each patient is unique and has to be evaluated on an individual basis. Here are some of the general principles that I apply when counseling physicians about opioid prescribing:

  1. If you are an outpatient physician who does not frequently prescribe opioids and are not familiar with the risks and legal requirements, then do not prescribe them for chronic use.
  2. If you prescribed opioids for what should be a self-limited condition and the patient continues to request opioids, that should be a red flag.
  3. Make sure you are adhering to your state medical board’s requirements for opioid prescription.
  4. If you are not a pain management specialist and your patient asks for opioids for > 3 months, get a pain management consult.
  5. If you are an inpatient physician and a patient with known or suspected drug abuse needs inpatient opioids, be sure that they are given by directly observed therapy, preferably in liquid form, to prevent drug hoarding.
  6. If you admit a patient who reports being on chronic opioids confirm this with their primary care provider before either increasing their maintenance drug or discontinuing it.
  7. If you believe that an inpatient who reports being on chronic opioids is abusing or selling their prescription medications and you feel compelled to stop their opioids while the patient is an inpatient, then do so in conjunction wth an addiction medicine consultation.
  8. When considering discontinuing chronic opioids, in either the inpatient or outpatient setting, always consider the risk of opioid withdrawal in the setting of the patients underlying medical condition and if there is concern that withdrawal could be dangerous, then obtain consultation with an addiction specialist to minimize the risk of harm to the patient during opioid withdrawal.
  9. If you have a patient who is frequently admitted for pain management (for example, a patient with sickle cell anemia), develop a patient-specific pain management plan that can be easily located to guide medication prescription each time that patient is admitted.

Ten years ago, the opioid pendulum swung too far one way in one direction. More recently, it has swung too far in the opposite direction. As leaders in medicine, we must strike a balance in the pendulum to promote responsible use of these medications that have both the potential to relieve great suffering but also the potential to cause great harm.

August 10, 2016



Medical Economics

How Does U.S. Health Care Compare To Other Countries?

Value = quality divide by price. So… does the United States have high quality and low price? Unfortunately, no. Every year, I look forward to the OECD annual health report and the newest version was released in June. The OECD is the Organization for Economic Cooperation and Development. It consists of most of the world’s industrialized countries and from it we can get a scorecard of how the United States is doing compared to other countries. For this post, I’ve chosen 5 OECD member countries to compare to the U.S. for simplicity: Canada, France, Ireland, Japan, and the U.K.; however, you can just as easily choose just about any combination of OECD and get similar results.

cost per GDPSince last year, not much has changed and by the metrics used in the report, Americans continue to have poor value in healthcare and in fact, the value that we get is among the lowest in the world. Let’s start with a look at our cost of health care as a percentage of our gross domestic product. Americans spend far more than any other country on healthcare. Currently, we spend 16.9% of our GDP on healthcare. That is 50% more than the next OECD country, Switzerland, which spends 11.5% of it’s GDP on health care. The U.S.’s cost of health care continues to keep going up: in 2000, we only spent 12.5% of our GDP on health care.

One reason why health care costs can be expensive is that there are a lot of physicians. But as it turns out, the number of physicians per capita is in line with or less than other OECD countries. The causes of the high cost is more related to suboptimal management of chronic medical conditions such as asthma, COPD, and diabetes. Americans are the most obese among the OECD countries with 29.5% of the U.S. population reporting that they are obese (the next closest is Latvia at 25.7%). With obesity comes additional health costs. We also do a lot of testing. Only Estonia does more CT scans per capita than the U.S. and only Turkey does more MRIs per capita than the U.S.

Life expectancy 2Americans could still have good value if our health care quality is superior to other countries. However, by many measures, it is not. Our infant mortality rate of 6 deaths per 1,000 live births is the third highest of all reporting OECD countries; only Mexico and Turkey have higher infant mortality rates. Our traffic injuries per million population is the highest of all reporting OECD countries. Our average life expectancy for both men and women is lower than the OECD average. Currently, the female life expectancy at birth in the U.S. is 81.2 years. The only OECD countries with a shorter life expectancy are Hungary, Latvia, Mexico, the Slovak Republic, and Turkey. The average life expectancy in the U.S for a male born today is 76.4 years, also one of the shortest among OECD countries.

insured population 2How does the United States compare to other countries for health insurance coverage? Well, of the 34 countries with insurance data in the OECD, the only country with a lower percentage of the population covered by either government or private insurance was Greece. Thus, the U.S. was the second worse in the OECD. Thus access to healthcare in the U.S. is lower than nearly every industrialized nation.

The OECD summarizes all of the different member countries in their “Health at a Glance 2015” documents. Their key findings were:

  • “Life expectancy in the United States is lower than in most other OECD countries for several reasons, including poorer health-related behaviors and the highly fragmented nature of the US health system.
  • The proportion of adults who smoke in the United States is among the lowest in OECD countries, but alcohol consumption is rising and obesity rate is the highest.  
  • The quality of acute care in hospital in the United States is excellent, but the US health system is not performing very well in avoiding hospital admissions for people with chronic diseases.”

If you were to design an effective and efficient health care system from scratch, no one would design a system anything like what we have in the U.S. today, regardless of one’s political party affiliation. There are some great things about American health including the quality of our hospitals and our healthcare professionals. For a hospital medical director, it is up to us to maintain the high quality of acute care medicine and work to improve the quality of health of patients before and after they come into our hospitals. For every American, finding ways to reduce the cost of our healthcare is imperative if we are to remain competitive in world economic markets. It is up to us to decide how we catch up to the rest of the world while preserving those aspects of health care that we presently do better than anyone else.

August 9, 2016

Medical Economics

Do You Need A Medical Rock Star?

Rock StarRecruiting famous physicians

In hospital administrative circles, we have a word them, the Medical Rock Stars. They are the high-profile physicians that bring fame and notoriety. They’re the ones that the newspapers and television news reporters always seem to quote. They’re the ones that when you introduce yourself at a cocktail party, you get the question “So you work at that hospital, the one that Dr. Rock Star works at?”. They’re bigger than life and they bring excitement and vibrancy to your hospital. Hospitals value them and will spend a lot of money to recruit them.

But are they worth it? The answer is… sometimes. In order to decide whether or not to go after a medical rock star for your hospital, you have to have the right expectations.

What audience will they be playing to? Rock ‘n roll stars don’t get famous by playing every night in the local club. They get famous by traveling around the country playing in coliseums and stadiums and they are on the road a lot. The medical rock star is similar; they spend a lot of time being visiting professors at other hospitals and a lot of time making presentations at national and international meetings. They are not going to be at your hospital 5 days a week, 48 weeks a year.

What requests will you have to honor? Rock ‘n roll stars are notorious for making unusual demands to their concert venues. The band Van Halen famously required a bowl of M&M’s with all of the brown ones removed in their dressing room. Celine Dion requires her dressing room be precisely 73.4 degrees F. Paul McCartney once required 19 leafy six-foot plants and 4 leafy four-foot plants in his dressing room. Medical rock stars’ needs are usually not quite so bizarre but be prepared to hear about the need for unusual specialized medical equipment, office furniture, and support staff. The expense of a medical rock star doesn’t stop with salary.

What is your balance between rock stars and non-rock stars? In the music industry, some of the best musicians in the business are the studio musicians. They play day after day, they’re consistently good, but they don’t have the charisma or stage presence to be a rock ‘n roll star. It is the same at hospitals. You will need a core group of reliable clinicians who are great doctors but are never going to be famous. The sad reality of academic medicine is that in a university, you don’t get tenure or get promoted for being the best teacher or the best medical practitioner, you get promoted for writing papers about teaching and giving presentations at national meetings about the practice of medicine. Many of the best clinicians and clinical educators that I have ever known retired after 30 or 40 years of academic practice as assistant professors (the entry level academic rank) without ever being promoted up the academic ranks. But these physicians form the foundation of medical care at our hospitals: they take care of patients day after day and week after week, they are reliable, they practice high quality medicine, and they often make great clinical teachers.

How long will you be able to keep your rock star? The thing about medical rock stars is that every hospital wants them. From the first day on the job at your hospital, they are already being recruited by other hospitals. Part of their job as a medical rock star is to travel the country giving grand rounds and lectures. When they are traveling, they are frequently being offered jobs at the very same places that they are traveling to. On the other hand, the non-famous primary care physician working in your hospital’s outpatient clinic has his or her patient schedule booked solid for the next 6 months and can’t even leave the city on a weekday to go on a job interview. You will rarely keep the medical rock star at your hospital their entire career but you need to make the most of the time that you have them and not be surprised when they submit their resignation after 5 years at your hospital to take a position elsewhere.

So, do you need a medical rock star? The answer is… maybe. Your hospital will be brighter for the light that shines off of them but that light can be fleeting. Cherish the time that you have them but don’t expect them to stay around forever

August 8, 2016

Life In The Hospital

The Yin And Yang Of Yelling At Doctors

Yin_yang.svgAs a medical director (or any kind of leader or supervisor), it is your responsibility to call out physicians who are behaving badly. It is one of the things that medical directors like least about their jobs but if you don’t do it, then you become an enabler of bad behavior.

There are two ways to yell at a physician. First, it can be done at the spur of the moment when you see something, hear something, or someone tells you something that a physician did that breaks a policy, deviates from normal civil behavior, or violates international law. The advantage of this method is that you can invoke discipline as close to the time that the behavior was performed, kind of like yelling at your dog if you catch it peeing on the carpet. The disadvantage is that your temper is usually up pretty high and this can result in your emotional intelligence quotient falling by a couple of branches on the human evolutionary tree to about the level of Australopithecus. This method is highly reflexive and although it can get you the results you need, there can sometimes be significant collateral damage.

One of my former chairmen was a great guy but when he’d get angry, there were these two veins on his forehead just above his nose that would stick out. We all knew that if you were walking down the hall and you saw those two veins walking toward you that you should put your head down, look at your feet, and hurry past as fast as possible, hoping that you were not the subject of the excessive cutaneous venous engorgement.

The second way to yell at a physician is the planned ambush.  This requires forethought and careful rehearsal of what you are going to say. The advantage is that your temper has usually cooled and your emotional intelligence quotient is back in the usual Homo sapiens range. The disadvantage is that the longer you wait after the bad behavior, the less effective your yelling will be, a lot like yelling at your dog on Thursday for peeing on the carpet on the previous Monday.

Regardless of which method of yelling you do, yelling at a physician will suck the joy out of your day so it is important to have emotional balance. That is where the yin and yang comes in. Whenever you yell at a physician, you have to find someone else to pay a compliment of equal intensity to. If you are standing at a nursing station and hear a physician loudly complaining about the quality of the donuts in the physician lounge and have to tell him or her to knock it off, then you have to go find another physician to thank for coming into the hospital in the middle of the night to operate on the patient with a perforated bowel. There are a lot of ways to pay compliments and in order of effectiveness:

  1. A text to their phone
  2. An email
  3. A phone call
  4. Seeking them out and telling them in person
  5. A hand-written note
  6. A hand-written note with flowers
  7. A hand-written note with use of the medical director’s prime parking spot for a week

Disciplining a physician is almost always going to leave you feeling bad. So it is important to find something to make you feel good to maintain your personal psychic symmetry. Furthermore, if everyone knows you for your responses to physician badness, they will never know you for promoting physician goodness.

August 6, 2016