Hospital Finances Inpatient Practice

Avoid Losing Money On Medical Admissions: 30 Tactics

Every hospital medical director knows that the hospital makes money on surgical admissions and loses money on medical admissions. A highly efficient hospital can at best hope to break even on medical admissions. Nevertheless, those medical admissions are a crucial part of a hospital’s obligation to provide comprehensive community healthcare. The profitability of surgeries and surgical admissions is why there was a proliferation of surgical specialty hospitals between 1995 and 2010.

The number of hospitals and hospital beds has dropped significantly over the past 45 years. In 1975, there were 9,156 hospitals in the U.S. and in 2019, that number had fallen to 6,090 hospitals. In 1975, there were 1.5 million hospital beds in the United States but by 2019, there were only 920,000. However, in the past decade, the market size of specialty hospitals has grown from $46 billion in 2011 to an estimated $51 billion in 2021. The majority of specialty hospitals are long-term acute care hospitals (LTACHs) or rehabilitation hospitals but 6% of specialty hospitals are dedicated to orthopedic surgery and 5% to cardiac surgery. Some of the greatest opposition for surgical specialty hospitals has come from the American Hospital Association because of concern that surgical specialty hospitals will “skim off the cream” of revenues from general hospitals, making it more difficult for general hospitals to continue to stay in business.

In the past, the majority of surgical specialty hospitals (70%) were physician-owned, typically by the surgeons who operated there. The Affordable Care Act restricted the growth of new physician-owned surgical specialty hospitals in 2010 but allowed existing physician-owned specialty hospitals to be grand-fathered and continue to operate. So, for now, general hospitals can retain their surgical volume but these hospitals must also seek ways to keep from losing money on medical admissions.

CMS publishes the amount that it reimburses hospitals for every type of diagnosis, by DRG. These datasets show reimbursement averaged across the country, by each state, and by each individual hospital.  The most recent data is from 2018. Of the top 20 most common admission DRGs, 18 were medical (red bars in the graph below) and only 2 were surgical (blue bars).

However, if we look at the top 10 most common medical DRGs and the top 10 surgical DRGs, there is a dramatic difference in total payments (the amount paid by Medicare plus the amount paid by the patient or by co-insurance). The average total hospital payments for the top 10 medical diagnoses was $8,833 but the average total payments for the top 10 surgical diagnoses was $23,971. In fact, the lowest reimbursing surgical DRG ($14,761) still paid more than the highest paying medical DRG ($13,881).

So, with medical admissions predominating in the United States and with hospitals at best maintaining a razor-thin margin on those medical admissions, how can hospitals stay in business? The simple strategy is to do more surgeries. This is why hospitals are always eager to build new operating rooms, subsidize high surgeon salaries, and provide surgeons amenities such as physician assistants and nurse practitioners to attract more surgeons to their medical staff. But the other strategy hospitals can take is to avoid losing money on medical admissions. Because of the greater number of medical admissions, small improvements in throughput efficiency of medical patients can have a huge impact on the overall financial margin. Here are 30 specific tactics hospitals can take:

  1. Measure length of stay accurately. In a previous post, I outlined why using the midnight census as a measure of length of stay is obsolete. It is more insightful to measure length of stay in terms of total hours of hospitalization plus daytime hours of hospitalization. This can provide the hospital with much more meaningful data about throughput efficiency. Longer length of stay means more costly hospital stays. In order to decrease length of stay, first you must be able to measure it in a meaningful way.
  2. The work-up starts with the admission orders. Medical admissions tend to peak in the early evening. By this time, the night shift hospitalists are on duty. In many hospitals, the culture is to tuck patients in at night and then leave the work-up to the daytime medical team. As a consequence, a single hospitalist is often tasked with doing a large number of admission history and physical exams at night. A hospitalist doing 10-15 admissions a night does not have time to do much diagnostic planning – all he or she can do is put out fires. If a patient comes in with heart failure, the orders for a cardiology consult or cardiac echo is often left up to the daytime physician. This can result in delays of hours or even an entire day, depending on what time of day the daytime physician rounds. Establish an expectation that the night shift hospitalist put in orders for tests and consults necessary for that patient’s work-up. Also, ensure that the hospital is adequately staffed with physicians and/or advance practice providers during times of peak admissions. This may require a swing shift hospitalist or short shift hospitalist to help during the busy evening hours.
  3. The day shift hospitalist should not have to re-do the admission history and physical exam from a night time admission. This can be a waste of time and delay getting necessary diagnostic testing performed. The H&P done at night needs to be readily available first thing in the morning. If the hospitalists use a dictation service, then ensure that the transcription turn-around time of the dictated H&P is short enough that the day shift hospitalist can see it first thing in the morning. If the H&P is performed using electronic medical entry key entry, then ensure that the impression and plan is thorough and insightful – not just a list of symptoms and physical exam abnormalities at the end of the H&P.
  4. Consult frequently and consult early. I see this as one of the most common reasons for delayed discharges. Maybe the hospitalist wants to wait to see what the cardiac echo shows before consulting the cardiologist. Or maybe wait to see if the patient with a COPD exacerbation starts to turn around after a couple of days of steroids and bronchodilators before ordering a pulmonary consult. In some hospitals, the culture is that the hospitalist who consults liberally is not a good enough doctor to take care of the patient by themself. There should be a clear expectation that a consult is not a sign of weakness. This expectation should be both on the part of the hospitalist and on the part of the specialty consultants. The specialist who complains that he or she gets consulted too often is unworthy of any financial support from the hospital and has no place on the medical staff. In teaching hospitals, residents and fellows involved in consultation need to be educated that there is no consult question too small. Inpatient medical care is a team sport, not an individual sport – the faster the team is assembled, the faster the patient gets better.
  5. Consultants should place their own orders. One of the best ways to extend a patient’s length of stay is to prohibit consultants from placing orders. Sometimes this occurs because the hospitalists are territorial about orders and do not want anyone other than themselves entering orders on their patients. Sometimes this occurs because the consultants are fearful of the responsibility of putting in order, are lazy, or just do not know how to put orders into the electronic medical record. Hospitalists generally round once a day on their patients and if they round early in the morning and a consultant recommends a test or medication change in their consult note later in the morning, that consultant’s recommendation may not be seen for a full day. I’ve seen too many discharges delayed because the gastroenterologist would not place an order for a colonoscopy prep or a neurologist would not place an order for a brain MRI.
  6. Utilize protocol-driven de-escalation. One very effective protocol that our hospital used was a nurse-driven urinary catheter removal protocol. As soon as a patient met certain criteria, the nurse was empowered to remove the Foley catheter without a specific order from a physician to remove it. Other examples are pharmacist-driven IV to PO medication conversion protocols and respiratory therapist-driven de-escalation of nebulizer treatment frequency.
  7. Be a 7-day a week hospital. Patients are no less sick on Sunday as they are on Wednesday. Not every hospital has the staff or resources to provide every procedure or test on weekends but it is important to identify those tests that need to be done on the weekend to avoid delays in discharge. One way of doing this is to compare the number of tests or procedures done on Mondays compared to other weekdays. If you find that there is a spike in PICC line placements, cardiac stress tests, or duplex ultrasounds on Mondays, then that may be a sign that those procedures need to be offered on Saturdays and Sundays. Sometimes the weekend delay is due to a delay in a second, downstream procedure. For example, if the pathology lab only processes biopsy specimens on weekday mornings, then there is no point in doing a bronchoscopy or a CT-guided needle biopsy between noon on Fridays and 8:00 AM on Monday since specimens will not be processed in the lab until the following Monday. If you get resistance to offering tests on the weekend because “…the procedure volume isn’t there“, then see if part of the procedure schedule can be filled with elective outpatients. You may find that there are many outpatients who do not want to take a day off of work during the week to get their screening colonoscopy or their knee MRI and would prefer to get them done on a Saturday or Sunday.
  8. Discharge planning starts on admission. It usually takes several days to arrange for a nursing home bed and the sooner your case management staff can start to work on discharge planning, the faster you can get the patient out of the hospital.
  9. Be creative when it comes to long-term IV antibiotics. Drug abuse is rampant in the United States and people who abuse drugs get osteomyelitis and endocarditis, often requiring 6-8 weeks of intravenous antibiotics. Because of their drug use history, home healthcare companies will not accept them for home IV therapy so they stay in the hospital. For that 6-8 week hospitalization, the average hospital payment by Medicare is $10,476 for osteomyelitis and $13,042 for endocarditis. With those payments, the hospital starts losing money after about day #4. Consider tamper-resistant PICC lines for drug abusers so that they can get their IV antibiotics as outpatients. When can the patient be safely changed to an oral antibiotic to complete therapy – for example, can oral Bactrim be substituted for IV vancomycin? There are several recent studies demonstrating the safety and efficacy of treating these patients with oral antibiotics but many national special society practice guidelines have not been updated and still advise IV antibiotics for the entire treatment duration. Your hospital may need to create its own evidence-based practice guideline to empower the physicians to complete treatment for osteomyelitis and endocarditis with oral antibiotics. If a patient is uninsured, it is going to be less expensive for the hospital to give the patient a daily IV antibiotic in an outpatient infusion suite than as an inpatient. The same goes for expensive oral antibiotics that the patient may not be able to afford as an outpatient, such as daptomycin.
  10. LTACHs are your friend. Long-term acute care hospitals (LTACHs) are one of the most common types of specialty hospitals. All too often, we think about LTACHs as a discharge option for patients late in their hospitalization. Frequently, these patients met LTACH criteria earlier in their hospitalization but by the time the referral goes to the LTACH, the patient no longer meets criteria. Even if they do still meet criteria, it often takes several days to get insurance approval for the LTACH. Consider putting together a protocol that any patient admitted in the ICU for more than 3 days gets an automatic consult to your local LTACH. That consult does not obligate you to discharge the patient to the LTACH but it can shave valuable days off of the length of stay for those patients who ultimately do benefit by transfer to an LTACH.
  11. Don’t forget about physical therapy. As a pulmonary consultant, one of the most common orders I would place was for physical therapy because the primary inpatient physician did not think about it. For patients who will eventually be discharged home, the physical therapist can get them strong enough to be discharged earlier. For patients who may need to be discharged to a skilled nursing facility, the physical therapist’s assessment can be instrumental in getting started on the SNF referral earlier in the hospitalization. If your COPD exacerbation and heart failure exacerbation patients have not gotten out of bed in the first 4 days of their hospitalization, you are going to lose money on that hospital admission.
  12. Don’t order expensive stuff if you don’t have to. There are certain tests that are very expensive to perform and there are tests that take days or weeks to get the results back. Often, the results of those tests are not necessary for the outcome of an inpatient hospitalization. When ordered as an outpatient, these tests are individually charged to Medicare or the insurance company. But when ordered as an inpatient, the hospital assumes the cost of performing these tests as part of the global DRG payment that the hospital gets for whatever primary diagnosis the patient has. In some cases, the cost of the test is more than the total amount that the hospital gets for the patient’s DRG. The biggest offenders here are genetic tests. Each year, Medicare publishes its Clinical Diagnostic Laboratory Fee Schedule, which is the amount that Medicare will pay for any given lab test. Some of the more expensive tests that you should avoid ordering as an inpatient include exome sequence analysis ($12,000), gene analysis of breast tumor tissue ($3,873), gene analysis for colon cancer ($3,116), and epilepsy gene analysis ($2,448). Wait until the patient returns for an outpatient appointment to order these tests. Similarly, if a patient admitted with pneumonia mentions that he has had knee pain for the past 5 years, don’t order an inpatient knee MRI, instead schedule an outpatient rheumatology appointment and let the rheumatologist order the MRI.
  13. You need a robust antimicrobial stewardship program. A commonly held belief among physicians is that if a little is good then more must be better. This does not always apply to antibiotics. Sometimes an older, generic antibiotic is not only considerably less expensive than the newest generation cephalosporin but that older antibiotic many actually be the better drug for a given infection. Your hospital will pay twice for excessive use of antibiotics – first in the initial cost of expensive antibiotics and later in a rise in drug-resistant hospital-acquired infections that will result from over-zealous use of broad-spectrum antibiotics. A responsive antimicrobial stewardship program will keep both of these costs down.
  14. Capture all of the CCs and MCCs. Co-morbid conditions (CCs) and major co-morbid conditions (MCCs) are used like adjectives to the DRG. If a patient with sepsis also has hyponatremia and leukemia at the time of admission, then the hyponatremia is a CC and the leukemia is an MCC. The more adjectives you attach to that DRG when the hospital submits its bill to Medicare or an insurance company, the more money the hospital gets paid for that particular DRG. The CCs and MCCs also make the case mix index higher which can affect metrics such as mortality index and length of stay index. One of the problems is that the CCs and MCCs need to be listed in a physician’s history and physical exam or be listed in a progress note as being “present on admission”. Hospitalists are not inherently rewarded for tediously listing out all of the CCs and MCCs since they get paid the same amount for doing an H&P no matter how many CCs and MCCs a patient has. Therefore, the hospital either has to find a way to financially incentive listing out CCs and MCCs (for example, incentives based on case mix index) or find another mechanism for identifying CCs and MCCs (such as having nurse charting specialists review every patient chart at the time of admission and then having them ask the hospitalist to make addendums to their H&Ps accordingly).
  15. Leave the procedure schedule open in the morning. In most hospitals, diagnostic tests are performed on both outpatients and inpatients in the same location. The schedulers will usually fill up the schedule by starting with the earliest appointment of the day. Consequently, outpatients who are scheduled days or weeks in advance will be put in the morning slots, leaving inpatients to get their tests at the end of the day. At best, that results in a several hour discharge delay for many patients and at worst, it results in an entire day delay in discharge. If you have a relatively predictable number of these tests that are commonly done on inpatients, then block out the first morning appointments on the outpatient schedule so those inpatients can get their tests early in order to get them discharged faster. Procedures where this tactic can be useful include cardiac stress tests, cardiac echos, cardiac catheterizations, duplex ultrasounds, and colonoscopies/endoscopies.
  16. Manage long length of stay patients. A hospital is not a hotel. The hotel gets paid by the number of nights a customer is in a room. The hospital gets paid a set amount based on the patient’s DRG regardless of how many nights a patient is in a room. Once the hospital generates expenses equal to the DRG, the hospital loses more and more money each day that patient remains in the hospital. A weekly workgroup consisting of case management, social service, hospitalists, psychiatry, the medical director, and legal can identify those long length of stay outliers and develop strategies to get them out of the hospital. I would review the hospital census weekly and call the hospitalists responsible for patients with a length of stay greater than 2-3 weeks to ask what I could do to help expedite discharge. Sometimes, all it took was that phone call to get the discharge ball rolling.
  17. Don’t overdo observation status. When a patient arrives in the emergency department, if it appears that the patient’s condition can be treated within 2 midnights, then that patient is placed in observation status. This is an outpatient designation and as such, the patient will be responsible for a generous co-pay and be responsible for their medication charges. These charges frequently go unpaid (especially by lower income Medicare and Medicaid patients) and the hospital has to write them off. If the financial margin is thin for medical inpatient admissions, it is non-existent for observation status patients. Most of the observation status patients are there for a medical condition, such as chest pain, syncope, or heart failure. A disconnect between the hospitalists and the hospital is that the hospitalist gets paid exactly the same by Medicare or commercial insurance whether the patient is an inpatient or observation status. However, entering enough justification data into the H&P to warrant inpatient admission (versus observation status) can be tedious and so some hospitalists will take the path of least resistance in borderline patients and put them in observation status. Measure your observation length of stay and if it is > 2.0 days (or > 18 daytime hours), then you have a problem. Either you are keeping the observation patients in the hospital too long or you are mislabeling patients as being in observation status that should really be in inpatient status. If it is the former, then consider creating an observation unit that specializes in protocol-driven care of observation status patients (perhaps staffed by NPs/PAs). If it is the latter, then work with the hospitalists to be sure that they are educated about the difference in observation status versus inpatient status and eliminate any hidden incentives that are causing them to preferentially put patients in observation status.
  18. Use disease-specific order sets. You have an electronic medical record, now harness it. If you want to be sure that patients admitted with a COPD exacerbation are getting oral steroids and oral generic azithromycin rather than IV Solu-Medrol and IV levofloxacin, then create a COPD order set with the desired medications in it. Same goes for ensuring that patients with heart failure get a cardiology consult and a cardiac echo. I have admitted thousands of patients to the hospital and when entering orders a al carte, it is way too easy to forget to order a needed test or to order an expensive drug when a cheaper drug would have been as good or better. Order sets make it simple for the admitting hospitalists to treat medical conditions efficiently and effectively.
  19. Get the pharmacists up on the patient floors. I cannot overstate the value of hospital pharmacists. They are way overtrained for how we too often use them. Allow them to practice at the top of their license. They know more about medications than the doctors do and can be an invaluable resource for discontinuing drugs that are no longer needed (such as antibiotics), eliminating duplicate medications, avoiding drug-drug interactions that can prolong hospital stays, dosing medications correctly for renal function/liver function/age, etc. In the best of all worlds, the pharmacists would round with the physicians daily as part of multidisciplinary rounds. At the least, a pharmacist should meet with the hospitalists daily to do a quick medication review of each patient.
  20. Get eligible patients signed up for Medicaid. When Medicaid expansion came to Ohio, our hospital’s self-pay rate fell from 13.0% of all inpatient admissions to 2.5% of admissions. Many patients who are eligible for Medicaid do not sign up for it on their own either because they didn’t think they would need it before they got sick or because they didn’t know how to sign up. Our patient financial services staff were outstanding and identified these patients at the time of admission and assisted them in getting on Medicaid. Although hospitals do not make much on Medicaid patient admissions, it is more than they make on uninsured patient admissions.
  21. Focus on the ICU. The most expensive care that most medical patients receive is in the intensive care unit. It therefore follows that the hospital will get the greatest cost savings by reducing ICU length of stay and ICU expenses. Specific measures can include respiratory therapy-driven ventilator weaning protocols, daily multidisciplinary rounds, and use of “ventilator bundle” order sets. Palliative medicine is almost never able to be self-supportive based on physician billings alone and can be very expensive for the hospital to subsidize. The ICU is one location where the cost of palliative medicine can be more than offset by the expense reduction that palliative medicine can bring.
  22. Support the inpatient psychiatry consultation service. Patients with pure psychiatric conditions, such as suicidal ideation and decompensated schizophrenia, generally go straight from the emergency department to an inpatient psychiatry hospital. However, if those same patients also have an uncontrolled medical condition, then they get admitted to a general hospital as medical admissions. Like palliative medicine, psychiatry consult services usually require hospital support and cannot survive on physician professional billing alone. Patients with dual diagnoses (medical plus psychiatric) often have the longest length of stay. Ensure that daily inpatient psychiatric consultation is available and utilized early in these patients’ hospital stay.
  23. Avoid boarding in the emergency department. When a patient in the emergency department has an inpatient admission order placed but there are no available inpatient beds, then that patient remains in the ER as a “boarder”. Boarders are patients languishing in a purgatory between the inpatient world and the outpatient world. The ER physicians no longer considers the patients their responsibility and the hospitalists are usually up on the inpatient floors and not physically present in the ER to attend to the boarders. The patients become the lowest priority for the ER nurses, tests do not get done, and consultants do not come down to see the patients in the ER. If you have a lot of boarders, then you have a long length of stay and a congested emergency department. Usually boarders mean that the length of stay of your inpatients is too long or you just don’t have enough inpatient beds. If boarding usually occurs on the same day of the week, then look at your elective surgical admissions to see if they can be better spread across all days of the week to prevent boluses of surgical admissions on certain days.
  24. Manage the hospital formulary. Most physicians have absolutely no idea how much medications cost. They may read an article about a new drug that they now want to prescribe or be lobbied by a pharmaceutical company representative to get an expensive new drug on the hospital formulary. Maybe you have several strong-willed physicians who have strong personal opinions about different drugs used to treat the same thing with the result that you end up with a lot of duplicate drugs on the formulary. If the formulary is too large, then there is a danger of having to waste too many expired drugs and danger that a more expensive drug will be used when a less expensive drug would have done the same thing. The formulary committee that takes an evidence-based approach to putting new drugs on the hospital formulary can keep costs down.
  25. Transition care clinics. Hospitalists and primary care physicians live in different worlds that do not intersect. Hospitalists want to get the patient fully “tuned up” before releasing that patient to the wild unknowns of the outpatient world. Transition clinics can be very helpful to give the hospitalists the confidence to discharge patients as soon as they are ready to be discharged rather than waiting “just one more day to be sure they’re ready to fly on their own…“. The specialties that are most amenable to transition clinics are pulmonary, heart failure, and diabetes.
  26. And a word about TB… OK, as a pulmonologist, I have a pet peeve. When a patient comes in with respiratory symptoms and tuberculosis is even a remote consideration, then that patient is placed in a negative airflow room and nothing happens until that patient has 3 negative sputum AFB stains. In the past, this meant 1 sputum sent to the microbiology lab every day for three days. This is unnecessary. The sputum samples only need to be separated by 8 hours so patients should be able to come out of discharge-delaying airborne isolation in just 1 day instead of 3 days. Make sure that the hospitalists order the sputum AFB samples every 8 hours, the nurses collect them promptly every 8 hours and the lab performs AFB stains 7 days a week – it will take 2 days off of these patients’ length of stay.
  27. Do you need an inpatient hospice? An inpatient hospice that is separate from the host hospital (i.e., has a different corporate taxpayer ID) can help earlier discharge of patients going to hospice and can avoid many ICU patients spending their last days of life in the intensive care unit after a decision to withdraw supportive care is reached. In order to be financially viable, most hospice organizations will not want to create an inpatient hospice unit unless they can be assured of keeping at least 4 hospice beds full before they will lease space from the host hospital. This may not be possible for small hospitals but can be very effective for larger hospitals. If you cannot justify an inpatient hospice unit in your hospital, then build a partnership with a free-standing inpatient hospice.
  28. Partner with SNFs and home healthcare agencies. Strong relations with skilled nursing facilities that you trust to provide high quality can be mutually advantageous. They get preferred provider referrals from you and your patients get to the top of their wait list. Similarly, strong relations with home healthcare companies and home oxygen companies can ensure that home nursing care or home oxygen can be readily available at the time of a medical patient’s discharge, even if that discharge happens on short notice.
  29. Get the right culture about quality. Fundamentally, the quality department should be focused on patient safety and infection control. But the scope of quality has expanded over the past 20 years and now issues such as hospital readmission rates, inpatient length of stay, and physician coding compliance often fall under the purview of the quality department. As a result, the quality department has become the messenger of all things bad to many physicians. A phone call from the medical director of quality is about as welcome as a phone call from an IRS auditor. As a consequence, many physicians have come to fear the quality department. Instead, the physicians and the quality department should be working together toward mutual goals of infection control and patient safety. If the hospitalist is worried about getting a call to the office of the director of quality because the hospital readmission rate is going to result in a $20,000 annual Medicare readmission penalty to the hospital, that hospitalist is going to increase his/her patient length of stay in order to be sure that the patients are good and ready to be discharged and not come back, even if the cost of that increased length of stay results in an extra annual $500,000 of hospital expenses.
  30. Avoid the “dailies”. Do your ICU patients on ventilators really need a daily chest x-ray to check the position of their endotracheal tube? Does your patient with heart failure getting diuresed on a medical unit really need a daily CBC? If you ask your hospitalist or intensivist why they order daily labs and x-rays, they will usually say that it is because that’s the way they’ve always done it. Many times, these are unnecessary. Similarly, the Q shift I/Os can cost an extra 15 minutes of nursing time every day and are not necessary for every inpatient. A daily weight may be an extra 5 minutes.

Parity between medical and surgical admission reimbursement is nowhere on the immediate horizon. Until such parity exists, hospitals need to both encourage more surgical admissions and better manage the costs of medical admissions. These 30 tactics will get you off to a good start.

August 24, 2021

By James Allen, MD

I am a Professor Emeritus of Internal Medicine at the Ohio State University and former Medical Director of Ohio State University East Hospital