Category: Hospital Finances

Rural hospitals in the United States are closing at an alarming rate. 190 of them have closed since 2005. In 2019 alone, 18 rural hospitals closed. Federal COVID relief funds brought a brief respite with only 3 rural hospitals closing in 2021 and 7 closing in 2022. But now that those relief funds have largely been exhausted, we are back on track to see an increasing number of closures this year. The Center for Healthcare Quality and Payment Reform estimates that there are 600 rural hospitals (one-third of all U.S. rural hospitals) at risk of closing in the near future.

Each hospital has different reasons for closing but in general, it is due to persistent losses on patient care services and insufficient financial reserves. Rural hospitals are generally smaller than metropolitan hospitals. The American Hospital Association reports that half of rural hospitals have fewer than 25 beds. It is generally not cost-effective to maintain 24-hour services such as radiology, lab testing, blood banking, respiratory therapy, and pharmacy for a very small number of inpatients as these services require a critical mass of patients to cover their expense. Rural hospitals account for 35% of the nation’s hospitals but account for 59% of hospital closures. Data from the University of North Carolina’s Shep’s Center shows that Texas has had the largest number of rural hospital closures at 27 followed by Tennessee at 15 and North Carolina at 11.

One of the most important functions of rural hospitals is to provide emergency care. For patients with conditions such as trauma, myocardial infarction, stroke, pulmonary embolism, and gastrointestinal bleeding, timely initial medical care at even a small emergency department can mean the difference between life and death. When a rural hospital closes, not only do rural residents have to travel farther to receive healthcare, but the rural community also loses a major employer. That often results in hospital workers moving to urban areas in order to stay employed.

To address this evolving crisis in rural healthcare, CMS created the Rural Emergency Hospital program that went into effect in January 2023. Under this program, Medicare pays hospitals $3.27 million per year and increases payment for patient care services to 105% of the usual Medicare reimbursement. In exchange, the hospitals have to maintain a staffed emergency department and no longer admit patients for inpatient care.

Requirements to qualify as a rural emergency hospital:

• Have met criteria as a critical access or small rural hospital with no more than 50 beds on December 27, 2020
• Do not provide inpatient care
• Do not exceed an average observation length of stay of greater than 24 hours
• Be located in a state that licenses rural emergency hospitals and be licensed as such
• Be enrolled as a Medicare provider
• Have a transfer agreement with a level I or level II trauma hospital
• Maintain a staffed emergency department 24 hours a day, 7 days a week that meets Critical Access Hospital emergency care criteria
• Have blood bank, radiology, laboratory, and pharmacy services
• Have a physician, nurse practitioner, clinical nurse specialist, or physician assistant available 24 hours a day immediately by phone and within 30 minutes to travel on-site

The downsides of becoming a rural emergency hospital

The biggest sacrifice in becoming a rural emergency hospital is giving up inpatient care. That means no obstetrics, no intensive care unit, and no inpatient surgeries. These are often the best-paying services that hospitals provide. Becoming a rural emergency hospital does not eliminate a lot of the regulatory requirements that burden inpatient hospitals. Rural emergency hospitals are still subject to periodic site visits by Medicare inspectors – the CMS conditions of participation document that describes all of the specific regulations reviewable during site visits is 118 pages long. Fortunately, most of these conditions are similar to or the same as conditions for regular inpatient hospitals so most hospitals will have already met these requirements prior to converting to a rural emergency hospital.

Any patient who requires an inpatient admission must be transferred to a full-service hospital. For residents of the community, that can mean driving an hour or more to deliver a baby or to have a surgery that might require admission to the hospital afterward. It can mean an hour-long ambulance ride to be admitted for a COPD exacerbation or flare of heart failure. This can be isolating for patients requiring hospitalization when family and friends must now travel long distances for hospital visits.

For the physicians who practice in that community, it means no longer providing inpatient care. Although many primary care physicians may be happy to be relieved of the demands of taking care of their handful of inpatients, it can be disruptive to the continuity of care of those patients. Family physicians in the community would no longer be able to deliver babies. For some physicians, this can mean a loss of an important percentage of their professional revenue that in the past came from inpatient services. It will become very difficult for specialists such as cardiologists, OB/GYNs, general surgeons, and pulmonologists to maintain financially viable practices in communities lacking an inpatient hospital.

Should your hospital become a rural emergency hospital?

There are a number of factors to consider when a hospital contemplates conversion to rural emergency hospital status:

Is it legal in your state? One of the key requirements to become a rural emergency hospital is that the hospital must be located in a state that licenses them. Only 7 states have approved licensing as rural emergency hospitals: Arkansas, Illinois, Kansas, Michigan, Nebraska, South Dakota, and Texas. Other states are likely to pass legislation permitting rural emergency hospitals in the near future but this is currently a barrier for hospitals not in one of these 7 states. If your state does not license rural emergency hospitals, then start lobbying your state legislature now so that your hospital have the option of converting to a rural emergency hospital in the future.

Did your state adopt Medicaid expansion? States that did not adopt Medicaid expansion had higher numbers of rural hospital closures than those states that did adopt Medicaid expansion.

Since 2005, the 11 states that did not adopt Medicaid Expansion accounted for 51% of all rural hospital closures in the United States. States that adopted Medicaid had an average of 2.4 rural hospital closures whereas states that did not adopt Medicaid expansion had an average of 8.7 rural hospital closures. Americans living in rural areas have a higher poverty rate (15.4%) than those living in metropolitan areas (11.9%). This poverty disparity is greatest for Black Americans living in rural areas (30.7%) versus Black Americans living in metropolitan areas (20.4%). Overall, since 2007, per capita income in rural areas is 25% lower than in urban areas. As a consequence, states that did not expand Medicaid now have a higher percentage of low-income, uninsured people living in rural areas. People lacking health insurance still get sick and injured, however. When they require hospitalization, the hospital does not get paid. This has led to disproportionate financial failure of rural hospitals in states that did not adopt Medicaid expansion. As an example, Texas has the highest percentage of uninsured population in the country (20%) and also had the highest number of rural hospital closures since 2005 (27 hospitals).

Hospital size matters. The 190 rural hospitals that have closed since 2005 were mostly small with an average of 36 beds. 79% of all closed hospitals had fewer than 50 beds and 55% had 25 or fewer beds. When the hospital inpatient census becomes low, hospitals frequently run a deficit since it is difficult to provide comprehensive 24-hour a day services for a small number of patients. The fewer the number of inpatient beds, the more likely a hospital will financially fail and close.

It’s all about the financial statement spreadsheet. Every rural hospital in the U.S. is different. Some have non-patient care revenue in the form of endowments, county support, state support, or religious organization support. Others are fortunate to have a high percentage of commercially-insured patients. Some have had forward-thinking leaders who have avoided financial losses by careful resource allocation and building up their number of days cash on hand. Each hospital must look at its unique financial situation to determine whether they are better off accepting the $3.27 million and giving up their inpatient beds to become a rural emergency hospital or continuing their inpatient services and passing on the $3.27 million.

What will Medicare Advantage plans cover? Emergency department visits, observation stays, and outpatient services are covered by Medicare Part B for those Medicare recipients who have traditional Medicare. However, 45% of Medicare enrollees are now covered by Medicare Advantage plans (Medicare Part C). These plans dictate which physicians the patients are allowed to see, what outpatient services will be covered based on prior authorization, what co-pays are required by the patient, and what deductibles are required by the patient. Hospitals contemplating conversion to rural emergency hospital status need to do an inventory of Medicare Advantage plans used by the hospital’s patient population and ensure that payment for emergency and outpatient services from these plans will cover the cost of providing those services. A good place to start is to look at the denial rates at your hospital by the various Medicare Advantage plans in your community. A Medicare Advantage plan that has historically denied a high percentage of emergency and outpatient services will continue to do so if the hospital becomes a rural emergency hospital. Hospitals also need to ensure that the physicians, nurse practitioners, and physician assistants who provide emergency services are in-network for those Medicare Advantage plans.

A rural emergency hospital is better than no hospital

American healthcare is increasingly dominated by large multi-hospital health systems. This has been a result of a trend of hospital mergers and acquisitions over the past 25 years. Many small rural hospitals have either outright gone out of business or have been acquired by and then closed by larger health systems. But when a rural hospital closes, the healthcare needs of the people in its community does not go away.

CMS has thrown America’s rural hospitals a lifeline that can help them continue to provide emergency services and outpatient services to their communities. Although this will not be as good as having local inpatient services, it is better than nothing.

March 13, 2023

Recently, the Federal Trade Commission has proposed a rule that would ban all non-compete clauses in employment contracts. These clauses have been common for physicians, so what would the impact be?

A non-compete clause is a type of restrictive covenant that prevents an employee from working for one of their employer’s competitors. Non-compete clauses typically specify a duration of time that the former employee cannot work for a competitor (typically 1 year) and the geographic range that the former employee is prohibited from working in. A related clause is the “non-solicitation clause” which prohibits employees from taking customers (patients) with them if they leave their job. Non-solicitation clauses can also be written to prohibit a former employee from recruiting other current employees to come work for them.

Although results of different surveys of physicians vary, the best estimate is that approximately 40% of U.S. physicians are bound by a non-compete clause. A frequently raised question is: “but is it enforceable?”. The answer is… maybe. In the United States, each state has its own laws regarding non-compete clauses with several states (such as Oklahoma, North Dakota, and California) banning them altogether. The enforceability of non-compete clauses is also state-specific and usually based on legal precedents from previous judicial decisions in that particular state. In general, physicians do not want to have non-compete clauses in their contracts but employers (hospitals or group practices) do want to have non-compete clauses.

I have been on both sides of the physician non-compete clause controversy – as a physician who had to sign my own employment contract and as an employer who had to help write physician contracts. As a practicing physician, I had two components of my clinical practice: as an inpatient critical care physician working in our hospital intensive care unit and as an outpatient pulmonologist who was one of the very few in Central Ohio specializing in interstitial lung disease. These two components of my practice had very different implications for non-compete clauses. As an employer, I had roles as the treasurer of our clinical department, an elected board member of our health system’s physician practice group, and the medical director of one of the hospitals in our health system. Each of these employer-related roles gave me a different vantage point on physician non-compete clauses. After dealing with the pros and cons of these clauses for more than 30 years, here are some of my thoughts.

When are physician non-compete clauses NOT appropriate?

Fundamentally, non-compete clauses are used to prevent harm to the employer. For some physicians, leaving one hospital to go work for another hospital in the same city poses little to no risk of harm to their employer. This is primarily true for specialties that do not depend on physician referrals, particularly if there is no significant physician shortage in that particular speciality. For these specialties, non-compete clauses should either be non-existent or should be less restrictive. Typically, these physicians are hospital-based and the patients that they care for are not referred specifically to them by some other physician. Instead, they get patients who choose to come to that particular hospital but do not choose to see that specific doctor. Many of these physicians do shift work. Examples include:

• Hospitalists
• Critical care physicians
• Emergency medicine physicians
• Radiologists
• Pathologists
• Anesthesiologists

If one of these physicians leaves to go work for the hospital’s competitor, they do not take patients with them. The hospital may have financial harm from having to recruit another physician in the same specialty to take their place but the hospital is unlikely to lose patients who would chose to go to a different hospital simply because that physician now practices there. The hospital can also be financially harmed if its most experienced and most productive physicians leave since that hospital will likely have to replace those physicians with younger, less experienced and less productive physicians. However, this would be equally the case whether the senior physician leaves to work in a hospital across the street or leaves to work in a hospital in a different part of the country, outside of the hospital’s geographic area of patient referrals.

Much of the criticism of physician non-compete clauses have come from primary care physicians and it is not really clear whether primary care physicians ever need a non-compete clause. There have been emotional stories of family physicians who wanted to leave their hospital-owned practice to work in public health clinics caring for uninsured patients but were contractually prohibited by the hospital. However, the reality is that most primary care physicians leave for another practice because of better working conditions or better pay. As long as a primary care physician does not take their patient panel with them, there is little effect on a hospital because it is relatively easy for that hospital to hire a new primary care physician to assume care for that patient panel. In this case, a non-solicitation clause that prohibits the primary care physician from actively taking their patient panel with them would be more appropriate. These non-solicitation agreements generally do not prohibit a patient from voluntarily seeking out that primary care physician at their new practice location but do prohibit the physician from actively trying to persuade (solicit) that patient to follow the physician to their new practice.

When ARE physician non-compete clauses appropriate?

Two situations when non-compete clauses do make sense for physicians are when the hospital has invested money in a physician’s training or invested money in a physician’s practice ramp-up period. In both of these situations, the hospital can experience direct financial harm if a physician leaves to go work for a competitor.

One example of employers investing money in physician training is military medicine. Medical students agree to work for the military for a specified number of years and in exchange, the military agrees to pay for all or some of the medical student’s educational expenses. Another example is when a hospital pays for a physician to get advanced training in order to fill a clinical or administrative need at that hospital. For example, a hospital that sends one of its physicians to get training in quality assurance to prepare the physician for a hospital quality directorship. Or when the hospital decides to buy a surgical robot and sends one of its surgeons to get trained to use the robot. In these situations, the hospital has a direct financial investment in that physician’s training and the hospital should expect to receive a return on that investment.

In many specialties, physician contracts will include a practice ramp-up, whereby the hospital will subsidize that physician’s income for a specific number of years while that physician builds their practice and develops a referral base. The duration of time for this ramp-up depends on the specific specialty. For example, it may only take a new gastroenterologist 1 year to build up a sustainably-sized patient panel. On the other hand, it may take 5 years for a plastic surgeon specializing in aesthetic surgery to build a sustainable referral base. A typical ramp-up contract would be for a relatively large subsidy for the first year of practice and then smaller amounts for subsequent years. For hospital-employed, salaried physicians, the ramp up is often expressed as annual RVU targets. For example, a hospital-employed gastroenterologist might be contractually expected to generate 6,000 wRVUs the first year and then 8,000 wRVUs in subsequent years. During that first year, the gastroenterologist’s salary is guaranteed and not dependent on RVU production. For non-hospital-employed physicians, the ramp up is often in direct monetary payments. For example, the hospital might pay the plastic surgeon $200,000 year 1, $150,000 year 2, $100,000 year 3, and $50,000 year 4. In either case, the hospital has a direct financial investment in developing the physician’s practice and once again, the hospital should expect a reasonable return on that investment.

If physicians take patients with them to a new hospital, the original hospital will lose money. Those patient now go to a different hospital for their lab tests, their x-rays, and their surgeries. This “down-stream revenue” can be substantial – not only as a loss of income to the hospital but also as a loss of patient care income to the pathologists, radiologists, surgeons, and specialists who practice at that hospital and are dependent on that patient population remaining at their hospital. This can occur with primary care physicians who have a large patient panel. But it can also occur with outpatient specialists who maintain large populations of patients who regularly see them in the office. As with primary care physicians, a non-solicitation clause may be more appropriate for these specialists than a non-competition clause.

Specialists can also create financial harm to a hospital by leaving and taking their referrals with them. Specialists cultivate referral bases over years of practice. So, for example, if a joint replacement surgeon who has established a referral network of rheumatologists and primary care physicians leaves to go work for another hospitals, those rheumatologists and primary care physicians will now be sending their patients needing joint replacement surgeries to a different hospital. As an alternative to non-compete clauses, non-solicitation clauses can be written to prohibit specialists from actively seeking referrals from their previous referral base. When a physician in our practice group resigned, announcement letters to that physician’s patients had to be written by or approved by the practice administrators so that the physician could not advertise to patients about their new practice location.

So, what is the solution?

Physician non-compete clauses should not be a “one size fits all” proposition. Most physicians do not need a non-compete clause as there are more effective ways to ensure their loyalty. For those physicians who do need non-compete clauses, the details of those clauses should be tailored to the degree of financial loss faced by the hospital (or employing group practice) should they leave.

For specialties that do not warrant non-complete clauses, paying end-of-the year bonuses is a good way to ensure that the physicians remain with the hospital for at least one year. It costs money to recruit and hire physicians when considering the cost of job advertising, interviewing, travel, moving expenses, signing bonuses, and on-boarding. But an unhappy physician is not going to be a productive physician and moreover, that unhappy physician can poison the culture of the hospital’s medical staff – in the long run, a poisoned culture can be very expensive. Ensuring that physicians remain employed for at least one year of employment in order to get their bonus gives the hospital enough time to recruit another physician to replace the one who is leaving. If the physician leaves before 1 year is up, the hospital can use the money it would have paid that physician in bonus pay for new physician recruitment, instead.

For specialties that do warrant non-compete clauses, sometimes other restrictive covenants can be equally effective or even more effective. For example, a non-solicitation clause in a primary care physician’s contract can prohibit that physician from taking their panel of patients with them to a new employer. This can mean prohibiting the physician from taking patient medical records with them and contacting patients to offer to see them at the physician’s new office. Non-solicitation clauses can also be used to prohibit the physician from recruiting other physicians or hospital employees to come work at their new place of employment.

When hospitals agree to provide a financial ramp-up as a physician builds their practice, it is reasonable for that hospital to insert a non-compete clause. Before our health system put non-compete clauses in our physician employment contracts, we would regularly have surgeons and specialists who would receive ramp-up subsidies totaling as much as $400,000 over several years. All too often, as soon as the surgeon or specialist completed their ramp-up period, they would be recruited by another hospital in town that would pay them a $50,000 signing bonus. This was a bargain for the other hospital since it only had to pay a small signing bonus and did not have to pay the more expensive ramp-up, thus saving that hospital a net $350,000. However, hospital want to have to keep an unhappy surgeon or specialist on the medical staff. So, a solution is to have a buyout for the non-competition clause to offset the hospital’s initial investment in that surgeon or specialist. This buyout should be equal to the amount that the hospital has subsidized that physician with a diminishing amount after the ramp-up period commiserate with the hospital’s subsequent return on investment from the physician’s contribution to the hospital’s patient care revenue. For example, let’s take a surgeon specializing in surgery of the right little toe who needs 3 years to build his toe surgery referral base and get his OR team efficient with toe surgeries. His buyout might look like this:

Ramp-up periods are used not just to build referrals but also to build expertise. In my experience, it takes about 7 years for a newly trained surgery resident or fellow to reach maximum surgical efficiency as an attending physician. In those 7 years, the surgeon is building their operative team and learning how to hone his or her skill: Which patients to operate on and which to not operate on. How to reduce the operative time it initially takes to perform a particular surgical procedure. How to anticipate and avoid surgical complications. For non-surgical specialists, the time to reach maximum productivity may be a bit shorter. But regardless, in the first several years after completion of formal training, the physician is still learning and the hospital generally is covering part of the cost of that on-the-job training. Even if the heart surgeon is paid based on wRVU productivity and thus gets paid less in their first few years after fellowship, the hospital loses money from paying the OR nurses and anesthesiologist to do 2 open heart surgeries in a day rather than 3 open heart surgeries in the same amount of time while the surgeon is learning how to be efficient.

Hospitals should be willing to waive buyouts and non-competes under certain circumstances. For example, a few years ago, we had a non-productive but somewhat famous specialist at our hospital who we were losing money on and we considered terminating him. A hospital 5 miles away was simultaneously recruiting him, believing that they were making a hiring coup by poaching a famous doctor from us, not realizing that he was a financial disaster. We waived his non-compete and did not ask for a buyout because we were happy to have him gone (and now dragging down the competition’s finances). Similarly, academic physicians who have worked at a university medical center for several years and then get passed up for academic promotion should have any non-competes waived.

Non-compete geographic limits

Most physician non-compete clauses contain geographic restrictions that correspond with the hospital’s patient population geography. For example, a community hospital might have a 10-mile restriction if most of its patients live within that 10-mile radius. On the other hand, a tertiary referral hospital might have a 50-mile radius non-compete restriction if it depends on referrals from a lot of community hospitals within that 50-mile radius.

Geographic limits should also be based on the specialty. For example, a primary care physician probably will not draw patients from further than 10 miles from their current practice whereas a specialist might draw patients from 100 miles away. This can be particularly true for a physician specializing in a very unique condition such as a kidney transplant surgeon or an interstitial lung disease pulmonologist (such as myself), who may be the only physician practicing in that specialty in a several county area.

What is considered a reasonable geographic distance in non-compete clauses is often contentious and the cause of many employment-related lawsuits. A non-compete clause for the kidney transplant surgeon specifying metropolitan Columbus might be reasonable but specifying all of Ohio is probably unreasonable.

Hospitals will not voluntarily eliminate physician non-compete clauses

No hospital wants to be the only hospital in town to eliminate non-compete clauses. Otherwise, there would be unidirectional movement of physicians from that hospital to all of the other hospitals in town that do have non-compete clauses. So, for those hospitals that would be willing to drop their non-compete clauses from physician employment contracts, if the FTC makes non-compete clauses illegal, then they could finally eliminate non-competes without worrying about being at a competitive disadvantage to their hospital competitors. In other words, the FTC ruling would essentially level the playing field.

Academic hospitals and non-academic hospitals will be affected differently. Historically, many physicians have left jobs in academic medicine to go into private practice at non-academic hospitals. But the reverse is very rare: physicians generally do not give up their private practice to go into academic medicine. There are always exceptions – our health system acquired a local private practice electrophysiology cardiology group and a local vascular surgery group, for example. But by and large, physician movement between academics and private practice is a one-way street. If physician non-compete clauses are outlawed, then academic hospitals will be at risk of losing more physicians to local non-academic hospitals but the reverse is unlikely to occur. On the other hand, physician movement between different non-academic hospitals is very common. Individual physicians leave one group practice to join another group practice. Hospitals contract with one hospitalist group one year and a different group the next year. Elimination of non-compete clauses will likely affect physician movement between different non-academic hospitals fairly similarly. As a consequence, no academic hospital ever wants to give up its physician non-compete clauses but non-academic hospitals will be willing to give up non-competes as long as all of the other non-academic hospitals in town have to also give up theirs.

Because of this one-way movement of physicians from academic to non-academic hospitals, these two types of hospitals will have ramp-up costs affected differently by global elimination of non-compete clauses. Academic hospitals who lose physicians to non-academic hospitals immediately after their ramp-up costs are paid will stand to lose those ramp up costs. However, if a non-academic hospital pays ramp-up costs for a physician who is then poached by another non-academic hospital, then the original hospital can poach a different doctor from the second hospital so that the ramp-up costs end up balancing out. Because of this, academic hospitals will likely lose more money in ramp-up expenses than non-academic hospitals if non-compete clauses are outlawed.

The economic risk of eliminating all physician non-compete clauses

No one has a crystal ball to predict all of the effects of a blanket elimination of non-compete clauses and history shows us that with every government policy decision comes unintended consequences. Here are some of the possible effects of eliminating physician non-compete clauses:

Increased healthcare costs. One of the concerns of the FTC’s proposed complete elimination of non-compete clauses is that it will be inflationary at a time when our economy is reeling from the highest inflation rates in 40 years. After all, a primary goal of banning non-compete clauses is to increase worker wages by increasing employer competition for those workers. Employers would then transfer the increased expenses of employee wages to consumers by increasing the price of goods and services. However, American medicine is a weird economy, and consumer prices are not as tightly bound to employer expenses. In the U.S., 45% of healthcare expenditures are paid by federal, state, or local governments with the largest component being Medicare and Medicaid. The price Medicare pays doctors and hospitals for any given medical service or procedure is determined every year by Congress and hospitals get paid the same amount no matter what their costs are to provide that service or procedure. If hospital costs go up because they have to pay doctors more, Medicare does not pay that hospital more money. Instead, hospitals increase the amount that they charge commercial insurance companies and self-pay patients. The danger of eliminating physician non-compete clauses is therefore an increase in commercial health insurance premiums to working Americans and an increase in the cost of healthcare to those who pay for healthcare out of pocket.

Lower pay for new physicians. The second risk of physician non-compete clauses is that it could reduce income for newly trained physicians, particularly surgeons and specialists. Hospitals would no longer be incentivized to pay for ramp-up periods for new surgeons or specialists and thus there could be a wider income separation between physicians straight out of residency and fellowship compared to those who have been out in practice for several years. Although it can be argued that this is the physician’s own cost of going from inexperienced/inefficient to experienced/efficient, those same physicians who are newly trained are those who are making student loan payments and thus have less disposable income to begin with. In academic medicine, these income gradations already exist with Assistant Professors earning less than Associate Professors who in turn make less than full Professors. If non-compete clauses go away, these seniority-based salaries may become more prevalent in non-academic medicine.

Higher pay for sub-specialists. Losing a hospitalist or an ER physician to a local competitor does not affect a hospital’s financial margin much but losing a reconstructive plastic surgeon or a joint replacement orthopedic surgeon can have a huge financial impact. Hospitals will be incentivized to pay more to those physicians who bring in the most money for the hospital. Because surgical procedures usually have the greatest financial margin for hospitals, subspecialty surgeons could see an increase in their salaries.

Better coffee in the physician lounge. If non-compete clauses are eliminated then physicians will be not only drawn to work for those hospitals that provide the highest salaries but also those hospitals that have the best physician amenities. This could mean providing free parking, bigger offices, free food, and more vacation time. It is often said that trying to run a hospital full of a bunch of doctors is like trying to run a business full of a bunch of CEOs. Without non-competes, those doctors will increasingly expect to be treated like CEOs.

More hospital mergers. One way to prevent a local competing hospital from hiring your physicians is to buy that competing hospital. If you have a monopoly on the local healthcare market, then you don’t have to worry about losing your physician employees since they would have to sell their house, uproot their kids, and move to a different community to get a job with a different hospital. For larger hospitals and hospital systems, the amount that they pay to physicians is a relatively small part of the annual budget. But for smaller hospitals that are just scraping by financially, the additional costs required to retain their doctors could be enough to force them to merge with larger health systems or even close.

Non-compete clauses should not impede reasonable competition

In a free market economy, employees will go to work for the employer who offers them the best job for the best salary. The strength of a free market economy is that this competition for the best employees is the invisible hand that encourages employers to provide optimal working conditions and pay more for the best workers. Excessive use of non-compete clauses creates employment monopolies and in the long-run, monopolies end up hurting the average consumer and hurting the overall economy.

Free market employment encourages innovation and efficiency. It is why the United States has been the envy of the world for the past 150 years when it comes to revolutionary inventions, technologic breakthroughs, and economic success. Injudicious use of non-compete employment clauses risk turning “workplace of choice” initiatives into “workplace of force” realities which can stifle innovation and efficiency.

But employers should reasonably expect to recover their financial investments. No one would expect a factory to spend $250,000 to buy a new machine and then be required to give that machine away 3 years later to a competitor for free. And we should not expect one hospital to spend $250,000 to train a physician only to have that physician go work for a competitor once completing their training. So, there has to be a compromise. Non-compete clauses should not be applied to all physicians but neither should they be eliminated completely.

Non-compete clauses (with options to buyout those clauses) should be reserved for those situations when hospitals invest a significant amount of money in a physician’s career development. For other physicians, non-solicitation clauses can protect the hospitals without negatively impacting a free-market competition for physician employment. Eliminating all physician non-compete clauses is unwise… but so is the indiscriminate use of non-compete clauses across the board to all physicians in all specialties. I hope that the FTC finds a way of protecting the right of physicians to chose their workplace while protecting the right of hospitals to recover their financial investments in physician career development. The answer to the physician non-compete controversy is not that they should always be used nor should they never be used but rather that they should sometimes be used.

February 15, 2023

The Public Service Loan Forgiveness (PSLF) is a federal program that forgives student loans for people who work for government or non-profit organizations. There are several eligibility requirements but many physicians qualify and can have hundreds of thousands of dollars of educational debt eliminated. How can a physician maximize the amount of money forgiven? Should PSLF eligibility be a factor in job selection? Should hospitals and other healthcare organizations promote PSLF eligibility as an employment incentive? As usual, the answers are all in the details.

 

What is the PSLF program?

Public Service Loan Forgiveness is a program sponsored by the U.S. Department of Education. It was created by the College Cost Reduction and Access Act of 2007. This is a different program than the one-time student loan forgiveness program proposed by President Biden that would forgive up to $20,000 to anyone with student loan debt. In order to be eligible for the PSLF, an applicant must be employed by a qualifying employer for 10 years. Therefore, the first applicants became eligible in 2017, ten years after the law was passed. There were problems initially and 99% of the first 28,000 applicants were denied. Congress attempted to fix these problems with new legislation in 2018 but confusion and misinformation about eligibility requirements persisted. In, 2019, President Trump’s proposed budget included elimination of the PSLF program; however, the democrat-majority House of Representatives did not cut the program. By April 2020, only 2,215 borrowers had student loans forgiven under the PSLF, a denial rate of 98.5% since program inception. To address many of the problems with the PSLF, the federal government granted a temporary waiver for PSLF applications between October 6, 2021 and October 31, 2022. This waiver allowed application approval for people who were previously denied PSLF because of issues such as past late payments on loan installments. There are new, permanent changes to the PSLF program that will go into effect in July 2023 that will further address some of these issues. The current eligibility requirements are:

1. Have a William D. Ford Federal Direct Loan. Other federal student loans are not eligible but may be able to be consolidated into a Direct Loan to become eligible.
2. Be employed by a qualifying employer. These include federal, state, local, or tribal governments and not-for-profit organizations. This also includes the U.S. military and the Peace Corps.
3. Work full-time for that employer.
4. Repay loans under a qualifying income-based loan repayment plan. To qualify:
   1. Each payment must be for the full amount owed for that payment period
   2. Payments must be made no later than 15 days after the payment due date
   3. Payments must all have been made while employed by a qualifying employer
5. Previously make 120 loan installment payments (i.e., 10 years of repayments). All of these must have all been made after 2007 (inception date of the PSLF).
6. Have used a qualifying income-driven loan repayment plan. The type of repayment plan is critical and many common repayment plans are not eligible for PSLF including the Standard Repayment Plan for Direct Consolidation Loans, the Graduated Repayment Plan, the Extended Repayment Plan, and the Alternative Repayment Plan. Repayment plans that are eligible for PSLF include:
   1. Pay As You Earn Repayment Plan (PAYE Plan)
   2. Revised Pay As You Earn Repayment Plan (REPAYE Plan)
   3. Income-Based Repayment Plan (IBR Plan)
   4. Income-Contingent Repayment Plan (ICR Plan)
7. Submit a PSLF certification and application form every year to the Department of Education. This form requires entries by the borrower and also requires a signature from an authorized official of the employer who has the authority to certify the borrower’s employment. It is important that the borrower knows who to go to in the organization to get this signature:

Once the PSLF is approved, the federal government then forgives whatever amount remains on the Federal Direct Loan. Therefore, an important strategy is to make the lowest allowable amount in monthly payments so that there is the greatest amount left on the loan after 120 payments. The forgiven amount is not subject to federal income tax.

Many physicians are eligible

One of the results of the COVID pandemic was an acceleration of the trend for physicians to be employed by hospitals rather than private physician practices. A study reported in 2022 by the Physician Advocacy Group found that 75% of U.S. physicians are employed by a hospital or other corporate entity (such as a health insurer). Currently, 341,200 physicians (52% of U.S. physicians) are employed by a hospital.

The American Hospital Association reports that there are 6,093 hospitals in the United States. Of these, 1,228 are for-profit hospitals, 2,960 non-governmental not-for-profit hospitals, 951 state/local governmental hospitals, and 207 federal governmental hospitals. In addition, there are 635 non-federal psychiatric hospitals and 112 other hospitals (such as prison hospitals); many of these are also either not-for-profit or operated by a state or federal government. In other words, more than 70% of American hospitals are qualifying employers for PSLF purposes.

Medical school is expensive. Currently, 73% of medical school graduates have educational debt at the time of graduation. The average debt is $250,990 ($202,450 for medical school and $48,540 for undergraduate school). Many physicians funded their education at least in part through Federal Direct Loans. These loans are for $5,500 – $12,500 per year for undergraduates and up to $20,500 per year for graduate or professional students. The total maximum is $138,500. They are particularly attractive because they have lower interest rates than private educational loans and do not have as strict credit history requirements as private educational loans. Most students use a strategy of maximizing their Federal Direct Loan amounts before taking out more expensive and more restrictive private loans, for example, from a bank or credit union. There are other federal student loans that allow the student to borrow larger amounts of money. For example, a grad plus loan from the U.S. Department of Education can be for the entire amount of the cost of professional school. Other federal student loans (such as FFEL Program loans or Perkins Loan Program loans) are not themselves eligible for PSLF but can be consolidated into a Federal Direct Loan, thus increasing the amount of money that can be eventually forgiven using PSLF.

There are other loan forgiveness programs that physicians may be eligible for such as the National Health Service Corps Loan Repayment Program (underserved communities), the National Health Service Corps Students to Service Loan Repayment Program (primary care physicians in physician shortage areas), the National Health Service Corps Substance Use Disorder Workforce Loan Repayment Program (substance use disorder treatment facilities), the National Health Service Corps Rural Community Loan Repayment Program (substance use disorder treatment facilities in rural areas), the Indian Health Service Loan Repayment Program (Native American communities), the Armed Forces Loan Repayment Program (military physicians), and State Student Loan Forgiveness Programs (states with physician shortages). The PSLF program has the broadest inclusion criteria and is available to more physicians than the other loan forgiveness programs since the PSLF does not require moving to an underserved area, working in substance use disorder treatment, or joining the military.

I’m a medical student. How does the PSLF affect me?

The PSLF is designed to forgive student debt. Medical education is expensive and most of the educational debt generated by physicians is from medical school (rather than undergraduate college). It is important to be strategic when incurring educational debt. Here are some specific tactics that medical students can use:

• Maximize PSLF-eligible loans. This means starting with the William D. Ford Federal Direct Loans. Only use other student loans after you have taken as much as permitted from the Federal Direct Loans. Try to avoid private loans if at all possible.
• Consolidate other federal student loans into a Federal Direct Loan as soon as possible. Many loans can be consolidated into a Federal Direct Loan and this can greatly increase the amount of money that will eventually be eligible for PSLF. However, consolidation resets your PSLF eligible payments to zero so if you have already made payments on your Federal Direct Loan and then consolidate, you will lose credit for all of those payments you have previously made. Ideally, you should consolidate all loans immediately after graduation from medical school, before you make your first loan repayment installment in residency.
• Keep your total debt as low as possible. Private medical schools are more expensive than public medical schools and do not necessarily result in a better education. Do a careful analysis of the total cost of each medical school when selecting which schools you apply to. Keep your living expenses low by living with roommates, cooking your own meals, and making purchases judiciously.
• Don’t forget scholarships. Unlike loans, scholarships do not need to be repaid. A $50,000 scholarship beats a $50,000 loan every day. Check with your medical school’s office of financial aid and apply for any scholarships that you are eligible for.
• Know whether your residency employment will be eligible for PSLF qualification. Most residencies are at not-for-profit hospitals but if your residency is at a for-profit hospital and your employer during residency is that hospital, then your loan payments made during residency will not count toward the 120 necessary to be eligible for PSLF. Moreover, you lose the advantage of making your lower monthly loan payments when your income is lower during residency and as a result, when you do eventually apply for PSLF, you will not be able to have as much money forgiven. When applying to residencies, ask if the organization that you get your paycheck from either is a government employer or is a tax-exempt employer under Section 501(c)(3) of the Internal Revenue Code.

I’m a resident. How does the PSLF affect me?

As soon as you start residency, you are employed and thus must start making payments on your student loans. However, with income-driven repayment plans, the amount you pay each month depends on your annual income. Here are some tactics to pay the least over your 10-year repayment period in order to have the greatest amount forgiven under PSLF:

• Start making loan payments early. Do not opt for using grace periods or deferment to delay starting payments. The amount of monthly payments depends on how high your income is. Your strategy should be to make as many payments as possible when your income is low during residency and make as few as possible when your income is higher as an attending. By using this tactic, you will have a larger amount still owed on your loan when you become eligible for PSLF and therefore will have a larger amount that can be forgiven.
• Don’t pay Federal Direct Loans off early. It feels really, really good to be debt-free and it can be tempting to try to make extra, early payments on student loans during residency and as a new attending physician. However, if you work for an employer that qualifies you for PSLF, then every early loan payment that you make is less money that can be forgiven once you are 10 years out of medical school. With PSLF, it is far better to be debt-smart than to be debt-free.
• Keep your annual income low. As a resident, it can be tempting to do a few moonlighting shifts each month to buy a new car or to go on a Caribbean vacation. But the money earned from those moonlighting shifts increases your annual taxable income and therefore increases your monthly payments on an income-driven repayment plan. This will result in a lower amount of loan forgiveness after you have made 120 monthly payments and are eligible for PSLF. On the other hand, contributing to a 403b, 457, or traditional IRA can reduce your annual taxable income, resulting in a lower monthly repayment amount which then increases the total amount of your loan that can be forgiven by PSLF. Each physician weighs the benefits of extra disposable income against the cost of higher loan payments differently.
• If your spouse makes a lot of money, consider filing separately for federal income taxes. This keeps your own taxable income low and thus keeps the amount of your monthly payments as a resident low. The result is that a larger amount of your loan can be forgiven by PSLF. By filing separately rather than jointly, you may pay slightly more in income taxes as a resident but the amount of money eventually forgiven could be much greater.

I’m a physician. Should I base a career choice on the PSLF?

The PSLF program is attractive to doctors since it has the potential to wipe out hundreds of thousands of dollars of educational debt. But for a physician completing residency or fellowship, basing a job choice on whether or not that job will result in PSLF eligibility can be hazardous. There are several reasons why a new physician should not base a career decision mainly on PSLF eligibility.

• It might go away. A PSLF applicant must first work for a qualifying employer for 10 years. Ten years is an eternity when it comes to federal funding. It is 3 different presidential terms and 5 different congressional terms. Inevitably, there will be swings in which political party controls the presidency and the U.S. House of Representatives. The PSLF has been on the chopping block before and it may be again before new physicians entering the workforce this year become eligible.
• Don’t sell your dreams. Maybe you have always aspired to take over a solo practice in your home town. Maybe your ideal job is to work for a for-profit healthcare company such as HCA. Maybe you would like to work part-time for a few years when your children are young. In these situations, you won’t be eligible for the PSLF. But if PSLF eligibility means taking a job that you won’t be passionate about or compromises your desired work-life balance, then the cost of PSLF may be too high.
• You might change your mind. I am a unicorn – a doctor who stayed at the same health system as a medical student, resident, fellow, and attending physician for 41 years. Few physicians stay with the same employer for their entire career. Historically, between 40% and 70% of physicians change jobs in their first 5 years of practice. During the first 2 years of the COVID pandemic alone, 43% of physicians changed jobs. Maybe your spouse has to relocate to a different city. Maybe you don’t get along with your colleagues. Maybe your hospital closes. If you change jobs in the first 10 years of practice and your new employer is not a qualified employer for PSLF purposes, then you won’t be eligible for PSLF. On the other hand, once your loans are forgiven by PSLF, you are free to go work for whoever you want, wherever you want.
• You might be financially better off without PSLF. Government jobs usually pay less than private practice jobs for physicians. Not-for-profit hospitals often pay physicians less than for–profit hospitals. With PSLF, you will still need to make required repayments every month for 10 years and the amount that you will be forgiven is only the amount remaining on your Federal Direct Loans at the end of those 10 years. In the long run, you may come out ahead financially by taking a job that does not qualify for PSLF but pays a few thousand dollars a year more than a job that qualifies for PSLF. This is particularly true if the amount of money you take out for Federal Direct Loans is relatively modest, for example, less than $50,000. On the other hand, if you estimate that your student loan balance after your first 120 monthly payments will be $500,000, then taking a private practice job in order to earn an extra $20,000 per year compared to an academic job does not make financial sense.
• You aren’t compulsive with paying off bills. To be eligible for PSLF, you have to make your repayments in full, every month. If you miss monthly payments or run out of money at the end of the month and can’t make a full payment, then you lose eligibility.
• You’re prone to getting caught up in moral dilemmas. When the federal government forgives educational loans, it means that the American taxpayers are paying for your education. For some people, this is perceived as a handout and physicians earn enough that they may feel they don’t deserve a handout. Elected officials from 11 states declined to participate in Medicaid expansion because they were ideologically opposed to taking federal tax money to care for the poor in their state. If you are a person who won’t be able to sleep at night if the federal government helps pay for your medical school debt, then the PSLF may not be for you.
• Shorter rather than longer residency. The 120 payment clock starts ticking once you graduate from medical school. As a resident and fellow, you earn less than an attending physician but with an income-driven repayment plan (such as PAYE or REPAYE), you also have smaller monthly loan payments while still in training. If you enter a specialty that requires 3 years of residency, then you will have 7 years of high monthly payments as an attending physician before you are eligible for PSLF. However, if you enter a specialty that requires 7 years of residency and fellowship, then you will only have 3 years of high monthly payments as an attending physician before PSLF eligibility. Physicians with the longest residencies/fellowships have the most to gain financially from PSLF.

The bottom line is that hoping to qualify for PSLF should never be the main factor in career decision making. However, when it comes down to two equally attractive jobs, qualifying for PSLF can be a tie-breaker.

I employ physicians. How can I leverage PSLF?

If you are the medical director of a not-for-profit hospital, use your hospital’s PSLF qualification as a physician recruitment incentive. Here are some tactics you can use to your advantage:

• Tell physician recruits that the hospital meets PSLF employer qualification. Many residents and fellows do not fully understand the differences between for-profit and not-for-profit hospitals and often accept jobs without even knowing which type their new hospital is. There is also a difference between working for a not-for-profit hospital and working at a not-for-profit hospital. A physician employed by a private practice medical group that works at a not-for-profit hospital will not qualify for PSLF.
• Advertise that the hospital signs the employment certification each year. This is a required element of the PSLF application. By telling physician recruits up front that you are aware of the need for these annual certifications and are willing to sign them in a timely fashion, you indicate to the recruits that you are knowledgeable about the PSLF process and will be there to assist them without creating any barriers. Medical directors and hospital administrators have hundreds of forms that need to be signed every month and they often get behind in completing them in a timely fashion – make sure that physician recruits know that you place a priority on the PSLF certification signatures.
• Have a designated physician loan navigator. Hospitals often agonize over whether or not to pay a physician a one-time $20,000 signing bonus. But PSLF can amount to as much as a $650,000 savings to a physician with no cost to the hospital. Therefore, ensuring that physicians meet eligibility and apply correctly can translate to millions of dollars of financial benefit to the medical staff. Designating a staff member from the hospital’s finance department or medical staff office to devote a percentage of their FTE to helping physicians manage their loans can be a terrific hospital investment. Responsibilities could include helping physicians consolidate federal loans into Direct Loans, helping fill out PSLF applications, ensuring employer certification signatures get done, helping physicians develop strategies to ensure full and timely monthly payments, etc.
• Provide regular PSLF updates. There is no class on financial health in medical school. Most newly trained physicians do not fully understand investing, taxes, retirement planning, or personal budgeting. Because the first borrowers only became eligible for PSLF in 2017, many physicians are not even aware that the program exists, particularly if they graduated from medical school before 2017. By incorporating news about developments in the PSLF program into your medical staff meetings, you send a signal to the physicians that the hospital cares about them. Doctors talk to each other and when your medical staff tell their friends that the hospital cares about physician financial health, it helps you to attract top physicians. PSLF then becomes a line item for the medical director’s annual “Workplace of Choice” goals.

Never turn down free money

If you are a physician with Federal Direct Loans and have been employed by a government or not-for-profit healthcare organization for the past 10 years, then you may be eligible for free money with no strings attached. You have won the lottery without having to buy a lottery ticket. This kind of thing rarely happens in life so don’t let the opportunity pass by. If you are a medical director or administrator at a not-for-profit hospital then many of your doctors are eligible for free money. If you help them get it, it will foster their loyalty for years to come.

February 12, 2023

Every year, the Centers for Medicare & Medicaid Services (CMS) penalizes hospitals with excessively high readmission rates. The monetary penalty for every U.S. hospital in 2023 was recently released by CMS. In theory, a higher penalty should indicate lower quality and vice-versa. However, the methodology used in calculating the penalties is complex and nuanced with the result that the readmission penalty may not be entirely reflective of a hospital’s overall quality of care.

 

Background

One of the provisions of the Affordable Care Act of 2010 (aka “Obamacare”) was to direct CMS to penalize hospitals with high rates of patients requiring readmission to a hospital within 30 days of an inpatient hospital stay. The first penalties were assessed in 2013; this is the 11th year of the penalty program. The calculations are only made for a few specific diagnoses and are based on data during 3 previous years. CMS calculates the amount of every hospital’s penalty in October or November each year and then that penalty is applied to the following year’s Medicare payments. The maximum penalty is 3%, meaning that for a hospital receiving the maximum penalty, CMS will reduce the amount that it pays that hospital for all of the Medicare services the hospital charges by 3% the next calendar year. Because many hospitals operate on razor-thin margins, even a relatively small reduction in what it gets paid by Medicare can be financially devastating. This is especially true for hospitals that operate on a July to June fiscal year, such as most academic medical centers, that can find themselves with an reduction in Medicare payments in the middle of the fiscal year. This can make it very difficult for these hospitals to accurately forecast their annual budgets since they do not know what they will get paid from Medicare services during the second half of their fiscal year.

You can look up every U.S. hospital’s readmission penalty for 2023 here. CMS uses a 4-step process to determine the amount of each hospital’s penalty.

The actual equation that CMS uses to calculate each hospital’s penalty is complex with the result that even most hospital administrators do not fully understand it:

Lurking behind the equation are a lot of subtleties that affect how the public should interpret the readmission penalty.

COVID affected the calculations

Normally, CMS looks at historical readmission data from between 2 and 5 years in the past. Thus, normally, CMS would base the 2023 readmission penalty on data from July 2018 to June 2021. This has always been a source of criticism since the penalty is based on what a hospital did 5 years ago rather than what it has done more recently in the past 2 years. Consequently, a hospital with poor readmission performance 5 years ago could have a large readmission penalty even if its readmission performance was stellar during the past 2 years.

The first 6 months of the COVID pandemic was a trying time for most hospitals. Many exceeded their maximum inpatient capacity. To care for inpatients, many had to recruit doctors and nurses who did not normally provide inpatient care. Because of this, CMS excluded all data from January 2020 to July 2020. As a result, rather than being based on 3 years of historical readmission data, this year’s penalty is based on 2.5 year of data.

A second effect of COVID was on the diagnoses used for penalty determination. Normally, CMS looks at readmission rates only for patients with one of six diagnoses: acute myocardial infarction, heart failure, pneumonia, COPD, coronary artery bypass surgery, and hip & knee replacement surgery. COVID disproportionately affected patients coded with pneumonia. As a result, CMS dropped pneumonia as one of the diagnoses used for readmission calculations. Therefore, the penalties were based on 5 diagnoses this year rather than 6.

A third effect of COVID on the readmission penalty calculation was that any patient with COVID as a primary or secondary admission diagnosis was eliminated from the hospital’s readmission calculation. Thus, a patient admitted with an acute myocardial infarction who was found to also have COVID on admission was excluded from the hospital’s data.

A fourth effect of COVID was on comorbidity determination. CMS adjusts every individual patient for that particular patient’s medical co-morbidities. So, for example, a patient with an admission for COPD who requires mechanical ventilation is expected to have a higher readmission rate than a COPD patient who does not require mechanical ventilation. Similarly, a patient undergoing knee replacement who is over age 65 and has diabetes is expected to have a higher readmission rate than a knee replacement patient who is younger than age 65 and not diabetic. This year, CMS added history of COVID within the past year as one of the co-morbidities used in the readmission calculation for all five of the readmission diagnoses. Thus, a patient admitted with COPD who had a COVID infection 8 months previously would be expected to have a higher 30-day readmission rate than a COPD patient who had never had COVID in the past.

Not all hospitals are included

CMS excludes about 40% of U.S. hospitals from the readmission penalty program. These include pediatric hospitals, Veterans Administration hospitals, psychiatric hospitals, rehabilitation hospitals, long-term acute care hospitals, and critical access hospitals. In addition, a hospital must have had more than 25 eligible patients for each of the 5 diagnoses. Thus, a hospital that only performed 24 coronary artery bypass surgeries during the 2.5 year period would not be subject for readmission penalties for CABG surgeries. CMS also excludes all hospitals in Maryland from readmission penalties because of an agreement between CMS and Maryland.

It is impossible for hospitals to monitor their readmission rates

Every autumn, hospitals await the CMS report on their readmission data with no advance knowledge of what the hospital’s readmission rate will be. These are sent to the hospital as a “Hospital Specific Report”. For most other quality metrics, hospitals can continuously monitor their performance internally. For example, any hospital should be able to determine on any given day what their mortality rate, C. difficile incidence, and emergency department wait times are. But readmission rates are unique. Medicare looks at admission to any hospital within 30 days of an inpatient discharge, not just the the hospital that the patient was originally admitted to. The original hospital will know if a patient gets admitted again to that hospital but has no way of knowing if a patient gets admitted to some other hospital. For example, if a patient is discharged from the Ohio State University Medical Center, OSU can track any readmissions to an OSU hospital. However, if that patient gets admitted to a non-OSU hospital in Cincinnati, OSU will not know about it. On the other hand, Medicare gets billed by every hospital that a patient is admitted to so Medicare will know whenever a patient is admitted to any hospital in the United States. This phenomenon has little impact on small, rural or community hospitals since a patient admitted to that hospital will likely return to that same hospital given that it is the only hospital in the region. But for tertiary care or referral hospitals, patients often live hundreds of miles away and readmissions are more likely to occur at their local community hospital rather than at the tertiary care hospital. Thus a tertiary care hospital will have no idea what its readmission rate performance is until CMS sends out the Hospital Specific Reports.

Hospitals normally institute a continuous quality improvement process for quality metrics. This requires real-time monitoring of that quality metric so that the hospital can continuously change its procedures and policies to make their quality outcomes better. This turns out to be difficult for reducing 30-day readmissions because the readmission data that Medicare gets is 2-5 years old. To make an analogy, imagine how difficult it would be for a coach to improve his or her basketball team if the coach did not know the outcome of each game until 5 years after it was played.

All hospitals are not treated the same

One of the main criticisms of the initial formula that CMS used in the first years of the readmission penalty was that hospitals that cared for a large number of poor people were disproportionately penalized compared to hospitals caring for a largely affluent patient population. Poor individuals are less likely to have insurance, less likely to be able to afford medications, less likely to have transportation for doctor office visits, and less likely to have a primary care physician. All of these factors contribute to higher hospital readmission rates but these are factors that are largely not under the hospital’s control. In response to this criticism, several years ago, CMS changed the methodology used in readmission calculation to adjust for the percentage of poor and underserved patients that each hospital cares for. The current methodology uses the percentage of “dual-proportion” patients. This is based on the percentage of Medicare patients that also have full Medicaid benefits. Medicaid is used as a marker for low-income patients. CMS divides U.S. hospitals into one of five quintiles based on the percentage of a hospital’s dual proportion patients. Quintile #1 includes hospitals with fewer than 14% of its Medicare patients having dual coverage with Medicaid. Quintile #5 includes hospitals with more than 31% of its Medicare patients having dual coverage with Medicaid.  The breakdown of hospitals based on their percentage of dual proportion is seen in the graph below:

All hospital stays are not treated the same

Medicare classifies each patient’s hospital stay as either an “inpatient” stay or an “observation” stay. The rules for how to classify any given patient are complicated but in general, a patient who is expected at the time of arrival to the hospital to be in the hospital for less than 2 midnights is considered to be in observation status. Overall in the U.S., about 84% of hospital stays are designated as inpatient and about 16% are designated as observation. The financial difference in the two types of hospital stays is very significant, both for the hospital and for the patient. An observation stay is considered an outpatient visit and is thus subject to Medicare Part B billing rather than Medicare Part A billing. This means that the patient in observation status is responsible for all medication charges and is responsible for a 20% co-pay of the cost of the hospital stay. CMS pays the hospital much less for an observation stay than for a regular inpatient stay. Observation stays are less expensive for Medicare because much of the healthcare costs are passed on to the patient.

Because observation stays are considered outpatient visits from a Medicare perspective, these hospital stays are not included in the hospital readmission calculation. For a readmission to count, both the initial hospital stay must be an inpatient stay and the second hospital stay within 30 days must also be an inpatient stay. This is also the same when CMS calculates a hospital’s mortality rate – only inpatient stays are included and deaths occurring when a patient is in observation status do not count against the hospital’s mortality rate.

Hospitals can “game the system” by putting certain patients in observation status in order to improve their readmission data and their mortality data. For example, take a patient who is admitted for a COPD exacerbation on February 1st. That patient then comes back to the hospital on February 20th after having a cardiopulmonary arrest following a drug overdose. The patient is intubated, receives mechanical ventilation, and placed in the ICU but it is clear that the patient has had severe brain and heart damage and is not expected to live beyond 24 hours. The person overseeing the hospital’s quality data will advise the ICU physician to admit the patient as an observation stay so that the hospital stay does not count as a readmission and so that the death does not count as an inpatient mortality. On the other hand, the person overseeing the hospital’s finances will advise the ICU physician to admit the patient as an inpatient stay so that the hospital gets paid more from Medicare. Whichever of the two hospital administrators is most persuasive (or most vocal) will usually win out. The result is that hospitals that more liberally designate patients as being in observation status can lower their CMS readmission penalty. The goal of Medicare auditors is to pay hospitals as little as possible so they will penalize hospitals who put patients in inpatient status who should really be in observation status. However, those auditors do not care if a hospital puts patients in observation status who should really be in inpatient status since it saves Medicare money.

This can also be an effective strategy for hospitals that have a low volume of patients with one of the five diagnoses used in the readmission calculation. For example, if a hospital has 24 heart failure inpatient admissions over a 3-year period, then putting the next heart failure patient in observation status ensures that the hospital will not have any heart failure readmission penalty since there would still be fewer than 25 heart failure inpatient admissions during that 3-year period. The cost to the hospital is that they might get paid $4,000 less by putting that patient in observation status rather in inpatient status. But by avoiding a 0.2% readmission penalty for all medicare charges for the next year, that hospital might avoid a total $80,000 penalty. That is a $76,000 net return on investment for putting that one patient in observation status rather than inpatient status!

For some hospitals, it is cheaper to pay the penalty

In the United States, the average hospital has 19.8% of revenue from Medicare, 13.1% from Medicaid, and 68.4% from private commercial insurance. The hospital with the highest annual net patient revenue in the U.S. is New York Presbyterian Hospital at $5.7 billion. However, the average U.S. hospital’s total annual patient revenue is much lower at about $200 million. Thus, the average hospital has annual Medicare revenue of about $40 million ($200 million x 19.8%). A maximum Medicare readmission penalty of 3% would therefore be about $1.2 million for that average hospital. Only 17 hospitals were fined the full 3% for 2023 and only 231 hospitals will pay more than 1% penalty. 25% of hospitals will pay no penalty at all. The average hospital penalty is 0.43%.

Given that the average hospital has $40 million in annual Medicare revenue and that the average hospital has a 0.43% Medicare penalty in 2023, that average hospital will have a $172,000 penalty. Implementing a readmission reduction program in a hospital can be very costly. It requires hiring data analysts to monitor readmissions, instituting costly discharge transition clinics, and increasing the percentage of patients in observation status. For many hospitals, the total cost to reduce readmissions sufficiently to avoid a CMS penalty can be considerably more than the expense of the penalty. In general, the larger the hospital and the higher the percentage of Medicare patients in a hospital’s payer mix, the more likely it will make financial sense for a hospital to devote a lot of money into a readmission reduction program. Furthermore, because the readmission penalty is based on the hospital’s performance between 2-5 years previously, it will take 5 years before money spent today on a readmission reduction program will fully affect the annual CMS penalty. And it is likely that CMS will continue to revise the readmission penalty formula so that the formula will look considerably different over the next 5 years.

How can the process be improved?

Medical care in the United States is more expensive than anywhere else in the world and it is essential for our economy that we reign in healthcare costs. Because hospitalizations are expensive, reducing unnecessary hospital admissions is central to controlling those healthcare costs. Readmissions to the hospital within 30 days of hospital discharge are frequently avoidable if processes are in place to ensure that patients get appropriate outpatient care. This includes filling medication prescriptions, keeping office appointments with medical providers after discharge, access to outpatient physical & occupational therapy, etc. Penalizing hospitals for excessive readmissions is one way to reduce costs by incentivizing hospitals to institute processes that reduce hospital readmissions. However, after eleven years of the CMS Hospital Readmissions Reduction Program, it is clear that the program can do better. Some specific improvements include:

1. Provide hospitals with real-time readmission data. This is probably the single most important change that CMS can make and it really should not be terribly difficult. Ideally, hospitals should know what their current readmission rates are every month so that the hospital can employ continuous improvement processes to reduce those readmissions. The current model of basing the penalty on a hospital’s readmission rates from 2-5 years in the past makes improving readmissions very difficult. Ideally, CMS should provide every hospital with its current rolling 3-year average readmission rate and this should be updated monthly.
2. Eliminate observation status hospital stays. Currently, hospitals spend an enormous amount of money to determine whether any given patient should be in observation status or inpatient status. Medicare loves observation status because CMS does not have to pay as much to hospitals for patients in observation status as opposed to inpatient status. Instead, those additional costs are passed on to the individual patient. So, the net overall cost to the country as a whole is the same, regardless of whether a patient is in observation or inpatient status. When the overhead expense of monitoring and policing observation stays is included, the overall cost of having observation status actually increases the country’s overall healthcare costs. When it comes to readmission rates, some hospitals game the system by preferentially putting readmitted patients in observation status instead of inpatient status. It is time to eliminate observation status and simply pay hospitals for patient stays, regardless of whether or not the patient’s hospital stay crosses two midnights.
3. Base the penalty on the overall readmission rate rather readmission rates for only 6 diagnoses. Every hospital is different. Not all hospitals perform coronary artery bypass graft surgery and not all hospitals perform knee & hip replacement surgery. Currently, hospitals focus their readmission rate reduction strategies on just the 6 conditions that CMS penalizes them on. Savvy hospitalists know that they can readmit patients who have had a stroke, diverticulitis, or a drug overdose every week without having to worry about any penalty. By using overall readmission rates (for all diagnoses), the quality process will be simpler for hospitals and will benefit all patients and not just those patients who have one of the 6 conditions that CMS currently uses in readmission penalty determination. However, CMS would need to determine a different method of risk-adjustment for comorbidity since the current method is by using specific comorbidities for each of the 6 eligible diagnoses.
4. Eliminate hospital exceptions. Currently, about 40% of U.S. hospitals are not subject to readmission penalties. This is understandable for pediatric hospitals (few, if any, Medicare patients) and Veterans Administration hospitals (funded by the VA and not by CMS). Psychiatric hospitals are excluded because they do not normally admit patients with the 6 conditions that CMS bases the readmission penalty on. Long-term acute care hospitals, rehabilitation hospitals, and critical access hospitals are also excluded. Ideally, CMS should use data for both Medicare and Medicaid patients since it can track readmissions for both groups. By focusing on total readmission rates rather than the 6 currently used diagnoses, many of the currently exempted hospitals can be included in the readmission reduction program. However, there may need to be different readmission rate benchmarks for psychiatric hospitals, long-term acute care hospitals, etc.

January 4, 2023

A reader recently emailed me to ask: “How do you define a hospitalist FTE?” It turns out that it is a great question with a very nuanced answer. Twenty years ago, an FTE was whatever a physician wanted it to be. Physician earnings were directly tied to physician billing and so a physician would work as much as they wanted in order to generate the income that they wanted. But over the past 2 decades, revenue from physician professional services has not changed appreciably – in 2002, Medicare reimbursed physicians at $36.20 per RVU; in 2022, an RVU was worth $34.61.

To put that in perspective, $1.00 in 2002 is worth $1.66 in 2022 whereas an RVU is now worth $1.59 less than it was in 2002! In order to keep physician incomes constant, hospitals have had to increasingly subsidize physicians. As a result, most physicians are now hospital-employed, rather than independent practitioners. This is especially true for hospitalists who rarely, if ever, are able to support their full salary on billings alone. In the past, the physicians defined what working full-time constitutes but today, it is the hospitals that define what working full-time means for a hospitalist.

Hospitals typically subsidize hospitalist groups based on the number of FTEs (full-time equivalents) that are required in order to cover the hospital’s inpatients. But defining exactly what an FTE is can be complicated and often a source of disagreement between the hospital and the hospitalist group. There are a number of equally valid ways of defining “full-time” and no one definition works best in every hospital. There are several steps to determine the best model in your hospital.

Step 1: Determine the number of patients per hospitalist per day

The number of patients each hospitalist should see per day will vary considerably from hospital to hospital and from nursing unit to nursing unit. There are 19 factors to consider when determining this number as outlined in a previous post:

• • • Case mix index
    • Residents versus no residents
    • Admitting service versus consultative service
    • Presence or absence of advance practice providers
    • ICU versus general ward patients
    • Day shift versus night shift
    • Observation status versus regular inpatient status
    • Ease of documentation
    • Shared electronic medical record with primary care physicians
    • Non-clinical duties
    • Shift duration (hours)
    • Hospitalist experience
    • Patient geographical location within the hospital
    • Average length of stay
    • Inpatient census variability
    • RVU productivity
    • Quality of case management
    • Local hospitalist employment market
    • Patient demographics

There has to be flexibility, however, and rigid adherence to a given number of patients is a recipe for dissatisfaction on both the part of the hospital and the part of the hospitalist. If the hospital inpatient census falls, then the hospital will be unhappy that each on-duty hospitalist is not seeing enough patients. On the other hand, if the inpatient census surges, then the hospitalists will be unhappy since they have to see more patients than they agreed on in their contracts. Many hospitals will have a “risk-call” hospitalist each day who is on standby to come in to work if needed when the inpatient census is higher than normal.

Step 2: Determine how the hospitalists will be scheduled

Early in the hospitalist era, scheduling was simple: a shift was 12 hours long and there were two shifts – a day shift and a night shift. Hospitalist schedules have gotten a lot more complex in recent years as outlined in a previous post. Now, hospitalists often have 8-hour short day shifts and evening swing shifts to cover ER admissions in the early evenings. As a result, scheduling hospitalists has become much more complex. Here are some of the scheduling models:

The 12-hour shift model. This was the original hospitalist scheduling model and typically will have two 12-hour shifts per day, a day shift and a night shift. The day shift is typically 6:00 AM to 6:00 PM or 7:00 AM to 7:00 PM. The night shift starts when the day shift is over. Day shifts and night shifts are treated equally but since night shifts are considered less desirable by most hospitalists, there needs to be a “shift differential” to provide extra payment for covering night shifts. Many hospitals will also provide additional pay for hospitalists who work on holidays. Because most patient care (work rounds, interdisciplinary rounds, daily charting, discharges, family meetings, etc.) occurs during the day shift, hospitals will typically have 1 night shift hospitalist for every 3 -4 day shift hospitalists. High acuity patient care areas, such as the intensive care unit, may require 1 night shift hospitalist for every 1 day shift hospitalist.

The long-shift, short-shift model. In this model, one or more hospitalists works the entire 12-hour day shift but other hospitalists leave earlier in the day, after their work is done. The short-shift hospitalists check out to one of the long-shift hospitalists when leaving. The long-shift hospitalist is then responsible for any admissions that come in later in the day. Some hospitalist groups will have the short-shift hospitalists continue to take phone calls from nurses, the lab, and consultants after they leave the hospital; other hospitalist groups will have the long-shift hospitalists cover calls. Some hospitals will have a specific check-out time for the short-shift hospitalists, for example, 3:00 PM. Other hospitals will have the short-shift hospitalists check out whenever their work is completed, whether that be 1:00 PM or 5:00 PM. An advantage of this model is that it avoids having a lot of hospitalists sitting around doing nothing in the late afternoon, after all of their work is done. In addition, this model is very attractive to hospitalists with children, since they can be home when the kids get out of school.

The swing-shift model. In most hospitals, the peak in admissions from the emergency department occurs between 3:00 PM and midnight. After midnight, the admissions slow down, the inpatients go to sleep, and the hospitalist workload drops. To optimize patient care coverage, some hospitals will create a “swing-shift” to cover the surge in admissions during the evening. Every hospital’s pattern of ER admission is different so swing-shifts could be from 3:00 to midnight, 5:00 to 10:00, etc.

The comprehensive services model. In many hospitals, the hospitalists do more than just serve as the attending physician for inpatients. For example, they may perform medical pre-operative consultation in an outpatient pre-admission testing clinic. They may provide medical consultation for surgical inpatients. They may have a designated “triage attending” to serve as a liaison between the hospitalist services and the emergency department or the outside referring hospitals. Or they may provide on-site supervision of infusion centers. In these situations (except for triage attending), the duration of a shift is determined by whenever the work is done, rather than by a specific time of day or number of hours. In general, these other services require fewer than 12 hours per day. These types of services are often attractive to hospitalists with young children since they are generally able to get home earlier than they would with a traditional 12-hour inpatient hospitalist shift.

Step 3: Determine how a 100% FTE will be defined

Once the hospital has determined how many inpatients a rounding hospitalist should cover and how the hospitalists are to be scheduled, the next step is to determine what will constitute a 100% FTE hospitalist. There are several ways of defining an FTE.

The shifts per month model. This works best when all of the hospitalists work 12-hour shifts. A full-time hospitalist is typically defined as 15 or 16 shifts per month (180 – 192 shifts per year). It generally takes about a half hour to check out at the end of every shift with the result that a 12-hour shift is really a 12.5-hour shift. This works out to about 43 – 46 hours per week on average. Some hospitals will grant additional time off for vacations and CME with the result that full-time may be fewer shifts per year, for example, 170 shifts.

The hours per month model. This model works when there there are different hospitalist shifts of varying durations. In this model, a hospitalist may be scheduled for shifts of a variety of durations up to some pre-agreed upon number of total hours per month. This results in a great deal of scheduling complexity and often requires considerable effort by the scheduler to ensure equity among the hospitalists. Many jobs define an FTE as 40 hours per week, however, most physicians work more than that. Although physician time surveys vary, most find that physicians average closer to 50 hours per week. If we extrapolate from the 15 – 16 twelve hour shifts per month model that results in 43 – 46 hours per week, then this would equate to 2,236 – 2,392 hours per year. Rigid adherence to a specific number of hours per year is difficult. Unlike other hospital employees, hospitalists do not punch in and out on a time clock. There are always some days when a hospitalist needs to stay in the hospital past the end of their shift to finish charting, complete the H&P on a late admission, or provide care for a critically ill patient. In addition, some hospitalists may check-out early to one of their peers once they complete their daily work.

The number of billed wRVUs model. If you look in the annual MGMA physician salary survey, you can find the mean, median, 25th percentile, 75th percentile, and 90th percentile of work RVUs  produced by physicians in every specialty. Using wRVUs as a general guide of FTE productivity can be useful for many specialties but as discussed in a previous post, it is inadvisable to pay individual hospitalists by the wRVU. Nor is it advisable to use wRVU targets to define an FTE. If wRUVs are used to benchmark hospitalist productivity, the RVU targets need to be for the entire hospitalist group and not for individual hospitalists. There is too much variation in RVU production intrinsic to different types of hospitalist shifts – fewer RVUs with night shifts, more with ICU shifts, and none for triage attending shifts. In other words, rather than requiring each of your 10 hospitalists to produce 4,300 wRVUs per year, instead require the entire group of hospitalists to produce 43,000 wRVUs per year.

The traditional workweek model. Most outpatient physicians define full-time as traditional office hours, working Monday through Friday, 8:00 – 5:00. With physician offices often closed on weekends, evenings, and holidays, this works fairly well for outpatient medicine. This model is harder to apply to hospitalists because illnesses requiring inpatient care are just as likely to occur on weekends and holidays as they are on weekdays. Therefore, hospitalists need to cover every day of the year. Nevertheless, some hospitals will have a core group of hospitalists who cover Monday through Friday day shifts. Part-time hospitalists or moonlighters cover weekends. And nights are either covered by home call, by inpatient advance practice providers, or by nocturnists. This model can sometimes work in smaller hospitals that care for lower acuity patients but is impractical in larger hospitals. The weekday hospitalists typically take care of their daily rounds and any admissions. They then leave the hospital in the afternoon, after their work is done. A typical full-time hospitalist in this model might work 46 weeks with 4 weeks of vacation, a week of CME, and a week for holidays. This equates to 230 working days per year.

The academic hospitalist model. In many teaching hospitals, the attending physicians on medical inpatient services are hospitalists who oversee care provided by internal medicine, family medicine, or pediatric residents. In this situation, the residents typically cover a given inpatient service for 4-week blocks. The attending hospitalist typically covers the teaching service daily for 2 weeks, although at some hospitals, the hospitalist covers the service for shorter (1 week) or longer (4 week) blocks. Because residents are in the hospital to perform H&Ps and care for any acute medical problems, the hospitalist can often leave the hospital after rounding with the resident and completing charting. This results in the hospitalist typically being in the hospital for 5 – 8 hours per day. The attending hospitalists generally provide back-up coverage to the residents at night by home call, either individually for their particular inpatient service or on a group rotational night call basis. Unlike the traditional workweek model, the academic hospitalist model generally requires both weekday and weekend coverage in order to ensure continuity of patient care and continuity of resident education. Thus, full time is considered less than 46 weeks and may be anywhere from 6 months (182 days per year) to 8 months (243 days per year) of service time.

Step 4: Determine how a part-time FTE will be defined

Once there is agreement between the hospital and the hospitalists on what will constitute a full-time FTE, it then becomes easier to assign a percent effort to part-time physicians and to determine how those part-time hospitalists will be paid.

For compensation of hospitalists who work less than 100% FTE, the easy answer is to make their base pay the same percent as their FTE. However, that can pose more cost to the employer since there are certain employer-paid expenses that are fixed, regardless of whether a hospitalist is 100% or 70% FTE. For example, the employer’s portion of health insurance premiums and life insurance premiums is the same for part-time employees as it is for full-time employees. Similarly, the employer’s cost of recruitment and credentialing is the same whether the hospitalist is 100% or 70%. In other words, it costs the employer more to have 2 hospitalists who each work 50% FTE than to have 1 hospitalist who works 100% FTE. Most hospitals are willing to cover those higher costs in order to keep high-performing hospitalists who wants to work part-time, particularly if there is a reasonable chance that the hospitalist will eventually return to 100% FTE in the future. For example, an experienced hospitalist who is a parent who wants to cut back to 70% for a few years until his/her child is older.

One size does not fit all

From the above discussion, it is clear that no one single model is best for all hospitals. Each hospital (and each hospitalist group) must examine its own unique inpatient service coverage needs in order to select the definition of “full-time” that fits best. From the hospital standpoint, it is important to be flexible and work with the hospitalists to be sure that they are happy with the model. From the hospitalist standpoint, it is important to ensure that a model that optimizes their work-life balance does not interfere with optimal patient care.

Because hospital censuses ebb and flow from year to year and because new hospitalists are hired from year to year, it is important that every hospital re-examines how full-time is defined periodically to ensure that the agreed upon model best fits the dynamic nature of inpatient medicine.

December 10, 2022

New technology is constantly improving healthcare delivery to patients. But new technology is expensive, whether it is a new MRI machine, a new surgical robot, or a new hip replacement implant. The processes that hospitals use to choose new equipment, supplies, and technology are complicated and hospitals can seem impenetrable to manufacturers new to the market.

Each hospital is different but in general, the more expensive an item, the more layers of approval are required. At the highest level of approval is the hospital board of trustees (or board of directors). These boards are largely comprised of non-physicians who bring outside expertise in business, finance, law, and community engagement. Decisions about new property purchases, new building construction, and major renovation will be made at the board level. These are decisions that involve long-term strategic planning for the hospital.

The next highest level of approval is the hospital CEO who generally makes decisions about major capital purchases, clinical program expansion, and moderate-sized renovation. Although the items approved by the CEO often require approval by the hospital board, most of the time, the board approval is merely a formality and the board generally accepts the recommendation of the CEO.

The next level of approval is the hospital administrative director. For medical centers with multiple hospital facilities, there may be separate administrative directors for each hospital, all reporting to the CEO. For smaller hospitals, the administrative director and the CEO are the same person. At this level, decisions are made about minor equipment purchases, minor renovation, and supply vendors.

The lowest level of approval is the individual unit managers. This can be the nurse manager of a patient care ward, the operating room manager, the emergency department manager, radiology manager, pharmacy manager, etc. These managers will typically make decisions about hiring and termination of individual staff and can make decisions about minor supply and equipment purchases, although such purchase decisions may require final approval by the hospital administrative director.

Academic hospitals can be even more complicated with the dean of the medical school and the department chairs having variable influence in the purchase decisions of the hospital. Some hospitals or medical centers will have a chief operating officer and/or a chief administrative officer in addition to a chief executive officer. Many hospitals will have a chief technology officer who can also influence purchase decisions. This variability in organizational structure from one hospital to another can result in vendors (and often the hospital’s physicians) being unsure who is ultimately making decisions.

Hospital medical directors generally do not have final approval authority for major purchases but they do have a great deal of influence in those purchases. Frequently, the clinical need for a new renovation, a new piece of equipment, or a new line of supplies will be initially identified by the physicians who then express those needs to the medical director who in turn makes recommendations to the administrative directors or to the CEO.

Understand the budget cycle

Every new purchase must fit somewhere into the hospital’s budget. Once again, every hospital is a bit different but budgeted purchases generally fall into one of three categories: major capital purchases, minor capital purchases, and annual discretionary spending. Each of these categories will appear on the hospital’s annual budget. Academic hospitals run on a budget calendar that is aligned with its university’s academic calendar, usually July through June. Non-academic hospitals more commonly run on a January through December business calendar.

For every hospital, there is an aspirational budget timeline and a reality budget timeline. Hospitals will aspire to start the budget process on the first day of the new business year and aspire to have final approval of the budget by the board of trustees or board of directors several months before the start of the next business year. The reality is that this rarely happens and the budgets often do not get final board approval until the last minute, and sometimes not until after the start of the next business year. A realistic budget timeline is as follows:

6-months before the start of the business year. The budget process generally begins about 6-months prior to the start of a new business year. For academic hospitals, this is January and for non-academic hospitals, this is July. At this time, the hospital will ask for budget item requests for the next year. Requests can come from a variety of people including unit managers, the medical director, or individual physicians. The requests will include the estimated cost of each item. Simultaneously, the hospital will begin estimating the amount of revenue that it anticipates in the next business year based on projected patient volumes.

4-months before the start of the business year. After all of the requests for new personnel positions, new equipment purchases, and space renovation have been received, the hospital administrative director must prioritize these requests. In some hospitals, the administrative director has unilateral prioritization power but more commonly, there will be a core group of hospital leaders who will prioritize the requests by consensus. Again, all hospitals are different but the core group may consist of the medical director, nursing director, hospital chief financial officer, assistant administrative director, etc.

3-months before the start of the business year. Once requests have been prioritized, the request list then goes to the hospital CEO. In larger health systems and medical centers with multiple hospital facilities, there may be multiple request lists submitted from each of the hospital locations. The CEO must then create a master prioritization list comprised of budget item requests from all of the various medical center locations. This is generally done by having a group of high-level leaders vote on each of the budget items. This group may consist of individual hospital administrative directors, the health system’s CEO & CFO, the health system’s chief administrative officer, the health system’s chief medical officer, and the health system’s chief nursing officer. It is generally the CEO’s and CFO’s responsibility to determine how much money can be allocated for capital purchases for the upcoming year. Once that amount is determined, the prioritized items are approved by their rank until the total budgeted amount for all capital purchases is reached.

2-months prior to the start of the business year. Once the proposed budget is created by the CEO and CFO, it is then submitted to the hospital board for final approval. Once approved, the hospital administrative directors and unit managers are empowered to proceed with purchasing contracts, utilizing the hospital’s purchasing department and supply chain department.

The hospital administrative directors are also given an amount that they can use for discretionary purchases during the upcoming business year. In general, the hospital board will not want to be bogged down having to approve every new colonoscope for the endoscopy suite and every new instrument tray for the operating room. Therefore, hospitals will create a “threshold amount” above which requires approval by the board on the annual budget and below which is left to the discretion of the hospital administrative directors and the unit managers. It is up to them to decide the prioritization for these items that are below the threshold amount. The value of the threshold can vary from hospital to hospital and from year to year. Some amount is always held out for emergency purposes, for example to replace a broken ultrasound machine in mid-year.

Vetting new equipment and technology

Every item on the hospital’s capital budget has to be justified. “Because I want one” is not reason enough to buy a new surgical robot for a surgeon or to buy a new gamma knife machine for a radiation oncologist. For some items, the vetting process takes place at a committee level. For example, the decision about whether to stock a new drug for inpatients is commonly made by the pharmacy and therapeutics committee. The decision about whether to change to a different brand of suture is commonly made by the operating room committee. Many hospitals will have a “new technology committee” or similar committee to weigh the cost and benefits of new equipment prior to proposing that item of equipment on the next year’s budget. The biomedical engineering department usually needs to sign-off on proposed purchases to be sure that the item is compatible with the infrastructure of the hospital. There are several factors that are considered in this vetting process.

1. Does it do what they say it will do? One of the catch phrases in healthcare is “evidence-based medicine”. This generally means having publications in medical journals proving that a piece of equipment is safe and effective – preferably from a randomized, double-blind study.
2. Does it improve patient care? Hospitals are in the business of improving the health of patients. Does the new equipment provide a more effective cure for disease? Reduce the risk of a patient dying? Relieve patient suffering?
3. Will it save money? For example, if a new chemistry analyzer uses less reagents and requires less manpower to operate, it can reduce the clinical lab’s costs to perform chemistry tests. If the analyzer costs $600,000 but will lower operating expenses to perform tests by $700,000 every year, then it saves money.
4. Will it bring in new income? For example, by purchasing a hyperbaric oxygen chamber, the hospital’s wound center would be able to begin billing for hyperbaric wound treatments. This represents a new billing opportunity for the hospital.
5. Has a fair market analysis been performed? Radiation therapy machines are not reviewed by Consumer Reports or Wire-Cutter. It can be difficult for hospitals to know whether the price they are being quoted is fair. Sometimes, it takes calling leaders at other hospitals to find out what they paid for similar equipment.
6. What is the cost of consumables? For example, does a new laboratory analyzer require that the lab switch to more expensive reagents? Or, does a new surgical robot require the robotic instrument arms to be replaced  with new arms after a certain number of uses? What about the cost of cleaning and storage? These are all hidden costs that can make a seemingly inexpensive piece of equipment be quite expensive in the long run.
7. Does it improve patient safety. For example, a new point-of-care ultrasound in the intensive care unit may not bring any new revenue to the hospital but by using it, the physicians can perform central venous catheterizations with fewer complications. This can translate to better metrics on publicly reported safety measures and reduced costs of treating those complications.
8. Does it improve patient experience? For example, if a program to purchase hand-held tablets for inpatients to use to access their medical record and to view health instruction videos improves patient satisfaction, that can result in higher scores on the HCAHPS survey.
9. Does it improve staff satisfaction/safety? For example, if new security cameras in the parking lot make staff feel safer going to and from their cars at night, this can create greater satisfaction and improve the hospitals workplace-of-choice ratings. As a result, it can be easier for the hospital to attract new employees.
10. Does it integrate with the hospital’s IT system? For example, a point-of-care ultrasound device that can directly upload ultrasound images into the hospital’s electronic medical record has greater value than one that requires images to be printed and then scanned into the EMR.
11. Does it allow the hospital to provide a unique service? For example, if a no other hospital in the area has a surgical robot, then by purchasing one, the hospital can promote its robotic surgery program as an example of its use of cutting edge technology to differentiate it from other the other hospitals in advertising campaigns.
12. Does it reduce length of stay? For example, if a new model of a mechanical ventilator allows patients with respiratory failure to be extubated 1 day faster than the previous ventilators, then patients will have a lower ICU length of stay, thus reducing the hospital’s cost to care for those patients.
13. Does it improve operational efficiency? For example, purchasing “workstations on wheels” that nurses can take into different patient rooms to do charting (rather than charting at desktop workstations in a central charting area) can improve nursing efficiency.
14. Does it replace personnel? For example, if a central video monitoring system eliminates the need for individual one-on-one sitters for confused or suicidal patients, then one staff member can do the work of several, thus reducing personnel costs.
15. Does it avoid a disruption in patient care? For example, when remodeling our cardiac catheterization lab, we leased a mobile catheterization lab housed in a trailer that we placed in the hospital parking lot. This allowed us to continue to do cardiac catheterizations on inpatients during the months that the regular cath lab was closed down.
16. Is the vendor reliable? For example, in the past, as the manufacturer provided good customer service? Timely installation? Prompt repairs?
17. Are there additional downstream costs? For example, if a new cardiac MRI machine requires the hospital to recruit and hire a new technician trained in using the machine and hire a new cardiologist who has done a cardiology MRI fellowship, there can be considerable costs over and above the machine itself.
18. What are the environmental specifications? For example, do the temperature and humidity thresholds require modifications of the HVAC systems in the area that the equipment will be located in? New alarm sensors? New electrical wiring? Higher water pressure? This is where the hospital’s clinical engineering department can be helpful.
19. Is the manufacturer willing/able to guarantee profitability? For example, if a new software program for patient bed placement advertises that it can reduce waiting times in the emergency department for patients being admitted, is the company willing to reduce the price of the software if the promised waiting time goals are not met?
20. Who pays for maintenance and repair? For example, colonoscopes frequently break and need to be repaired – will the manufacturer cover these repairs or does the hospital have to purchase a separate, expensive repair contract? Does the manufacturer supply loaner colonoscopes when a colonoscope is out for repairs?
21. Does the manufacturer provide staff training? For example, a surgical robot requires not only specialized physician training but also specialized training for surgical assistants. A manufacturer that provides free training and certification courses or on-site training can save the hospital money in the long run.

In a disaster, the purchasing rules change

Budgets are fine when the future goes as planned but when the unexpected happens, the normal purchasing process is too laborious. Fires, floods, tornados, pandemics, and other natural or man-made disasters require immediate acquisition of equipment, supplies, and other resources. For example, when the COVID pandemic hit, our hospital had to acquire a mobile outdoor drive-up testing unit that was made from a converted transportation container and we also had to purchase new lab analyzers to perform hundreds of COVID tests each day. When a broken water pipe flooded our kitchen, we had to lease a mobile kitchen trailer that we parked by the loading dock to prepare inpatient meals. These were purchases that needed to be completed and installed within hours or days and that could not wait until the next month’s board of trustees meeting. Sometimes these expenses are eventually covered by insurance but frequently the hospital has to draw from its “days cash on hand” funds to cover costs. These funds are held as emergency resources to cover expenses that cannot be covered by the much smaller amount budgeted for more minor emergency expenses on the annual budget.

Decisions about these emergency purchases are generally made by the hospital executive director, CEO, or CFO. With no time to go through the usual channels, the decision is often based on recommendations from individual physicians or staff members. Frequently, hospitals will have a “disaster team” to manage the hospital’s response to a disaster. Equipment and technology purchase recommendations will often be channeled through the disaster team to the administrative leader who is authorized to make those purchases.

The Joint Commission requires hospitals to perform at least 2 emergency response exercises (disaster drills) every year. I have participated in dozens of of these exercises over the past 3 decades. Each disaster drill simulates a different scenario. We have had a simulated plane crash at the Columbus airport, a simulated bombing at the state fairgrounds, simulated  terrorist mass shootings, a simulated tornado striking downtown, and simulated communicable disease outbreaks. In an ironic twist of fate, we had a simulated “super-flu” outbreak for an emergency response exercise 2 years before the COVID pandemic – it is eery just how closely the simulation foreshadowed the actual pandemic. During these simulations, the disaster teams ask themselves questions such as: what would we do if we needed… a portable morgue, 30 additional mechanical ventilators, 50 additional ICU rooms, or 5 more operating rooms? From these disaster drills, hospitals compose lists of equipment and vendors so that in the event of a true disaster situation, the hospital already knows who to call.

What can the hospital do when it cannot afford to purchase a new item?

Advances in medicine and technology happen at break-neck speed. Just like personal computers, automobiles, and cell phones, next year’s medical device models promise that they can do more and do better than last year’s models, whether that device is a CT scanner, a bronchoscope, a surgical robot, or a telemetry monitor. When the hospital decides it really needs one of these items but cannot fit it into next year’s budget, there are options.

1. Negotiate a better price. Member-based supply chain analytic organizations can provide data on equipment pricing and can allow for group purchasing. For example, Vizient, Inc. is an organization whose members include 97% of academic medical centers and more than half of all U.S. acute care hospitals. Vizient member hospitals can benefit by purchasing equipment and supplies from vendors using Vizient-negotiated prices.
2. Rent it. There are a number of ways to acquire the use of equipment without buying it outright. There are lease-by-month/year contracts, lease-to-own contracts, and pay-per-use contracts. An advantage of these options is that the annual cost of the equipment will then often fall below the annual budget “threshold amount” and thus give the hospital administrative director latitude to acquire the equipment without having to go through higher authorities.
3. Buy used. Many times refurbished used equipment can adequately fill the clinical needs of the hospital. This can be especially true if the equipment will be only intermittently used.
4. Buy last year’s model. When the next year’s cars come out, car dealers discount the previous year’s models to clear their lots. Medical equipment manufacturers do the same thing. Frequently, the new model of a piece of equipment will have features that are not essential to the clinical needs of the  hospital and the previous year’s model will suffice at a lower cost.
5. Depreciate accurately. Knowing the life expectancy of a piece of equipment is essential in determining its true cost. For example, a CT scanner that costs $1.2 million that can be depreciated over 10 years is less expensive in the long run than  CT scanner that costs $1 million but is depreciated over 5 years.
6. Get a demonstration unit. As a medical director, I was frequently asked by a physician to buy a particular piece of equipment. If that physician is particularly eloquent, particularly vocal, or particularly influential, then I was not always sure if the hospital really needed that piece of equipment. That concern can often be settled by arranging for the equipment to be brought in for a demonstration period by the vendor to determine if the equipment would really be used as much as was said. This can avoid making costly purchases of devices that go unused. Several years ago, one of the physician groups at our hospital insisted that they HAD TO HAVE a $500,000 piece of equipment in order to provide standard of care services. They gave me projections on the annual number of procedures that they would use it for and how many years it would take the hospital to recoup the investment. I successfully lobbied senior leadership and the hospital purchased the equipment. Four years later, that physician group had not used the equipment a single time and I’ve regretted that purchase ever since.

Hospital purchases are unique

Major equipment purchases made by hospitals are different from purchases made by other organizations, companies, or individuals. The value of a piece of equipment is judged differently than in any other industry. Benefits in patient length of stay, hospital throughput, and patient satisfaction from equipment or technology can often be just as valuable as increased revenue from equipment or technology. Moreover, physicians have considerably more clout than rank and file employees in other organizations or companies. Knowing how to define the true value of equipment or technology is the key to making wise and informed purchases.

November 11, 2022

First, this is not a condemnation about millennials. They have different work priorities than baby boomers – not better or worse… just different. And you need to understand their work priorities if you want to keep them on your employment and if you want to build your workforce for the future.

Baby boomers are those Americans born between 1946-1964. Millennials were born between 1981-1996. For the most part, millennials are the children of the baby boomers. Baby boomers were hippies; millennials are hipsters. There are about 73 million millennials, making them the largest of the various generations of today’s Americans. Baby boomers are the leaders of today’s workforce and millennials make up the biggest part of that workforce. They will be the leaders of tomorrow’s workforce.

How do millennials differ from boomers?

Education. Compared to baby boomers, millennials are better educated. 39% of them have a bachelor’s degree or higher whereas only 25% of baby boomers are college graduates. The differences in education are most striking for women: 43% of millennial women have a college degree and only 24% of baby boomer women have a college degree. There has been a gender reversal in college education – more baby boomer men had college degrees than baby boomer women (26% vs 24%) but significantly more millennial women have a college degree than millennial men (43% vs 36%). Nowhere has this trend been more profound than in medicine – in 1980 (my first year of medical school), only 29.4% of medical students were women but in 2021, 50.5% of medical students are women. Millennials have greater educational debt than baby boomers did, especially for physicians with medical education debt. Adjusted for inflation, the average medical student owed $53,600 in 1978 and $219,500 in 2018 (values in 2018 dollars) – in other words, millennial physicians have 4 times the debt of their baby boomer predecessors.

Employment. Millennial men are slightly less likely to be employed than baby boomer men at 83% vs 86%. The reason is not that more millennial men can’t get a job, it is because they just are not in the workforce. On the other hand, millennial women are more likely to be working than baby boomer women (72% vs 66%). Millennials with a college degree have a higher household income ($105,343) than baby boomers with a college degree ($95,182) – this is in part due to a higher percentage of millennial women in the workforce with the implication that millennial households are more likely to have both spouses employed than baby boomer households. On the other hand, when adjusted for 2021 dollars, baby boomer men made more than millennial men at the same age. Millennials have a somewhat undeserved reputation for changing jobs frequently. When baby boomers were 25-34 years old, they stayed with one employer for an average of 3.0 years whereas 25-34 year old millennials stayed with one employer for approximately the same average amount of time – 2.8 years. Looked at in another way, millennials held an average of 7.8 jobs in the 12 years between ages 18-30 whereas baby boomers held an average of 8.6 jobs in the 14 years between ages 18-32; again, roughly the same.

Housing. Millennials are more likely to be living at home with their parents (15%) than baby boomers were when they were the same age (8%). Millennials are also less likely to have moved in the past year (16%) than baby boomers did when they were the same age (25%). Millennials at age 34 are less likely to own their own home (37%) than baby boomers did when they were 34 years old (50%).

Family. Millennials start families later than baby boomers. 46% of millennials are married compared to 62% of boomers when the boomers were the same age. Millennial women are waiting longer to have children than boomer women: 48% of millennial women are moms compared to 58% of baby boomer women when they were the same age.

Diversity. The large majority (79%) of baby boomers are non-hispanic white but only 55% of millennials are non-hispanic white. The groups that are growing the fastest are Hispanics (7% of baby boomers and 20% of millennials) and Asians (2% of baby boomers vs 7% of millennials). Millennials are also more likely to have interracial marriages – in 1967, only 3% of marriages were interracial whereas that number grew to 17% by 2015. Millennials are more likely to be foreign born at 17.5% than baby boomers (7.5%).

Health. Much has been written about the obesification of America. So, it is no surprise that millennials are more likely to be obese as baby boomers were when they were the same age. Consequently, millennials are also more likely to have chronic medical conditions such as diabetes, hypertension, and sleep apnea than boomers did at the same age.

Economics. The main economic crisis experienced by baby boomers was the inflationary period of the late 1970’s when the inflation rate peaked in 1979 at 13.3%. The economic crisis that defines millennials was the great recession beginning in 2009. These different economic events have had very different effects on the mindsets of baby boomers compared to millennials. This is especially true of baby boomers who are now approaching retirement and a fixed-income existence that will be very vulnerable to the loss of purchasing power brought by future inflation. The great recession brought job losses in 2010 and then millennials experienced job losses once again during the COVID-19 pandemic. So, for millennials, job insecurity is the economic demon, not inflation.

Technology. Baby boomers were first introduced to hand held digital calculators that just added, subtracted, multiplied, and divided! in the 1970’s (yes, we actually did use slide rules in my high school math classes!). Home entertainment for boomers largely consisted of Saturday morning cartoons on network TV. Millennials have spent their entire lives in the digital age and have embraced electronic learning in school that baby boomers never had. Millennials are more computer savvy and more likely to use internet as a medium for social interactions and carrying out activities of daily living.

What about physicians?

Baby boomer doctors trained in an era where they were judged by scores. It was grades and the MCAT score that determined if they got into medical school. It was grades and the USMLE score that determined what residency they got into. For millennials, acceptance to medical school now depends as much on life experiences as grades. And many medical schools have gone to a pass-fail system with the result that unique personal attributes are now frequently the determining factor for getting a top residency and not medical school grades.

Endurance was a key trait for physician baby boomer success. With every other or every third night of in-hospital call during residency, 100 hour work weeks were the norm. A call night translated into a 25 – 36 hour workday. Training in an era of duty hour restrictions, millennial physicians in training never exceed an 80-hour work week and rarely exceed 13-hour shifts. Baby boomer physicians also place less value on taking vacations than millennial physicians. Maternity leave did not even exist as a hospital policy when baby boomers were residents in the 1970’s and early 1980’s whereas formalized maternity (and paternity) leave is now standard almost everywhere.

Baby boomers hated electronic medical records when they were introduced. Many of them could not type and most of them found the change from paper records to the EMR to be a downgrade rather than an upgrade. Boomers consistently list the EMR as one of the main drivers of physician burnout. Millennials never knew paper medical records and for them, the EMR is just a normal part of the job. When boomers complain about the EMR, millennials just look at them quizzically and say “… so, what’s the problem?“.

The COVID-19 pandemic has had a profound impact on the physician workplace and this has heavily influenced millennial physician workplace expectations. Telemedicine has been a normal part of patient care for the millennial physicians who were in residency during the COVID-19 pandemic and they are very comfortable with it. Similarly, virtual meetings constitute normal meetings for millennial physicians who will have little use for future in-person meetings in crowded conference rooms. Millennials (including millennial physicians) have spent a large percentage of their career working from home during the pandemic and they have become very proficient with it. This has given them more flexible work hours and has even permitted them interweave work with traveling since it is just as easy to work from your own apartment in the city as it is to work from a rented beach condo. Boomers, on the other hand, consider working from home as not really working.

Based on the 2021 residency match, millennials are more likely to choose specialties that offer work-life balance, such as dermatology and ENT or to choose specialties with an opportunity for high income, such as vascular surgery, plastic surgery, and neurosurgery. The two seemingly disparate priorities reflect the paradox of millennial medical students valuing work-life balance more than baby boomers while simultaneously facing a much greater educational debt than boomers.

The word “hospitalist” did not even exist when baby boomers were residents but hospital medicine is now one of the most common career avenues for millennial internal medicine residents. Hospitalists have defined shift lengths (generally 12-13 hours) and flexibility with scheduling. Prior to the emergence of hospitalists, only emergency medicine offered similar scheduling flexibility. Hospitalists are now so ubiquitous in residency training programs that hospitalists are the most prominent career role models for residents training in internal medicine and to a lesser degree, family medicine and pediatrics. Consequently, a hospitalist lifestyle is now the expectation for many residency program graduates. Because hospitalists are usually paid by the hospital (or at least subsidized by the hospital), they are financially rewarded for quality metrics rather than the volume metrics that served as baby boomer physician motivation. As a result, team-based care defines success for the millennial hospitalist whereas rugged individualism was the marker of success for the baby boomer physician.

If you asked a baby boomer physician in 1980 if they had nurse practitioners in their practice, the most likely response you would get would be “What’s a nurse practitioner?“. Advance practice providers, such as nurse practitioners and physician assistants, have grown in numbers exponentially over the past 25 years and are integral components of both inpatient and outpatient practice. Baby boomers often feel threatened by advance practice providers, feeling that they are encroaching on the medical profession; millennial physicians welcome advance practice providers and view them as a normal component of American health care.

Don’t hire a millennial to do a baby boomer’s job

It is clear that there are generational differences in work priorities between baby boomers and millennials. What millennials value in a career is very different than what boomers (like me) valued in our careers. Millennials are more attracted to shift work, flexible work hours, sufficient time off, and teamwork as opposed to toiling alone as an individual. They are more efficient with technology, including the electronic medical record. If you have a retiring baby boomer, you can’t just plop a millennial physician into the practice and expect the millennial to be happy or successful. You’re not replacing a boomer, you’re hiring a millennial.

Positions of leadership in medicine (like in politics) largely reside with baby boomers. The baby boomers are usually the ones creating new job descriptions and selecting among applicants in the hiring process. But the personal traits that defined success in the era of the boomers are very different from the traits that will lead to success in the era of the millennials. Baby boomers will come and go, millennials will come and eventually go, but patients and hospitals will always be there. It is important for baby boomer physician leaders to realize that we are transitory and for us to prepare for the future healthcare needs of our communities and our hospitals, we need to devise career opportunities that capitalize on millennial physicians’ unique strengths. We, the boomers, need to recognize that millennial physicians:

1. Start off with a lot more student debt than we did

2. Want more defined work hours

3. Are more adept and comfortable with EMRs and digital technology (including telemedicine)

4. Have an expectation of working from home and utilizing virtual meetings

5. Are more comfortable working as members of a healthcare team

6. Do not view regular long work hours as a badge of honor

7. Are more likely to have a spouse who also works

8. Want workplace accommodations that minimize disruption of family life

In order to give them the tools that they need to succeed, we need to design the workplace around the values of the millennials and not around the values of the baby boomers. Millennials are going to inherit our profession and so we need to make sure that we create career pathways so that when they are our age, they can look back on their careers with the pride, sense of accomplishment, and sense of fulfillment that I have when I look back on my own career as a boomer.

November 18, 2021

The COVID-19 pandemic has forced many businesses to adapt to employees working from home and hospitals are no exception. When the pandemic is over, should these workers continue to work from home? In many cases, the answer is yes. Before COVID, teleconferencing usually meant calling in on a multi-line telephone system. These systems were clunky and often either did not work at all or had acoustics that were so bad that many participants could not be heard. The pandemic fostered a technical revolution in telecommunications that now permits high quality video teleconferencing. Simultaneously, the widespread use of electronic medical records made remote patient care feasible. There are several key advantages of working from home that can result in a competitive advantage for hospitals and other businesses that embrace the concept.

Reduced office space requirements

Everyone wants their own office. Employees gauge their value by how many square feet they have, how many windows they have, how nice the office furniture is, and what kind of view their office has. When we hire a new doctor, the first question we get asked is usually “Where is my office going to be?”. But hospitals are far more than just doctors and nurses, there are a whole cadre of support staff necessary for operations, revenue cycle, quality, compliance, etc. The bureaucracy of American healthcare has grown dramatically over the past 3 decades and with it has come the need for more and more of these support staff. In addition, as hospitals have increasingly expanded outpatient clinical operations, there are even more administrative staff necessary to oversee these non-hospital-based activities. And every one of those employees wants an office.

As hospital census grows within a confined building, patient care space encroaches on office space. When new hospital additions are built, the emphasis is on return on investment in square footage and there is relatively little direct return on investment for individual offices (as opposed to clinical space). As a consequence, office space is often relegated to decommissioned patient care areas or repurposed windowless basements areas. Many hospital operations have been moved off-site to dedicated office buildings in areas where real estate is less expensive.

Office space is costly. A standard office is about 150 sq ft and even a standard cubicle is 48 sq ft. Here in Columbus, Ohio, office space rents for an average of about $22 per sq ft per year. Therefore, the cost of individual offices is expensive:

• Standard office = $3,300/year
• Small office = $2,640/year
• Cubicle = $2,056

And these costs do not include the additional cost of square footage devoted to common space such as hallways, break rooms, waiting areas, and bathrooms! Once you add in the cost of these common areas, office furniture, and utilities, the cost of maintaining on-site administrative offices in the hospital is staggering.

When staff work from home, they no longer need individual offices and so these overhead costs drop considerably. The hospital can then dedicate a much smaller amount of space for “hoteling” offices or cubicles that can be used by many different physicians or administrative employees during those times that they must be physically in the hospital.

Reduced employee transportation and parking costs

Based on typical travel distances of 5 to 13 miles to commute to work in the United States, most people spend $2,000 – $5,000 per year to commute. In addition, many hospitals (particularly in urban areas) require staff to pay to park on-site. Last year, my cost for a campus parking garage pass was $1,200. These costs do not appear on hospitals’ financial statements but they do appear on the employees checking account statements. I estimate that my cost of parking and driving to work was $3,000 per year but that is partly because I already had a car. If I did not already have a car and needed to get one just so I could commute, then my cost would be $9,000 per year.

For the employee, these personal expenses are significant. By eliminating or reducing these costs, the hospital can pay that employee a lower salary and that employee can still have the same net disposable income. If the hospital continues to pay the original salary, then for the employee, it is like getting a several thousand dollar a year raise.

Employee residence flexibility

How often have you had a highly valued employee resign because their spouse got a job in another city? Or because they needed to move to be close to an aging parent out of state? Or because they wanted to be near the mountians/ocean? Or because they were tired of the weather in your city? Or because they wanted to move to a more rural area? Or because they move closer to a city? Not only do you lose an experienced employee but the average cost to replace an employee is equivalent to 6-9 months of that employee’s salary. That works out to $30,000 to $45,000 for a typical non-physician hospital employee.

A few years ago, a radiology colleague of mine moved to New Zealand where he could read x-rays and CT scans over the internet during the daytime in New Zealand that were being done at night in Ohio. He was happy because he could live in his dream location and the hospital’s radiology department was happy because the Ohio-based radiologists no longer needed to do night shifts reading films. Remote working was a win-win for everyone in this case.

By working from home, employees no longer need to be in the same city as the hospital. They don’t need to be in the same state or even the same country. This allows many employees to permanently move to a different part of the country. But it also allows those employees to travel more while working at the same time. For example, a few weeks ago, my wife and I rented a house  on the coast in Northern California. Two of our daughters joined us – they both worked remotely by day and we were able to have family time together in the evenings and weekends.

For many employees, this flexibility allows them to buy a home in a less expensive community, move to a better school system, or be happier because they were able to move closer to friends and family.

Better job applicant pool

In the past, when the hospital posted a job opening, the applicant pool was limited to people who either already lived within commuting distance of the hospital or who were willing to move within commuting distance. This necessarily restricted the applicant pool and as a result, the hospital often ended up with a less than ideal employee for that job. By allowing employees to work remotely, the applicant pool increases in size exponentially. The hospital now has access to people who live outside of the community and would never have applied for the job in the past.

This can be particularly important for hospitals in smaller communities or rural areas where the applicant pool for most jobs is particularly small due to the size of the local population.

More productive employees (maybe)

Employees who are sequestered alone at home can have fewer distractions from co-workers who want to chat. They can walk 20 feet to get a cup of coffee in their kitchen versus taking an elevator to the cafeteria and waiting in line for 5 minutes. They can join a meeting with a mouse click rather than walking to a different building on the hospital campus. They don’t have to spend the 55 minutes per day that the average American spends commuting to work. All of these can increase employee productivity.

However, in some situations, employees working from home can have reduced productivity. For example, if the employee has children at home and they are multitasking work with childcare. Of if the absence of those on-site chats with co-workers reduces the opportunity for mentoring and collaboration.

Some have argued that virtual meetings are less effective because remote attendees can be less engaged when no one can see them. This is especially more likely to happen if virtual meetings become more like webinars, when a single presenter armed with a few dozen PowerPoint word slides talks non-stop for 60 minutes. One way to counteract this is to about Steve Jobs’ 3-point formula for conducting meetings:

1. Keep the number of participants small – ideally 3 to 5 people
2. Keep the agenda short – no more than 3 items
3. Keep the length short – no more than 30 minutes

Fewer sick days

Employees who are moderately or severely ill should not work. However, during the COVID-19 pandemic, many employees were required to stay home for 14 days because of isolation requirements after an exposure. Some had mild or asymptomatic COVID infections but had to remain on home quarantine for 10 days. Those employees who could work from home did not need to stop working in these situations.

Our workplaces are also the site that many employees acquire infections such as colds and the flu. Less face-to-face exposure to co-workers means fewer of these infections and consequently, fewer sick days.

Studies prior to COVID-19 showed that people working from home used fewer sick days than people working on-site at an office. However, studies have also shown that people working from home were more likely to continue to work when they were sick than people working on-site at an office. Sometimes, working remotely while having a mild illness can be appropriate. For example, when an employee has a mild cold that has minimal impact on productivity but the employee is discouraged from coming to the hospital in order to prevent infecting others. But there has to be expectations that when a remote employee has more than just a mild illness, they should use sick time.

Hospital jobs amenable to working remotely

1. Telemedicine. Not only does the provider (doctor, NP, PA, nurse midwife, etc.) not need to be in the office, but the registration staff and nurses don’t need to be there either. Psychologists, speech therapists, and dietitians can also frequently work remotely.
2. Phone triage nurses. Many outpatient practices use triage nurses for patient calls. Hospitals use triage nurses for inter-hospital transfers. In neither situation does the nurse need to be on-site.
3. Schedulers. Even before COVID-19, many employees who scheduled office visits, hospital admissions, and procedures worked from home.
4. Revenue cycle staff. Coding and billing staff are often the first to be moved away from the hospital campus to an off-site office building. Working from home is a natural transition.
5. Pre-admission screening. Similar to revenue cycle, staff who screen pre-operative and pre-procedure patients for insurance coverage do not need to be located on-site.
6. Compliance staff. The nurses or administrative staff who do quality and compliance only need access to a computer and a phone.
7. Case management. Certain elements of case management require the case manager to have face-to-face meetings with inpatients. However, other elements only require access to the electronic medical record. Separating these responsibilities permits some case management staff to work from home.
8. Social services. Social workers who are primarily responsible for outpatients can often work from home.
9. Office assistants. Many of the tasks that would have in the past be classified as secretarial do not require on-site presence. Some of these tasks include answering phones, doing transcription, preparing reports, and making schedules.
10. Technology support. Every hospital needs computer savvy people to solve password problems, trouble shoot electronic medical record access, and generally help out technologically-impaired hospital staff. As long as they have computer access, they can do most of their work anywhere.
11. Purchasing staff. This can include everyone from those who prepare contracts with hospital vendors to supply chain employees responsible for purchasing supplies and maintaining inventories.
12. Recruiters. Just as an increasing number of new employees will be working remotely from distant locations, recruiters can use virtual communications to recruit these employees.
13. Communications and marketing. In the past, a lot of this work was done by phone and COVID-19 has shown that the majority of this work can be done virtually.
14. Interpreters. For years, hospitals and physician offices have used interpreters/translators by telephone or internet connection when providing care for patients who do not speak English.

Hospitals allowing remote working have a competitive advantage

Flying into Phoenix from California earlier this month, I saw mile after mile of office buildings with empty parking lots… at noon on a Thursday. It is because of the mass migration of employees from offices to remote working brought on by the COVID-19. The pandemic has given American workers a taste of what it is like to work from home. Many of those workers like it and do not want to go back to the office. Our nation’s hospitals are no different than those office buildings in Phoenix. Certain jobs require employees to be physically present, such as doctors, nurses, and respiratory therapists providing inpatient or procedural care. However, an increasingly large number of employees do not need to be physically present in the hospital. Those hospitals that can adapt to the new paradigm of remote employees will be successful. Those that try to go back to “the old days” when all employees were expected to work on-site in the hospital building will not be able to compete for the best workers.

Supervisors, managers, medical directors and CEOs are mostly older with decades of comfort working in an office. Many of the employees working for them are younger and more adapted to working remotely. It is incumbent on those of use who are hiring employees to remember that it is about what the employee wants, not what we are accustomed to.

October 28, 2021

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

Hospital length of stay (LOS) is one of the most important metrics we use to judge hospital efficiency and to predict whether the hospital is making money or losing money on different diagnoses. LOS is measured in days with each day defined as whether a patient is considered admitted to the hospital at midnight. This is the so-called midnight census. I believe that the midnight census is no longer a valid measurement for the calculation of the duration of hospitalization.

Never admit a patient between 10 PM and midnight

If your hospital judges or bonuses hospitalists based on length of stay, then those hospitalists know to avoid writing admission orders in the two hours before midnight. The simple reason is that when the midnight hour strikes, that patient is already considered to have been in the hospital for one day when using the midnight census of admitted patients to measure length of stay.

Consider two patients, patient A and patient B who both arrive in the emergency department with pneumonia on a Tuesday evening. The ER physician determines that both patients need to be admitted to the hospital and the on-duty hospitalist is called to the ER to write admission orders. Patient A has an admission order placed at 11:59 PM and patient B has an admission order placed at 12:01 AM, two minutes later. Both patients improve with medical treatment and are ready to be discharged on Friday. Patient A is discharged at 8 AM Friday morning and patient B is discharged at 4 PM Friday afternoon. By using the midnight census to measure duration of hospitalization, patient A has a length of stay of 3 days and patient B has a length of stay of 2 days. However, patient A was actually hospitalized for 56 hours and patient B was actually hospitalized for 64 hours. Using the midnight census measurement, patient B’s hospitalization was  33% shorter than patient A’s but based on hours in the hospital, patient B’s hospital stay was 14% longer than patient A’s.

Hospitalists are aware of this and if they are judged by the number of midnights their patients are in the hospital, they will delay writing an admission order until after midnight whenever feasible in order to improve their LOS numbers.

“I’m getting my discharge orders written earlier in the day, so why isn’t my length of stay improving?”

Hospital administrators want to have patients discharged as early in the day as possible so that rooms can be cleaned and ready for the next bolus of hospital admissions. By using the midnight census, a patient’s length of stay will be the same whether that patient is discharged at 7:00 AM or 5:00 PM. Thus initiatives to get patients discharged earlier in the day will not affect the length of stay as measured by the midnight census.

In order to measure hospital efficiency, the hospital must measure both the length of stay and the time of day of discharge. However, the time of day of discharge is also fraught with flaws. For example, if a hospital bonuses its hospitalists on earlier discharge orders, the hospitalists may hold off on discharging a patient who is ready for discharge in the late afternoon and instead discharge them early the following morning so that their numbers look good. Additionally, depending on when a patient was admitted to the hospital, a patient discharged in the late afternoon may actually have a shorter duration of stay (in hours) than a patient discharged early in the morning. In that case, you don’t want to penalize the hospitalist for getting the patient out of the hospital faster, simply because that patient was discharged in the afternoon.

So, why use the midnight census to measure length of stay?

Hospitals have used the midnight census for decades. In the pre-computerization era, it was the most easy and reliable way to know how many patients were in the hospital – unit clerks or nursing supervisors would write down the number of admitted patients on each nursing unit at midnight and then report that to the hospital administration the following morning. That was also an era when hospitals typically ran at a lower capacity with the result that there were always empty beds to admit patients to and consequently, there was not pressure to get patients discharged as early in the day as possible.

In the pre-computerization era, it was difficult to track the time of day that a patient was discharged since it required someone to manually go through each patient’s paper chart to collect the time of day of that patient’s admission and discharge; many doctors did not enter the time of day that they hand wrote their orders and many nurses did not enter the time of day that they took those orders off of the patients’ charts. Electronic medical records have changed all of that and now the exact time an admission or discharge order is placed and acted on can be measured with a keystroke. Yet, the midnight census remains as a hold-over from the pre-computer era.

In addition, before the institution of diagnosis-related groups (DRGs) by Medicare in 1983, it really did not matter how long a patient was in the hospital since the hospital was usually paid by number of days that a patient was in the hospital. As a result, the longer the length of stay, the more the hospital got paid. With  DRGs, hospitals got paid based on a patient’s diagnosis and not based on the length of stay. Therefore, hospitals became motivated to shorten the length of stay in order to reduce their expenses for each patient. Once again, the midnight census remains a hold-over from the pre-DRG era.

The institution of DRGs was also a turning point for the time of day that patients were hospitalized. Prior to DRGs, most hospital admissions were elective admissions and those patients often had pre-planned testing and treatments and were usually admitted to the hospital in the late morning or early afternoon. Nighttime emergency admissions through the ER were less frequent. With daytime elective admissions predominating, the midnight census was a reasonably good measure of length of stay. DRGs brought an end to most elective medical admissions with a shift to the overwhelming majority now being admitted through the emergency department with the peak in ER admissions typically in the late afternoon or early evening. With that shift, the midnight census became a less accurate metric for measuring actual length of stay.

Length of stay should be measured in hours and not in days

The midnight census is a satisfactory measure in patients with a very long length of stay – if a patient is in the hospital for 50 days, then whether that is actually 49 days or 51 days has little impact on hospital efficiency. But as the hospital length of stay becomes shorter, the midnight census becomes a less accurate measurement. Given the flaws of using the midnight census to measure length of stay, I believe that we should move to measuring LOS by the hour. Our electronic medical records makes hourly measurement quite easy.

However, there are two types of hours in the hospital – daytime hours and nighttime hours. During the daytime, hospitalists do daily patient rounds, diagnostic tests are performed, surgeries occur, and consultants evaluate patients. During the nighttime, patients receive medications but the other daytime activities do not take place. In other words, more of the stuff that needs to happen in order to evaluate and treat the patient happens during the daytime hours. For this reason, a patient will spend fewer total hours in the hospital if admitted early in the daytime than if admitted early in the nighttime. Therefore, to accurately assess hospital efficiency, length of stay should be measured in both total hours of hospitalization and daytime hours of hospitalization.

The advantages of using total and daytime hours of hospitalization, rather than the midnight census, to measure length of stay include:

• A more accurate measure of duration of patient hospitalization, especially for shorter duration hospital admissions
• A more accurate measure of duration of observation stays which are inherently ultra short-duration stays
• Elimination of the measurement bias that occurs with nighttime admissions as opposed to daytime admissions
• Better representation of the effect of early-in-the-day discharge initiatives on length of stay
• Better identification of individual hospitalists or hospitalist groups that could benefit by patient throughput efficiency training

The biggest barrier is the length of stay index

Hospitals benchmark their length of stay to other hospitals using the length of stay index. If a hospital’s length of stay for a given DRG diagnosis is 4 days and the average of hospitals across the country for that diagnosis is also 4 days, then that hospital’s length of stay index is 1.0 and the hospital has an average length of stay for that diagnosis. If the length of stay index is 1.2, then the hospital requires more inpatient days for that diagnosis and likely has greater expenses per admission. However, if the length of stay index is 0.9, then the hospital is able to treat that diagnosis with fewer inpatient days and likely has lower expenses per admission.

Hospital length of stay benchmarks use the midnight census for length of stay calculation and as long as benchmarks continue doing so, any given hospital will need to continue to measure and report midnight census-based length of stay measurements to determine how that hospital is performing compared to other hospitals.

Nationwide change to an hour-based length of stay measurement (and thus length of stay index measurement) will not happen quickly – the midnight census measurement is just too entrenched in administrative practice and data reporting. However, a hospital that internally uses an hourly measure of length of stay will have a more accurate measurement of its own efficiency and that data can be used gain a competitive advantage.

It is time to move past the midnight census.

August 20, 2021