Hospital Finances

How Do Hospitals Make New Equipment Purchases?

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

Hospital Finances

Don’t Hire A Millennial To Do A Baby Boomer’s Job

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

Hospital Finances Medical Economics

Hospitals Should Embrace Working From Home

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

Hospital Finances Inpatient Practice

Avoid Losing Money On Medical Admissions: 30 Tactics

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

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

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

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

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

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

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

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

August 24, 2021

Hospital Finances Inpatient Practice

When It Comes To Length Of Stay, We Are Measuring The Wrong Thing

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

Hospital Finances

How Should Hospitals Subsidize Physicians?

Hospitals and the physicians that practice in them have a conflicted relationship. They are mutually interdependent but often are often adversaries when it comes to finances. Across the country, this is the time of year that academic medical centers are preparing budgets for the next year. Most academic hospitals are on a July-June fiscal year to coincide with the June graduation of medical schools and the July start of new residents in the hospital. So, February and March is the prime season for physician practices to submit budget request for subsidies for the upcoming fiscal year. And every year, at every hospital in the country, more resources are requested than the hospitals have to give.

2019 was a turning point, when for the first time, more physicians were employed by hospitals than were self-employed. In academic medicine, the percentage of hospital-employed physicians is even higher. As with most things in life, the primary driver of this employment model is economics. By joining physicians and hospitals together, lower malpractice premiums can be negotiated and higher rates from commercial health insurance companies can be negotiated. The hospitals and doctors can better align their services and administrative efficiencies of larger size can often be realized. The hospital can be assured of referrals from hospital-employed physicians and the physicians can have a greater say in the services that the hospital provides.

But it is becoming increasingly difficult for physicians to earn enough to cover their entire salary + benefits. This is particularly true for specialties such as hospital medicine and palliative medicine where the time required to provide optimal care exceeds the professional fee reimbursement. But hospital-employed physicians generally do not use revenue from professional services as the medium of exchange; instead, it is the RVU that is used as the measure of physician productivity.  And when physicians do not meet RVU targets, they look for other ways to maintain their salaries. Here are some of the ways that hospital-employed physicians can be subsidized.

Everyone wants a nurse practitioner, physician assistant, or social worker

One of the easiest ways physicians can increase their RVU numbers is by having someone else generate them. A nurse practitioner or physician assistant is ideal because both NPs and PAs can write orders and can bill for services. If the hospital hires an NP or PA to assist a physician, that NP or PA can do all of the “scut” activities that would otherwise occupy the physician’s time without generating many RVUs. This could include doing phone calls, writing prescriptions, entering progress notes and orders into the electronic medical record, and filling out forms.

Surgeons can particularly benefit by this type of arrangement because the surgeon will be paid a set amount for doing a surgery and that amount is supposed to include post-operative follow up care. If the surgeon has a PA or NP doing the post-operative visits, either in the hospital or in the office, then that frees up the surgeon to be able to do more surgeries. Additionally, if that surgeon has an experienced PA assisting in the operating room, the surgeon will be more efficient and can do more surgeries per day. So, frequently, having the hospital pay for an NP or PA can be a win-win: the surgeon can do more surgeries leading to more RVUs for the surgeon and more procedural revenue for the hospital.

Because NPs and PAs cost considerably less than a physician, they can also be used to reduce costs in certain areas within the hospital. For example, if an emergency department is too busy for a single physician but not busy enough to justify 2 physicians, then a physician plus a nurse practitioner may make sense. Similarly, if an ICU is too busy for a single physician but not busy enough to justify 2 physicians, then a physician plus a physician assistant may be more cost-effective.

However, there are 2 situations when this type of subsidy can go wrong. First, if the NP or PA is used to subsidize an otherwise underperforming physician then the hospital is paying to support an inefficient physician (or one that just does not want to work very hard). Second, if the physician demands their own full-time PA or NP but the workload only justifies a partial FTE, then there is money wasted on the NP or PA who is not busy enough to justify their cost. The solution to the first situation is to be sure that the surgeon’s productivity is being benchmarked to others in that specialty. The solution to the second situation is to have an NP or PA who is shared by multiple surgeons.

Another common request by physicians is a social worker who works only for that physician to help with patient counseling and care coordination. Some physicians will ask for a scribe (particularly those who grew up before the era of the computer keyboard and can’t type). Other physicians will request a nurse to take care of phone calls and scheduling. In some situations, each of these requests may be valid and valuable. But each of these requests must have a careful cost:benefit analysis.

Call pay

You can’t cover the cost of a physician being on call with professional fee revenue. The hospitalist covering the inpatient service at night will generate a small number of RVUs from nighttime admissions but does not generate any RVUs from the calls from the floor nurses. The pediatrician taking home call at night can bill only a tiny number of RVUs for every phone call from an anxious parent of a child with a fever at 2 o’clock in the morning. The surgeon on trauma call who has to be within 20 minutes of the hospital at all times may not generate any RVUs if there are no motor vehicle accidents or gunshot victims that night.

In the past, for self-employed physicians, taking call was just part of the job. But increasingly, hospital-employed physicians are expecting addition pay to be on call. Similarly, physicians are often requiring a supplement for working on holidays.

Call pay is a necessity in many situations. Your hospital cannot manage myocardial infarctions, be a designated stroke center, or be a trauma center without an interventional cardiologist, stroke neurologist, or trauma surgeon available 24-hours a day. But what about specialists for less time-sensitive diseases or for conditions that less frequently result in calls to the hospital at night? Should the hospital provide call pay to the otolaryngologist, the endocrinologist, the psychiatrist? Which specialties warrant call pay will vary from hospital to hospital depending on the size of the hospital and the scope of emergency services provided.

Direct subsidies

These are often listed as “physician support” or “hospital investment” and are funds transferred from the hospital directly to the physicians to subsidize their income. Frequently, these are justifiable means to ensure availability of physician services. For example, hospitalists almost never bill enough to cover their salaries. Hospitals with a high percentage of uninsured patients or patients with Medicaid will have a difficult time attracting specialists who will be paid nothing or next to nothing in profession fees. In these situations, subsidies are necessary for the physicians to make a competitive take-home income.

But sometimes these direct subsidies are used as ransom by physicians when the hospital has no alternatives to provide that particular service or procedure. If all three of your hospital’s gastroenterologists demand an extra $50,000 per year or they are going to leave to go work at a hospital across town, you may have no option but to pay them. Ransom subsidies can be be as maliciously infectious as the plague… as soon as other physicians find out that the hospital is paying one group of physicians just to keep them, then every group of physicians will have their hand out.

Direct subsidies are particularly common in academic medical centers. These medical centers must produce research and education but the amount of money that physicians get paid directly from research grants or teaching appointments is so much less than they get paid for clinical activities, that in order to keep those physician researchers and educators, the hospital has to support their salaries. Furthermore, the success of a department chair or division director is measured by that department’s or division’s research and educational output and so that chair or director is incentivized to bring on as many researchers and educators as possible, requiring the additional costs of those researchers and educators to be passed on to the hospital. Although some subsidy is necessary, there is a limit to the number of researchers that the hospital can support, particularly if those researchers do not have grant funding. The hospital must have a regular accounting of the value that every subsidized researcher and educator brings.

It can be challenging when the clinical volume of the hospital is insufficient to justify a 100% FTE physician. For example, if the inpatient cardiology consult census only averages 5 patients per day, then that only equates to 2-3 hours of inpatient work per day. If the cardiology group wants to put one physician in the hospital all day for consult coverage, then they are going to require an enormous subsidy. It may require some negotiation with the cardiology group in that situation to have that consult cardiologist also assigned to interpret EKGs, read outpatient cardiac echos, or do outpatient telemedicine visits when the consult service is slow. Usually creative thinking and flexibility can solve the dilemma.

Medical directorships

In the past, this was a common way of disguising subsidies to physicians, with medical directorships paying a lot more than the actual physician time required to perform a given administrative role. However, more recently, CMS is requiring that fair market value be paid for medical directorships and this generally means ensuring that medical directors keep time logs and ensuring that medical director compensation be in line with national averages.

However, this is an important way for the hospital to get the administrative and quality oversight that it needs so that the operating room runs efficiently, the emergency department is meeting regulatory standards, and the intensive care unit has protocols in place. If the uncompensated administrative time required for a service provided in the hospital is 2-3 hours per week, then a 5% FTE directorship is appropriate. For administrative jobs that require only a few hours per year, sometimes an unpaid medical directorship that comes with a title (but no money) is sufficient for many physicians.

Think beyond this month’s financial statement

Every year, I get requests for more nurse practitioners & physician assistants than the hospital can afford and each year, I get a requests for enough direct subsidies to put the hospital in deficit. Deciding who and how to subsidize requires careful analysis of upfront costs and benefits as well as downstream costs and benefits. Sometimes the requests that seem most outlandishly over-expensive on the surface can either dramatically increase revenue or decrease expenses in the long-term. But sometimes, the requests that are most outlandishly over-expensive on the surface are really just outlandishly over-expensive.

March 14, 2021

Hospital Finances

The 2020 Medicare Readmission Penalty Program

Each year, Medicare analyzes the readmission rate for every hospital in the United States and then imposes financial penalties on those hospitals determined to have excessively high readmission rates. And every year, most U.S. hospitals get penalized. This year is no exception – 83% of all hospitals face penalties.

The Medicare Hospital Readmission Reduction Program

The hospital readmission reduction program was created as a part of the Affordable Care Act as a way to improve quality of care and reduce overall Medicare costs. Readmissions are defined as a patient being readmitted to any hospital and for any reason within 30 days of discharge from the hospital being analyzed. The program began in 2013 by looking at readmissions for just 3 conditions: myocardial infarction, heart failure, and pneumonia. In 2015, the program expanded to 5 conditions by adding readmissions for chronic obstructive pulmonary disease and knee & hip replacement surgery. In 2017, the program further expanded to 6 conditions by adding coronary artery bypass graft surgery. Each year, Medicare calculates the penalties based on the previous 3 years’ readmission data and then hospitals are penalized up to 3% of their total Medicare payments the following year.

The program has been controversial since inception with concerns that it preferentially penalized hospitals that care for sicker patients as well as for lower-income patients and underinsured patients who often lack the resources to get outpatient medical care that can keep them out of the hospital. Medicare responded by making 2 adjustments to the penalty based on a given hospital’s patient demographics:

  1. The severity of illness of the hospital’s patients (often called the case mix index) with the premise that the sicker a patient is, the more likely that patient is to be readmitted to the hospital.
  2. The rate of “dual eligible” patients, that is , patients who are eligible to receive both Medicare and Medicaid with the premise that lower income (i.e., Medicaid) patients are more likely to be socioeconomically disadvantaged and therefore more likely to be readmitted because of lack of outpatient resources beyond a hospital’s control that can affect readmission.

Adjusting the penalties for socioeconomically disadvantaged patients

Medicare divided all U.S. hospitals into quintiles based on the percentage of dual eligible patients.  Hospitals were only compared to other hospitals within the same quintile for the purposes of penalty calculation; therefore, a hospital with a high percentage of dual eligible patients was held to a different readmission rate expectation than a hospital with a low percentage of dual eligible patients. In fiscal year 2019, the dual eligible adjustment went into effect and the effect of this on the Medicare readmission penalties has now been analyzed in an article in the June 2019 issue of JAMA Internal Medicine. Hospitals that were more likely to be classified in quintile 5 (high percentage of socio-economically disadvantaged patients) were more likely to be:

  1. Teaching hospitals
  2. Larger hospitals
  3. Public hospitals
  4. Rural hospitals
  5. Medicaid expansion state hospitals
  6. Northeastern and Western U.S. hospitals
  7. Hospitals in neighborhoods with high prevalence of disabled persons

As one would expect, on average, hospitals in quintiles 1, 2, and 3 saw an increase in their readmission penalties whereas hospitals in quintiles 4 and 5 saw a decrease in their readmission penalties.

Characteristics of the 2020 readmission penalties

Last month, Medicare released the penalties for next year. These are based on 2015 – 2018 readmission data. 2,142 hospitals were exempt (childrens hospitals, veterans hospitals, Maryland hospitals, critical access hospitals, psychiatric hospitals, and hospitals with too few admissions for statistical significance). Overall, out of 3,129 U.S. hospitals included in the penalty program, 2,583 hospitals (83%)  received penalties totaling $563 million. The average penalty was 0.71% of total Medicare payments. 56 hospitals received the maximum (3%) penalty.

In Ohio, 90% of hospitals were penalized. Our medical center, the OSU Wexner Medical Center, received the lowest possible penalty, 0.01% which amounts to $14,000 for next year (last year, our penalty was 0.06%). In fact, all seven of the hospitals in Central Ohio fared very well for next year’s penalties with all of them coming in at less than half of the average U.S. hospital penalty.

In a previous post, I commented on the unintended consequence of the Medicare hospital readmissions reduction program, specifically that the program is associated with an increase in outpatient mortality. Since hospitals are paid by the DRG (in other words, by the diagnosis), hospitals are financially incentivized to discharge patients as quickly as possible in order to reduce their expenses. The Medicare hospital readmission reduction program was designed to offset that financial incentive by penalizing hospitals that discharge patients prematurely. Overall, the current readmission penalty program appears to be more fair to hospitals that care for socioeconomically disadvantaged patients. However, the danger remains that by creating a barrier for hospitals to readmit patients who truly need to be readmitted, outpatient mortality can increase.

November 17, 2019

Hospital Finances Inpatient Practice

Every Hospital With More Than 150 Beds Should Be A Trauma Center

A small article about trauma in the journal JAMA last week has big implications about the business of hospital finances. In short, it shows that the U.S. spends more on trauma than any other group of diseases… and the implication is that in the future, financially healthy hospitals will need to be trauma centers.

The study looked at a random sample of 20% of all Medicare claims between 2008 – 2014 for patients over age 65 years. During this time, there were 11.8 million hospital admissions. The authors then looked at the ICD-9 diagnostic codes submitted to Medicare for these hospitalizations. Not surprisingly, heart failure accounted for the most hospitalizations at 692,031 (5.9% of total admissions) but trauma ICD-9 diagnoses were the second most common reason for hospitalization at 653,413 (5.6% of total admissions). Extrapolating this to the full 100% of Medicare admissions during that time, it works out to 3.46 million admissions for heart failure and 3.27 million admissions for trauma during the 7-year period.

Next, the study examined the total amount of Medicare payments for each of these conditions for the 90 days after the initial date of admission. Looking at the total cost of care for those 90 days, trauma was overwhelmingly the most expensive condition, costing $2.76 billion. Of that amount, the index hospitalization for trauma cost $1.11 billion, or 40% of the total cost.

This analysis was done using ICD-9 CPT codes. In 2015, the United States changed to ICD-10 codes but that is unlikely to have any impact on the implications of the study. The ICD-9 trauma codes are 800 – 959.9 and includes various fractures. Although the study’s authors did not break down the cost by specific CPT code, it is likely that geriatric fractures accounted for the largest portion of the trauma costs.

Patients with traumatic injuries are preferentially directed to hospitals that are designated trauma centers. Many hospitals undergo verification (accreditation) by the American College of Surgeons  as level 1 (highest level of trauma care capability) to a level 3 center (lowest level of trauma care capability). Currently, there are 517 hospitals that are verified as level 1, 2, or 3 trauma hospitals by the American College of Surgeons. However, the requirements for designation of hospitals as being trauma centers is state-specific and not all states require American College of Surgeons verification. A study in 2003 reported that there were 1,154 trauma centers nationwide when including hospitals that were designated by their state as being a trauma hospital but did not undergo American College of Surgeons verification. In that study, 16.5% were level 1 hospitals, 22.8% level 2 hospitals, 21.7% level 3 hospitals, and 39.0% level 4/5 hospitals.

Trauma in Medicare patients is expensive because it involves older patients who frequently have medical co-morbidities and because a geriatric fracture is extremely expensive. For example, in the United States, there are more than 300,000 hip fracture hospitalizations each year with each fracture resulting in average direct medical costs of $51,000 per fracture. DRG 430 (fracture of hip and pelvis with major complications or comorbidity) results in hospital payments of $9,192 where as DRG 390 (hip and femur procedures with major complications or comorbidity) is $20,928, and DRG 379 (hip replacement with major complication or comorbidity) is $21,987. Following a hip fracture, there are the additional costs of rehabilitation, nursing homes, and medications.

As the U.S. population continues to age, the Medicare population will also age. The U.S. Census Bureau projects that the percentage of Americans over age 65 years old will increase from 15.2% of the total population currently to 23.5% of the current population in 2060. In 2035, for the first time in our country’s history, the percentage of the population over age 65 will exceed the population under age 18. It is projected that those over age 65 will increase from 49 million in 2016 to 78 million in 2035. This population growth has enormous implications for trauma care. By 2035, we will need more hospitals that are capable of managing trauma in the Medicare population. Since most of these trauma patients will likely be geriatric falls and fractures, hospitals will need a robust orthopedic surgery program, a strong physical therapy department, and close ties to post-hospital rehabilitation care. Under current U.S. healthcare financing, inpatient surgery admissions for hip and leg fractures are some of the most lucrative admissions for U.S. hospitals and are a major contribution to maintaining a positive financial margin at the end of the year. Based on the projected increase in the U.S. population over age 65, the total amount of Medicare payments to hospitals for trauma care, particularly geriatric falls and fractures, is going to increase significantly.

The bottom line is that in order to remain financially viable in the future, hospitals with more than 150 beds should be starting plans to become at least a level 3 trauma center today – that is where the money is going to be flowing in the future.

June 16, 2019


Hospital Finances

DRGs That Pay The Most To Hospitals

The CMS websites have a wealth of information about our nation’s health and about medical economics. One of the more insightful is the Inpatient Charge Dataset that lists the average charges and average payments to hospitals for different diagnoses. You can also search the dataset to find out how much any given hospital in the United States gets paid on average for each diagnosis (for Medicare patients). The diagnoses are listed as DRGs, or “diagnostic-related groups”. These are essentially the reason why the patient was in the hospital: a disease, a condition, or a surgical procedure. Medicare will pay set amount of money to hospitals for each DRG. The Medicare payment per DRG is also affected by the amount of money a given hospital gets for being classified as a teaching hospital, by disproportionate share funds, by capital funds, and by outlier funds. Thus an academic medical center that cares for a disproportionate number of Medicaid or uninsured patients will be paid much more for any given DRG than a private hospital with relatively few Medicaid or uninsured patients a few blocks away. For example, in Chicago in 2016, the John H. Stroger Hospital (also known as Cook County Hospital) received an average Medicare payment of $10,858 for DRG 638 (diabetes with complication or comorbidity) whereas Louis A. Weiss Hospital received an average Medicare payment of $6,291 for the same DRG.

The Medicare payment amount can increase if a patient has certain other complications or comorbid conditions. For example, a hospital admission for a patient with “septicemia or severe sepsis with mechanical ventilation > 96 hours” (DRG 870) will result in higher Medicare payments to the hospital if that patient also had disseminated intravascular coagulation or if that patient also has acute kidney failure. Therefore, hospitals hire coders who spend a lot of effort tracking down and documenting all of those various co-morbidities in order to enhance revenue. So, for example, in 2016, DRG 281 (acute myocardial infarction, discharged alive with complication or comorbidity) resulted in an average Medicare hospital payment of $6,213 to the Carolina East Medical Center in New Bern, North Carolina but the same DRG resulted in an average payment of $4,741 to Lenoir Memorial Hospital in Kinston, North Carolina, 35 miles away (I picked these two hospitals semi-randomly because we vacation regularly in the area and they presumably have a very similar patient demographic in rural Eastern North Carolina).

The Medicare Inpatient Charge Dataset lists three prices:

  1. Average Covered Charges. This is what the hospital charges on the final hospital bill and is equivalent to the sticker price. This is largely an irrelevant number since no matter what different hospitals charge, they are all going to get paid the same amount from Medicare for any given DRG and the co-morbid conditions associated with that DRG. Virtually no one pays the sticker price at a hospital.
  2. Average Total Payments. This is what the hospital actually gets paid and includes whatever Medicare pays plus any co-pays that the patient pays plus anything that secondary insurance pays.
  3. Average Medicare Payments. This is what Medicare alone pays to the hospital for that DRG (adjusted for whatever co-morbid conditions that the hospital documented for each patient).

Therefore, to extend the example using Carolina East Medical Center in New Bern, North Carolina, the hospital’s average covered charge (sticker price) for DRG 281 was $20,828. The average total payments for this DRG (what they actually got paid in total) was $7,409. The average Medicare payment for this DRG was $6,213.

Here are the top 20 highest paying DRGs to hospitals (listed by the Average Medicare Payments):

  1. $223,532 – Heart transplant or implant of heart assist system with major complication or comorbidity.
  2. $140,536 – Extensive burns or full thickness burns with mechanical ventilation > 96 hours with skin graft.
  3. $129,842 – Heart transplant or implant of heart assist system without major complication or comorbidity
  4. $125,777 – ECMO or tracheostomy with mechanical ventilation > 96 hours with major O.R.
  5. $113,055 – Other heart assistant system implant
  6.  $105,901 – Allogenic bone marrow transplant
  7. $100,462 – Liver transplant with major complication or comorbidity or intestinal transplant
  8. $86,809 – Lung transplant
  9. $81,707 – Combined anterior/posterior spinal fusion with major complication or comorbidity
  10. $76,561 – Intracranial vascular procedures with principal diagnosis hemorrhage with major complication or comorbidity
  11. $71,098 – Tracheostomy with mechanical ventilation > 96 hours without major O.R.
  12. $70,008 – Spinal fusion excluding cervical with spinal curvature/malignant/ infectious or extensive fusion with major complication or comorbidity
  13. $67,613 – Cardiac valve and other major cardio thoracic procedure with cardiac catheterization with major complication or comorbidity
  14. $59,975 – Cardiac defibrillator implant with cardiac catheterization with acute myocardial infarction/heart failure/shock with major complication or comorbidity
  15. $59,738 – Endovascular cardiac valve replacement with major complication or comorbidity
  16. $55,191 – Cardiac valve and other major cardio thoracic procedures without cardiac catheterization with major complication or comorbidity
  17. $54,852 – Combined anterior/posterior spinal fusion with complication or comorbidity
  18. $53,418 – Intracranial vascular procedures with principal diagnosis hemorrhage with complication or comorbidity
  19. $52,838 – Coronary bypass with PTCA with major complication or comorbidity
  20. $52,020 – Other O.R. procedures for multiple significant trauma with major complication or comorbidity

Not surprisingly, the highest paying diagnoses are for various transplants, major heart surgery, and major neurosurgery. However, these are generally procedures done in specialized and tertiary care hospitals and are relatively few in total numbers compared to other DRGs. Here are the top 10 most common diagnoses in the United States and their average Medicare payments in 2016:

  1. $11,632 – Septicemia or severe sepsis without mechanical ventilation > 96 hours with major complication or comorbidity
  2. $11,837 – Major joint replacement or reattachment of lower extremity without major complication or comorbidity
  3. $9,404 – Heart failure and shock with major complication or comorbidity
  4. $6,026 – Heart failure and shock with complication or comorbidity
  5. $4,359 – Esophagitis, gastrointestinal and miscellaneous digestive disorders with out major complication or comorbidity
  6. $6,392 – Septicemia or severe sepsis without mechanical ventilation > 96 hours without major complication or comorbidity
  7. $4,667 – Kidney and urinary tract infections without major complication or comorbidity
  8. $7,799 – Pulmonary edema and respiratory failure
  9. $5,692 – Renal failure with complication or comorbidity
  10. $8,600 – Simple pneumonia and pleurisy with major complication or comorbidity

There are many ways that hospitals can use the information from the Medicare Inpatient Charge Dataset. For example, let’s say that Lenoir Memorial Hospital in Kinston, North Carolina decides to target one DRG to improve throughput efficiency in order to improve its hospital margin. So, they put resources into case management, pharmacy, rehabilitation services, and post-discharge care with a goal of reducing expenses by 10% below the average payments that the hospital receives for that DRG. Should they choose knee & hip replacement (DRG 470) or exacerbation of chronic obstructive pulmonary disease with major complications or comorbidity (DRG 190)?

On the surface, one might think that since knee & hip replacement is a very expensive DRG, that by targeting it for expense reduction, the hospital stands to gain the most at the end of the year. However, even though admissions for COPD exacerbation pay far less on a per-admission basis ($7,532 versus $10,039), because there are so many more patients admitted with COPD exacerbation, the hospital will have a $40,000 greater end-of-the-year total positive margin if it puts the resources into reducing COPD exacerbation costs as opposed to reducing knee & hip replacement costs.

All of this underscores the critical importance of hospital coders in hospital finances. At the end of the day, choosing the correct DRG and capturing all of the various complications and comorbidities for each patient is more financially valuable than doing a few more inpatient surgeries each year.

June 2, 2019

Hospital Finances

Reducing The Hospital Length Of Stay

One of the best ways to improve a hospital’s financial margin is to reduce the average patient length of stay. Since hospitals are paid by the “DRG” (diagnosis related group), the hospital is going to get paid the same amount for a patient with say, pneumonia, if that patient spends 4 days in the hospital or spends 8 days in the hospital. Therefore, the quicker the hospital can get a patient discharged from a hospital bed, the sooner the hospital can put a new patient in that bed. If the hospital can get all of their pneumonia patients discharged in 4 days, as opposed to 8 days, then the hospital can admit twice as many patients into that bed over the course of a year and consequently can make almost twice as much money.

Hospitals report their length of stay (in days) as a standard administrative metric. But I would argue that the length of stay in days is a meaningless number. The more important number is the length of stay index.

The case mix index is a way of adjusting for how sick a patient is, as defined by co-morbid medical conditions. For example, an otherwise healthy patient with pneumonia will have a lower case mix index than a patient with pneumonia who also has diabetes, COPD, heart failure, and cancer. Medicare and insurance companies pay hospitals more if a patient with a given diagnosis has a lot of these co-morbidities. Thus, hospitals are actually paid by the Medicare Severity-Diagnosis Related Groups (MS-DRGs) rather than by the plain DRG.

There are more statistics available for length of stay than for length of stay index. For example, there are geographic differences in length of stay: hospitals in the Northeastern U.S. have an average length of stay fo 4.9 days, the South 4.5 days, the Midwest 4.3 days, and the West 4.2 days (2012 AHRQ data). There are also state-specific differences in length of stay with South Dakota having the longest length of stay (9.2 days) and Utah having the lowest length of stay (4.3 days) in 2014. There are economic differences with hospitals in low income areas having an average length of stay of 4.6 days and hospitals in high income areas the average is 4.4 days. There are also differences by payers: Medicare = 5.2 days, Medicaid = 4.3 days, commercial insurance = 3.8 days, and uninsured = 4.0 days (although this may be a reflection of different ages of patients served by different payers since older [Medicare] patients have a longer length of stay than younger patients).

Here are some practical steps that the hospital can take to reduce the length of stay index:

  1. Increase the case mix index. This does not mean that the hospital has to seek out sicker patients to admit. It does mean that the hospital has to have a robust process for ensuring that all of the various co-morbidities that each patient has are captured at the time of admission to the hospital. This generally requires a physician document that these various conditions were present on admission in their H&Ps and consults. There are two steps in doing this. First, educate all of the physicians (and especially the hospitalists) in the various co-morbid conditions that they need to be on the lookout for when admitting a patient. Some of these conditions may seem minor to the physicians (for example, hyponatremia and hypernatremia) but can significantly increase the case mix index. Second, documentation specialists should do real-time audits of the patients’ charts in the first days of their hospital stay to identify any co-morbidities that the physicians may have missed and request that the physicians addend their notes accordingly.
  2. Adequately staff the hospital’s case management department. If a case manager or social worker is so overworked that he/she cannot get to a patient on a given day, then you have likely added an extra day to the length of stay for that patient. Those “opportunity days” add up and their cost can quickly exceed the expense of hiring an additional case manager or social worker.
  3. Develop arrangements with high-performing skilled nursing facilities. Patients being discharged to SNFs often have the highest length of stays, not because they take longer to get well in the hospital but because there is a delay in getting a bed in the SNF. The best SNFs are those that can promptly obtain prior authorization from the insurance company and accommodate the patient as soon as the patient is medically stable for transfer. Ultimately, the hospital may need to even lease beds from SNFs.
  4. Schedule the operating room strategically. Ideally, patients who will require an inpatient stay post-operatively should be scheduled as early in the morning as possible. This allows them to get a head start on their recuperation. For example, the patient with a hip replacement surgery in the morning can get their first physical therapy session the same day as their surgery and potentially be ready for discharge a day earlier than if they have surgery in the afternoon.
  5. Whenever possible, be a 7-day a week hospital. For procedures and tests that can delay discharge, try to offer these tests every day of the week. Common examples include cardiac stress tests, echocardiograms, endoscopy, bronchoscopy, and venous duplex ultrasounds. It may be impractical to run a full-day schedule for these tests on Saturdays and Sundays but at least be able to do half-day schedules on either a Saturday or Sunday shorten hospital stays.
  6. Consultants should be co-managers. In academic medical centers, consultation services typically consist of a resident or fellow who will initially see a patient in the morning and then round with the attending consultant physician later in the afternoon with the consult getting finalized at the end of the day. Furthermore, in order to preserve the residents’ autonomy and ownership of patients on the admitting teaching services, the consulting physicians generally leave recommendations in the chart but do not order tests or medication changes. Frequently, this can result in delays in care when, for example, the consulting attending leaves recommendations for blood tests or x-rays in the chart at the end of the day and then the resident on the admitting service does not see that recommendation until the following day with the result that the test gets delayed. Ideally, inpatient medicine should be a team effort and the consulting physicians should be empowered to order the tests that they want and medications that they recommend. Furthermore, consulting physicians should continue to follow patients after the initial consultation to assess the patients’ response to treatment and to help interpret the tests that they have recommended/ordered. Although this culture change can result in the admitting physicians feeling like they have lost control over their patients, the benefit to the patients’ care and to the patients’ length of stay is worth it. I believe that this strategy is one of the most over-looked strategies in length of stay reduction programs.
  7. Consult liberally. Many hospitalists are loath to consult specialists, a mindset borne out of the tenet that “a consult is a sign of weakness”. Although it is true that consultation will add to overall healthcare costs because of the additional professional service that will be billed to the patients’ insurance company, consultation may also reduce overall healthcare costs by expediting inpatient throughput, reducing unnecessary medication use, and facilitating outpatient follow-up arrangements.  Many experts feel that United States healthcare should reduce the use of subspecialists; I take a contrarian view that when it comes to inpatients, more liberal consultation has a net effect of reducing costs while improving quality of care.
  8. Discharge planning starts on the day of admission. If the case management staff do not do an initial evaluation of the patient until the patient is close to discharge, discharge delays ensue. Sometimes, you just know that a patient is going to need to go to a SNF or an LTACH or inpatient rehab from the minute they arrive on the hospital floor. By initiating discussions with the patient and their families early, discharge choices can be made early in the hospital stay and the staff can initiate prior-authorization process with insurance companies as soon as possible, thus avoiding delays in discharge.
  9. Institute multidisciplinary rounds. These are typically done mid to late morning, after the hospitalist has made “work rounds”. The hospitalist, nurse, case manager, and often pharmacist then round on each patient together so that all parties are on the same page regarding tests that need to be done, discharge planning barriers, etc. Multidisciplinary rounds are the most effect way to reliably communicate patient care among all of the care providers and optimize patient throughput in the hospital.
  10. Ensure that guardians are appointed in a timely fashion. Many states have long waits for guardianship determination. For patients who are incompetent, the wait for guardianship can have a huge effect on the length of stay. Hospitals can work with state authorities to develop processes to expedite guardianship in order to move patients through the system in a more timely fashion.
  11. Eliminate emergency department boarding. Patients who wait for hours in the emergency department for a bed to become available in a hospital that is at full capacity do not get the same care in the ER as they do on a nursing unit. Tests do not get done, medications often are not started, and consultants often do not see the patient. The faster the hospital can get a patient out of the ED and into a nursing unit, the sooner definitive evaluation and treatment of the patient’s medical problems can occur.
  12. Right-size your hospitalist staffing ratios. A hospitalist who is managing 25 inpatients is not going to be as efficient as one who is managing 15 inpatients and consequently, the overburdened hospitalist is going to have a longer length of stay. When your hospitalists are spending most of their work days getting admission H&Ps done and attending to unstable patients, the lowest priority will be expediting discharges. That hospitalist needs to have sufficient extra time in the day to meet with family members, help the case managers with discharge plans, and critically evaluate new test results. When the hospitalist has sufficient time to round on their patients twice a day, as opposed to once a day, care is expedited.
  13. Right-size your nurse staffing ratios. Similar to hospitalists, if a nurse is caring for too many patients, he/she will not have the time to help expedite the patients’ throughput and length of stay can suffer.
  14. Measure it. In order to know where the length of stay problems are, the hospital has to be able to identify which services and nursing units are strong performers and which have excessive length of stays. Also, there needs to be a mechanism for real-time assessment of the effect of any interventions you make on the length of stay. Ideally, the length of stay index should be measured and reported monthly by service and by nursing unit.
  15. Know which tests and procedures can be done as an outpatient. Not everything needs to be done when a patient is in the hospital. For example, a patient who has a lung mass incidentally identified on an abdominal CT done to evaluate their cholecystitis can just as easily have their PET scan and lung biopsy done as an outpatient. In order to do this, there must be reliable outpatient follow-up available. Transition clinics are a great way of ensuring that these tests get done timely after discharge.
  16. Use palliative medicine strategically. Palliative medicine can reduce the ICU length of stay but has considerably less effect on non-ICU length of stay. However, palliative medicine is costly, requiring heavy subsidy by the hospital since palliative medicine rarely, if ever, pays for itself by regular billing for physician services. By prioritizing palliative resources on the ICU, the most cost-efficient use of palliative medicine can be achieved.
  17. Draw morning labs early. Patients do not like to be woken up at 2:00 AM to get their morning labs drawn. However, by getting those blood samples sent to the lab early, results can be available at the time of the physicians’ morning rounds. This permits clinical decision making early in the day.
  18. Save some time slots for inpatients on the procedure schedules. Most hospital procedure areas do testing for both inpatients and outpatients. There is a tendency to schedule on a first-come, first-served basis and as a consequence, the earliest time slots get assigned to outpatients who schedule their procedures days or weeks in advance. This often leaves the only times available for inpatients at the end of the day as “add-on” cases. This can add an extra day to the patient’s hospital stay if procedure results are not available to the hospitalist or consultants when they are doing their regular daytime rounds. By reserving some time slots for inpatients (particularly on Mondays and days after holidays), throughput can be expedited for tests such as venous duplex ultrasounds, cardiac stress tests, echocardiograms, cardiac catheterizations, and endoscopies.
  19. Never admit a patient at 11:59 PM. Most hospitals calculate the length of stay by patients in an inpatient bed at midnight (the so-called “midnight census”). A patient admitted 10 minutes before midnight will have a length of stay that is 1-day longer than a patient who is admitted at 10 minutes after midnight, even if they are discharged at exactly the same time and day. The reality is that the true cost of caring for that patient will be the same, but your LOS index numbers will look worse.
  20. Be aware of unintended consequences of admission practices. Patients tend to come to the ER in the late afternoon and evening and consequently, these times are when most patients get admitted to the hospital. If there is a service that only admits during the morning and early afternoon (for example, a resident teaching service), then those services can get a jump on patient testing that can be done on the same day of admission. On the other hand, if there is a service that admits disproportionately more patients in the evening when routine testing is not available, that service will have a 1-day delay in getting initial testing done and as a consequence will have a longer length of stay than the service that admits earlier in the day. Knowing the typical time of day of admissions can help you avoid penalizing services that primarily admit in the evenings when their length of stay looks higher than other services.
  21. Do not put over-utilize observation status. Many times, it is not entirely clear if a patient will be in the hospital for less than 2 midnights (the CMS definition of observation status). By placing a patient who could legitimately be an inpatient into observation status, the length of stay index will increase for the inpatients since these patients generally have a lower length of stay.

The challenge of reducing length of stay is to do it without reducing quality. In this regard, there is a limit to how low the hospital length of stay index can safely go. In my opinion, for most hospitals, a length of stay index of 0.80 – 0.95 is optimal. Below that, quality of care can suffer and above that, costs are excessive.

February 11, 2019