Categories
Hospital Finances Physician Finances

How To Write A Pro Forma For A Doctor

When a medical practice wants to hire a new physician, they will often turn to the hospital to ask for financial support. The hospital gets lots of these kind of requests – more than they can afford to pay for. For the medical practice to get what it wants, you have to know what the hospital wants and how to write a compelling pro forma. You want to show that the hospital’s investment will bear fruit over the next several years.

The pro forma is a statement of projected income and expense for a new physician, service line, or piece of equipment. What the hospital is going to want to see is:

  1. Will the new physician bring new business to the hospital?
  2. Is the new physician needed to provide necessary services that would falter without the new physician?
  3. What type of ramp-up period will the physician require in order to be maximally productive?

To create the compelling pro forma, there are a couple of caveats. First, be concise. If the pro forma is longer than 1 or 2 pages, it is not going to be read in detail. Second, don’t make it excessively technical. The hospital chief financial officer and executive director are usually not physicians and even though they will be knowledgable about medical issues, you need to be sure that you are writing the pro forma using words that they will understand. Third, be realistic in your projections. The people who run the business of a hospital are used to over-exaggerated claims of future programs and if they find you are overestimating income in one section, they won’t believe anything in the entire proposal. Fourth, don’t make your reader have to work to figure out what you are trying to say. Be sure that your sections and tables are clearly labeled so that even with just a brief glance, someone can find the information that they want and understand exactly what you are saying.

To create the compelling pro forma, break it into 5 sections (in order): introduction, revenue, costs, hospital support needed and summary. Your goal is to “Tell them what you are going to tell them, tell it to them, then tell them what you just told them”. The introduction is telling them what you are going to tell them; the revenue, cost, and hospital support needed is what you are telling them; and the summary is telling them what you just told them.

Introduction. Concisely say why this physician or position is needed in your hospital and what the net value will be of the physician/position. Notice that I used value and not profit. Although the hospital is going to be interested in increasing income, sometimes the value is in other measures, such as length of stay, patient satisfaction, mortality, or public relations. The value will depend on the particular specialty and circumstance. For example, the value of a joint replacement surgeon will be in improving lucrative elective inpatient surgical admissions but the value of a palliative care physician will be in improving patient satisfaction and length of stay. The introduction should be short – no more than 2-3 sentences – just enough to remind the reader why this particular physician/position is important.

Revenue. As a person who reads a lot of pro formas, I like to have revenue up front before expense in most situations. This allows me to see financial value to set the stage before I hear about how much it will cost me. Most revenue projections should extend for 3-5 years, depending on the specialty. Physicians who require a longer ramp-up time to get fully busy need a 5-year projection (for example, a urologist straight out of residency who will need to build a referral base and start of with longer OR times per surgical case). On the other hand, a physician who will be busy from the first day of work may only need a 3-year projection (for example, an experienced radiologist who will only need a year or two to hit peak operational efficiency after he/she gets used to the workflow in your hospital). If you can base projected revenue off that of an existing physician, this will improve the perception of validity of the compelling pro forma because you have an internal precedent.

The best medium of exchange to use in revenue projections is the RVU. For some specialties, it may be the work RUV and in others, it may be the total RVU. For example, if the physician will be hiring his/her own office staff, paying for a billing company, and renting office space, then the total RVU is probably better. On the other hand, if the physician will be using hospital staff for scheduling, having the hospital do the billing, and using office space provided by the hospital, then the work RVU is probably better.

Next, you’ll need to project how much, on average, the doctor will get paid per RVU. If there is a physician in a similar practice in the hospital, then you can use his/her payer mix to come up with an average number of dollars per RVU to expect. Start with Medicare reimbursement per RVU – currently about $38/RVU. Adjust that number up if the doctor will be seeing patients who have higher paying private insurance and adjust that number down if the doctor will be seeing Medicaid or uninsured patients.

Lastly, project the number of patients the doctor will be seeing on a typical workday and then determine how many workdays that doctor will be working per year. Don’t forget to factor in vacations (usually 2-4 weeks per year, depending on the practice), CME time (up to 1 week per year), and holidays (there are typically 10 holidays per year but most years, at least 2 of those days fall on a weekend so 8 days is a good number to use). Also, don’t forget to factor in weekends which will vary from specialty to specialty. A general surgeon who working a weekend will usually have relatively little new income generated on that weekend since he/she will only be doing emergency add-on surgeries and their inpatient rounding will be on patients who they are already billing a global surgical fee for the entire hospital stay. On the other hand, a critical care physician will be generating just as much new revenue on a Sunday as he/she will on a Monday. In an academic medical center, not accurately accounting for weekends is one of the most important reasons why a physician’s actual financial performance ends up looking a lot different than was projected in the original pro forma. As an example, take 2 physicians in the same specialty, one has 33% clinical time (15 weeks of inpatient care) and one has 100% clinical time (45 weeks of inpatient care [after accounting for 7 weeks of vacation, CME, & holidays]). If weekend call is split equally among all physicians resulting in both physicians taking one weekend per month rounding on the inpatient service, then the physician with 33% clinical time will have a lot more than 30% of the number of RVUs as the 100% clinical time physician at the end of the year – in fact, it will be 40%, making it look like the 33% clinical FTE physician is knocking it out of the proverbial RVU park. If we assume that a physician generates 36 RVUs per day then:

Expense. Only include those expenses that are reasonable but make sure that you list all of the reasonable expenses. It is important to be consistent. If you are asking the hospital to subsidize a physician’s salary, then don’t include expenses for cell phones, journal subscriptions, and gas mileage for driving from the office to the hospital – unless the hospital covers those expenses for all physicians. Here are the expenses that I believe are reasonable:

  1. Salary
  2. Benefits
  3. Shift differential (eg, additional pay for doing night shifts)
  4. Malpractice premiums
  5. Cost of trainees (in many institutions, attending physicians have to pay for a portion of fellow salaries)
  6. “Taxes”, including Dean’s taxes and departmental taxes
  7. Business expenses including billing, compliance, legal, etc.
  8. Rent
  9. Office expenses (staff, equipment, supplies, answering service, electronic medical record, etc.)

This is where using the total RVU versus the work RVU as a basis for the income analysis becomes important – if the physician will personally be incurring all 9 of these expenses, then use the total RVU. On the other hand, if the physician only needs to cover his/her salary and benefits (and the hospital pays for everything else), then use the work RVU. If the physician will be covering salary, benefits, and malpractice, then use the work RVU + malpractice RVU. If you use the wrong number (eg, use the total RVU when you should be using the work RVU), then the hospital leadership will think that you are either dumb or devious – either way, they are not going to believe anything you tell them in the future.

Hospital support needed. This is the bottom line of what you are asking the hospital to pay to subsidize this particular physician. In its simplest form, this is the anticipated expense minus the anticipated revenue for each year. This will typically be highest in the first year out and then drop each subsequent year. For some specialties, it will eventually reach zero, if it is anticipated that the physician will eventually be self-sustaining once his/her practice matures. For some specialties (such as palliative medicine and hospitalists), hospital support will always be necessary, albeit at a lower amount than the first year of practice.

Summary. The hospital business leader has just spent 5 or 10 minutes scrutinizing your numbers to be sure that they are accurate and that you are not trying to take advantage of the hospital and then checking your work to be sure that the amount of dollars that the hospital is being asked to come up with is correct. In the summary section, you need to bring them back from their left-brain accounting mindset to their right-brain strategy mindset by reminding them why this particular physician brings net value to the organization. It will be similar to the introduction section but try to make it short: 1 or 2 sentences.

Your first pro forma will not be your last pro forma so it is important that you get it right the first time. If you do, then you will get the reputation as a fair and realistic planner so that when you submit your next pro forma, they will see you as a trustful partner rather than a deceitful adversary.

July 22, 2017

Categories
Hospital Finances Medical Education Physician Finances

The Conundrum Of Academic Release Time

It is that time of the year when department chairs and division directors come to the hospital administration asking for financial support for the upcoming year. Few specialties can be self-sufficient in an academic medical center so the hospital has to provide some amount of money to ensure that there is adequate physician staffing. Inherent in being an academic physician is the premise that you are not going to be seeing as many patients or doing as many surgeries as your colleagues in private practice because you are going to be spending part of your time doing academic activities: teaching, writing papers, developing a focused area of clinical expertise, and doing research. You also commit to directing part of your income to the college of medicine (“dean’s tax”) and the department/division (“academic expense”). For this, you are willing to make a little less than your private practice counterpart, but not too much less. Thus, the need for the subsidies from the hospital.

But the hospital wants to know that there is some value in the these subsidies. By and large, the funds are ultimately used for “academic release time”, that is the time that the physician spends doing those activities that are important to the academic mission of the medical center but are otherwise unfunded. Back in the 1980’s, unfunded academic release time was typically about 40% for a newly hired physician: the physician would do 6 months of inpatient service and see patients for a half-day in the clinic. By the 2000’s, that had dropped to about 20% and now 10-15% is more common for new physicians.

The problem with academic release time, is that if everyone gets it, it can become an entitlement and then it becomes next to impossible to take away without organizational disruption. So, our challenge is to find a way to ensure that physicians are accountable for that otherwise unfunded academic time that they have. In order to figure out how we can do that, lets start with a look at how several specialties in our medical center deal with unfunded academic time. For the purposes of simplicity, I am going to use “department” to mean either department or division.

Department #1. All physicians start at 100% clinical full time and then after they are practicing for months or years, they come up with specific proposals to acquire academic release time. These could include doing a hospital quality project, chairing a hospital/college committee, doing a clinical research study, taking on an administrative position, etc. The physician continues to get that academic release time as long as he/she continues to perform that particular non-clinical activity.

  • The problem: many of these physicians never have the initial time investment to get any kind of academic activities off the ground and so after several years, they often move to private practice jobs since there is nothing tethering them to the university.

Department #2. All physicians get some percentage of academic release time that is negotiated individually at the time of their initial appointment. The percentage varies from 10% to 20%. The purpose is to teach and obtain research funding. At this time, however, none of the physicians except the chair have research grants.

  • The problem: there is a lot of “release time envy” by those physicians who only negotiated 10% release time versus those with 15% or 20% release time since those with more release time are seen as having to work less but getting paid the same as those who have less release time.

Department #3. All physicians get 20% academic release time and that is maintained in perpetuity, regardless of what they do during that time. There is an annual review process with the chair and those physicians who lack any academic productivity are directed by the chair to do more.

  • The problem: in theory, this academic productivity would be tied to physician bonuses but the department has not had any money to give bonuses for 15 years. Therefore, there is little incentive for the physicians to do anything productive for 20% of their time.

Department #4. All physicians get 10% academic release time at the time of their initial appointment. If they don’t have any academic output to show for after 3-4 years, then their release time is eliminated and they become 100% clinical.

  • The problem: once you go 100% clinical, you can never go back. Eventually, a private practice job across town that will pay you more for the same amount of work looks pretty inviting.

Department #5. All physicians get 20% academic release time but they are expected to produce work RVUs at the 75th percentile of national benchmark during the 80% of their time that they are doing clinical activities. In this way, the physicians self-fund their own 20% academic release time.

  • The problem: you are really deceiving yourself by making yourself be way more productive than the average physician 4 days of the week so that you can have the 5th day to do academic stuff. The reality is that most physicians work at a pace of average productivity so inevitably, they end up doing clinical work on that 5th day to catch up. In other words, the physicians coast for 1 day to make up for sprinting the other 4 days. What you are in reality doing is asking the physicians to have average productivity 100% of the time; you are just wrapping it up differently.

Department #6. All physicians get 20% academic time. If a physician gets a paid administrative or teaching position, that 20% of time is eliminated.

  • The problem: you reward those physicians who do not take on administrative or teaching roles. Those physicians who do take on a paid administrative role have to do more work than everyone else and get paid the same. You discourage anyone from volunteering to take on paid teaching and administrative roles and you encourage your doctors to not do anything that might ultimately improve care within the hospital or bring academic notoriety to the college of medicine.

So what is the answer? Ultimately, what the academic medical center wants are those activities that bring research grant dollars, result in journal articles with the institution’s name on them, create teachers who attract the best medical students & residents, generate clinical expertise that attracts patient referrals, create an environment of high-quality clinical care, and result in efficient clinical care with a positive financial margin. What the doctors want is enough time to do academically creative things that will help them achieve whatever they define as an academically success for themselves. Here are two proposals:

Model #1:

This is essentially what department #1 does above. Namely, all new physicians start out at 100% clinical and then submit specific proposals to “buy down” academic release time. The goal would be for most physicians to buy down 15% academic release time by their 4th year of practice. Because there is not enough money in the system to pay for every single physician to have 15% non-clinical time, there would have to be some way of adjudicating the proposals to cull out those that do not provide institutional value or that have a low chance of success. This model works best for physicians who do shift work where it is relatively easy for them to flex up or down in the number of shifts that they do since they are relatively interchangeable with one another. Examples include hospitalists, anesthesiologists, and emergency medicine physicians.

Model #2:

This is a variation on the “ramp up” period that many surgeons have in their initial contract with the assumption that as they build experience and a build a referral base in their first 5 years of practice, they are more able to support their own salary so that they need a lot of hospital support their first year in practice but need progressively less each subsequent year. So, in model #2, a typical clinical-track physician faculty member would get 20% unfunded academic time in their first 2 years, 15% unfunded academic time in their third and fourth years, and then 10% unfunded academic time in their fifth and sixth year. The physician could maintain their 20% unfunded academic time after their second year by demonstrating that they have been good steward of that time by producing publications, obtaining grants, doing a lot of unpaid teaching activities, etc. After year six, a physician who has no academic output would be moved to a 100% clinical role. This model works best for physicians who are office-based or who rely on an individual referral base since increasing non-clinical release time after they have become established can be disruptive to patients by transferring his/her patients to other physicians in order to reduce the physician’s outpatient patient panel or by refusing some patients referred specifically to that physician. Examples include primary care physicians, surgical sub-specialists, and outpatient consultative specialists.

Ultimately, unfunded academic time should be used as an investment in junior physicians with the potential to become academically productive and to support those physicians who are doing academic or clinically unique activities that are vital to the success of the institution but that are otherwise unfunded. It is up to us to ensure that this unfunded time does not simply become an entitlement that allows the physicians to leave work at 2:00 on Friday afternoons or do fewer surgeries per week, just because they have an academic title in front of their name.

April 9, 2017

Categories
Hospital Finances Inpatient Practice

So, How Should You Pay Hospitalists?

Hospital’s priorities are usually not aligned with how we pay hospitalists. In fact, the two are often in direct conflict with each other. In my last post, I argued that the RVU is not the best measure of productivity for a hospitalist. In this post, I have some ideas of how hospitals can align hospital priorities with the hospitalist’s income.

CMI-Adjusted Census

The first thing we need to do is to get away from the model of a rigid census cap/expectation per hospitalist. In a previous post, I discussed why the work required to take care of 15 patients at one hospital does not equal the amount of work required to take care of 15 patients at another hospital. In fact, a census of 15 patients on one floor of any given hospital is not the same as 15 patients on another floor. Quite simply, this is because the amount of physician work necessary to take care of one patient is not the same as the amount of work necessary to take care of another patient. One way of determining the proper census per hospitalist is to do a CMI-adjusted census (CMI = case mix index). The idea is that the higher the CMI, the sicker the patient and presumably, the more time required by the hospitalist to care for that patient. Let’s look at the CMI of 3 hypothetical hospital services:

Service 1: CMI = 1.30. This service admits general medicine patients but also admits to the ICU.

Service 2: CMI = 1.10. This is service admits non-ICU general medicine patients.

Service 3: CMI = 1.00. This service mainly covers lower acuity medicine patients, generally with single-issue medical problems and about half of patients being observation status patients. They have a short length of stay.

Let’s start with an assumption of 20 patient encounters per hospitalist and then divide the census by the CMI. So, for service #3, we would have 20 ÷ 1.00, which would be 20 patient encounters per hospitalist per day. On the other hand, for service #2, we would have 20 ÷ 1.10 = 18 patient encounters. Service #1 would be 20 ÷ 1.30 = 15 patient encounters. Notice that I used hospital encounters in this analysis and not daily census. Because of the differences in length of stay (and therefore differences in patient turnover) for each of the 3 services, the daily census could be the same for each of the services (eg, 13). Moreover, if you have night coverage hospitalists who are doing admissions to these services at night, the service census at the midnight census tally might be 15 for each of the services. Surgical patients inherently have a higher case mix index because of the surgical procedure so you cannot apply the same analysis for staffing surgical patients as you would with medical patients.

CMI-adjustment does several things to align the hospital and the hospitalists:

  1. It rewards the hospitalist to compulsively document in the chart all of the mundane co-morbidities that affect the CMI score but really don’t affect how the patient gets managed. So, for example, if a patient has a sodium level of 144 (normal 133-143) on admission, the hospitalist is going to ignore it since it is not clinically significant – adding “hypernatremia” to their admission note is extra work and why bother typing in the extra line of text if it is clinically irrelevant? However, since by adding the word “hypernatremia” to their note, the CMI goes up slightly and so the hospitalist is granted a slightly lower census target.
  2. The hospital’s financial margin improves because the higher the CMI, the more the hospital gets paid for that patient admission.
  3. The hospital’s length of stay index improves because the index is determined by the actual length of stay adjusted for the CMI.
  4. The hospital’s mortality index improves because the actual mortality rate is adjusted for the CMI to give the publicly reported mortality index.

Outcomes-Based Bonus Plan

Historically, bonus plans were based on productivity. At the end of the day, the productivity that really matters is total cash collections. However, we all know that when performing the same service, you get paid more for a commercially-insured patient than you do for a Medicare patient. You get paid even less for a Medicaid patient and you get paid practically nothing for most uninsured patients. So, the RVU has evolved to be a better measure of physician work effort than cash collections in order to remove the disincentive of taking care of the uninsured and Medicaid patients in the hospital since the hospital has to have someone take care of these patients.

In medicine, we often define true value in the service that we provide by the equation: value = quality ÷ cost. In other words, you can increase your value by increasing your quality or by decreasing your cost. So, what the hospital really wants is for the hospitalist to improve value of healthcare, by either improving quality (particularly in those publicly-reported quality measures on the Medicare Hospital Compare Website) or by improving the hospital’s financial margin. The financial margin in turn, can be improved by either increasing the revenue per patient-day in the hospital or by decreasing the cost per DRG. Therefore, bonuses should be based on some combination of:

  1. Query responsiveness. Hospitals have coding staff that comb inpatient charts looking for those co-morbidities that add up to a higher case-mix index for any given patient. The problem is that even if those co-morbidities appear in the lab results (for example, hypernatremia in the previous discussion) or appear in a non-physician’s note (for example, the dietician who mentions “protein calorie malnutrition” in his/her note), it only counts toward the CMI if a physician (or nurse practitioner or physician assistant) puts it in their note. So, hospitals have evolved a query system where co-morbidites identified by coders are reported to the hospitalist as a query and then the hospitalist decides whether or not it is valid and then addends their note accordingly. This is extra work for the hospitalist and so if they are not incentivized to answer the queries, they are going to ignore the coders and then the CMI ends up being lower.
  2. Patient discharge time. The earlier you get patients out of the hospital, the earlier in the day that bed can be filled by the next patient. However, you don’t need to get all of the patients discharged early in the day – your housekeeping staff can’t clean all of those rooms at the same time. The strategy is to get some of the patients out by 11:00 AM, some more out by 1:00 PM, etc. so that you have a steady flow of discharges throughout the day in order to accommodate the steady stream of patients waiting to be admitted into those beds. So, pick some numbers that work best for your hospital, for example, 20% of discharges by 11:00 AM and 40% of discharges by 1:00 PM.
  3. Mortality index. Because the mortality rates are one of the publicly reported items by Medicare, the hospital wants patients to die anywhere but in the hospital. For those patients who are anticipated to die, transferring a patient to a hospice facility to die is ideal. The danger of using mortality index for hospitalist bonuses is that sometimes, it can work against you from a hospital expense standpoint. For those patients who are clearly going to die in the ICU, the hospitalist could be incentivized to try to keep that patient alive a little longer in order to buff them up just enough to survive the transport to inpatient hospice or to have them die on another hospitalist’s shift so that the death doesn’t count against them. In this situation, earlier withdrawal of life support would have resulted in the hospital not having the expense of those extra days treating the patient in the ICU and the patient (and family) would have been spared making an inevitable unpleasant and uncomfortable death last longer.
  4. 30-day readmission rate. Hospitals get penalized by Medicare if this is too high. The hospital wants all of its rooms to be full, but to be full of patients who were not there in the past month. Hospitalists can often reduce the readmission rate by putting more time and effort into the discharge process (see post on The Most Dangerous Procedure In Medicine).
  5. Lower length of stay. This is a tricky one. If you discharge a patient prematurely, that patient is more likely to be readmitted within 30 days and is more likely to be dissatisfied if they perceive that they were thrown out of the hospital too early. So, length of stay should never be the sole metric for a bonus plan and should only be used when coupled with hospital readmission rates and with patient satisfaction. Also, length of stay lends itself to gaming the system since it is based on the midnight census. So, a patient admitted to the hospital at 11:30 PM already has a 1-day length of stay a half hour later at midnight. In order to improve his length of stay, the hospitalist will procrastinate putting the admission orders in for anyone showing up in the ER in the evening. If that order is placed at 12:01 AM, you just knocked a day off of that patient’s length of stay.
  6. Patient satisfaction. For inpatients, this is measured by the “HCAHPS” survey questions that are reported on the Medicare Hospital Compare Website. Some of these questions are specific to physician practice and can be used in a hospitalist bonus plan; other questions pertain to the patient’s overall perception of the hospital which measures the physician’s performance as a member of a larger team of providers in the hospital.

Billing Benchmarks

You can’t do away with RVUs completely, otherwise, the hospitalist would either not bother to submit their charges for patient encounters or they would bill everyone as a level 1 visit, thus reducing the necessity of all of the painful documentation required to bill higher levels of service. So, there has to be some why to hold the hospitalist accountable for turning in their bills and to insure that they are actually billing for the level of service that they are providing. Most electronic billing programs will allow you to see what the distribution of level 1, 2, and 3 CPT codes for any given physician. This distribution can be compared to internal benchmarks of all of the other hospitalist or to external benchmarks, such as the Vizient benchmark data for academic medical centers.

The Bottom Line

Ultimately, the strategy is to align the hospitalist’s reward system with the financial margin of the hospital. To do this, you need to think beyond hospitalist census caps and RVUs.

March 7, 2017

Categories
Hospital Finances Inpatient Practice

You Can’t Pay Hospitalists By The RVU

Every year about this time, hospitalists begin their contract negotiation with hospitals for the upcoming fiscal year. I’ve been on both sides of the negotiation table over the past 20 years. As with any negotiation, to be really successful, one party needs to not only know what the other party really wants but they need to know what it is they, themselves, really want. All too often, because we know neither what the other side wants nor what it is that we really want, we fall back on negotiating about money. The problem is that money is often not the most important thing that either side values.

What the hospital really wants:

  1. A positive financial margin at the end of the year. This is what the Board of Trustees really cares about and you can improve the margin in two ways: increase your revenue or decrease your expenses. But sometimes spending a little more on one expense item/department can greatly reduce the expense of another item/department. This becomes very difficult because large hospitals are often administratively compartmentalized and each compartment is held individually accountable for its financial bottom line and often for the hospital to make money overall, one compartment has to lose money. If the hospitalist is trying to see as many patients as possible and pump out as much in billings, then this may or may not be in alignment with the hospital margin. By paying a little more for the hospitalist, the hospital can often save more money if the extra amount of time that the hospitalist can now spend on the patient translates into a shorter stay and less expensive testing.
  2. Higher patient satisfaction. This is one of the publicly reported measures that hospitals are judged and compared to each other on the Medicare Hospital Compare website. If the hospitalist is primarily motivated by patient volume, what the patient thinks about the hospitalist (or the hospital) becomes relatively unimportant. RVUs are a quantity contest, not a popularity contest.
  3. Shorter length of stay. A shorter length of stay results in a more positive financial margin. If you can get a patient out of the hospital one day earlier, then that patient doesn’t consume expensive hospital resources (medications, lab tests, nursing time, meals, etc.) and, more importantly, you can get another paying patient in that room quicker. If the hospitalist’s goal is to maximize RVUs, then it can be paradoxically better for that hospitalist to keep the patient in the hospital one more day because that extra day in the hospital will involve relatively little time on the hospitalist’s part thus resulting in earning low-effort RVUs.
  4. Lower readmission rates. The hospital is penalized if 30-day readmission rates are excessively high. The hospitalist is rewarded if the 30-day readmission rate is high: it not only means more RVUs, but you can copy most of your previous history and physical exam making the admission quick with more low-effort RVUs. One of the key drivers in whether a patient gets readmitted shortly after discharge is the amount of time and effort spent in the discharge process. If the hospitalist has the time it takes to personally speak with the patient’s primary care physician, do a careful medication reconciliation, and ensure that all post-hospital tests and appointments are scheduled, that patient is less likely to be readmitted. The problem is that the hospitalist is going to get paid the same amount in RVUs whether or not they go to all of that extra effort to ensure a good discharge.
  5. Patients being discharged from the hospital earlier in the day. From the hospital’s perspective, an earlier discharge hour means that another patient can fill that bed earlier from either the ER or the OR and so patients don’t have to wait as long in the post-op recovery room or in the ER to get a bed. From the hospitalist’s standpoint, getting those patients out earlier in the day means that he/she will have to work a lot more intensely early in the morning and if paid by the RVU, you end up with the same amount of money in your pocket whether you discharge that patient at 10:00 AM or 4:00 PM and it is a lot easier to take your time and get the patient out at 4:00.
  6. Higher case mix index. The higher the case mix index (a measure of the severity of disease of the patient), the more the hospital gets paid. The case mix index also affects the publicly reported mortality index  (mortality rate adjusted for case mix index). So, the hospital wants a higher case mix index and the only way to do this for non-surgical admissions is for the physician to document all of the little co-mobidities that the patient had on admission (such as hypomagnesemia, malnutrition, etc.). When paid by the RVU, the hospitalist is not motivated to go to the extra effort to document all of these co-morbidities because he/she is going to be paid the same and ferreting out all of these (often obscure and unimportant) findings takes extra time and effort.
  7. Patients moved out the ER to the floor rapidly. The hospital has to report the amount of time the patient spends in the ER waiting for a bed and needs to keep that number as low as possible to avoid public embarrassment. Furthermore, the quicker the hospital can get that patient out of the ER, the sooner another patient can be placed into that ER room. To do this, the hospitalist needs to see the patient and write orders on the patient so that the patient can move from the ER to the nursing unit. The hospitalist who is paid by the RVU could not care less how quickly the patient gets out of the ED since they get paid the same, regardless.
  8. Avoidance of unnecessary expensive tests and treatments. For the hospital, fewer tests on inpatients equates to a higher financial margin. The hospitalist paid by the RVU could not care less.
  9. Lower mortality index. Neither the hospital nor the hospitalist wants to have one of their patients die. But patients are going to die, regardless. Most of the patients who die in our hospital are “DNR-CC” or “DNR-CCA”, meaning that they are anticipated to die and have elected to not be resuscitated when their heart and lungs stop working. There are two ways to lower your mortality index: (1) increase your case mix index by documenting all of the obscure co-morbidities or (2) get the patient to die somewhere other than in your hospital, most commonly at an inpatient hospice facility. For most of these patients, dying at home is neither practical nor desired by the family. If a DNR patient dies in your hospital, it is included in the hospital’s mortality rate but if that same patient dies at a separate inpatient hospice, the death doesn’t count against the hospital’s mortality rate. Once again, the mortality index is publicly reported on the Medicare Hospital Compare website. For the hospitalist paid by the RVU, arranging the transfer of a dying patient to a hospice facility takes a lot of work and it is easier to just care for that patient in the hospital until they die; plus, the hospitalist can bill for a few more days of inpatient care.
  10. Avoidance of complications. Healthcare associated infections and surgical complications are publicly reported on the Medicare Hospital Compare website so the hospital wants to keep the numbers down. Even more importantly, hospital complications are costly and can lower the hospital’s financial margin. For the hospitalist, the RVU pays the same, with or without complications. In fact, if a patient has a complication, the hospitalist can bill a higher level of service thus generating more RVUs.
  11. A sufficient number of doctors to provide care to the patients at any given time. The hospital wants to optimize patient throughput whereas the hospitalist paid by the RVU wants to optimize patient volume. There comes a point, however, where too high of patient volume results in reduced patient throughput. For more explanation, see the post on The Starling Curve of Physician Productivity.

What the hospitalist really wants:

  1. To feel that they are valued as professionals. The hospitalist invested 11 years of post-high school education to become a hospitalist and they want to be recognized for that effort. What the hospital often thinks it needs is a warm body with the initials M.D. or D.O. One advantage that our hospital has in the local market is that all of our hospitalists get an OSU faculty appointment, even if it is an unpaid appointment. Being able to say that you are an Assistant Professor at the Ohio State University is enormously valued.
  2. Adequate work-life balance. Physicians of the baby boomer generation went into medicine with the expectation that they were going to work very long hours and have very few days off. Most hospitalists are in the millennial generation and trained in an era of ACGME-legislated duty hour limits and emphasis on life outside of work. Baby boomer doctors have no problem carrying their pagers 24-hours a day and being called on their days off work. Millennial doctors want to turn their pagers off when they leave the hospital and not turn them on again until their next shift.
  3. To have sufficient time during the day to do their job well. Physicians are professionals and they want to take pride in a job done thorough and a job done well. To do that, they have to have enough time that they don’t have to cut corners in patient care. Insufficient time to do one’s job leads to burn-out.
  4. A reasonable salary. Notice that I didn’t say the highest salary. Most hospitalists are not choosing a job because it pays the best but because it is the best place for them to work. In fact, if a hospitalist is choosing a job purely based on salary, you probably don’t want that hospitalist in your hospital. A hospital with a terrible “churn and burn” environment with excessive hospitalist work loads and high turnover will have to pay more to attract a hospitalist than a hospital where the hospitalists feel valued and treated as professionals.
  5. To heal patients’ disease and suffering. Lets face it, college students who decide to go to medical school are intelligent… really intelligent. And to get into medical school, they’ve got to be hard working… really hard working. They are going to spend 4 years racking up $180,000 in medical school debt then get paid a little more than minimum wage as a resident for 3 years. With their intelligence and work ethic, they could have gone into engineering or IT and made more money over the course of a lifetime than a doctor. The reason that they went into medicine in the first place was a desire to heal and help.
  6. A collegial work environment. Most hospitalists want to work in a team of like-minded physicians and they want to work with people who they know will back them up if they have a family emergency or they get sick. They want to know that when they have 3 patients crashing at the same time, that one of their partners is going to come over to help out without being asked. They also want to work with consultants who are going to partner with them in the care of their patients.

There isn’t a lot of overlap between these two lists. So, what we usually do is fall back on things that we can understand and easily quantitate, like the number of patients a hospitalists sees per day, the number of shifts per year, salary, and RVUs (Relative Value Units) billed. But by doing this, neither side really gets what they want and both sides end up being less satisfied than they could be. What is the solution? I have some ideas and I’ll outline them in the next post.

March 4, 2017

 

Categories
Hospital Finances

Take The Money Or Take The Quality Metric?

Yesterday, I was faced with a philosophical dilemma: is it better for the hospital to get paid more for a hospital admission or to have a better score on publicly reported quality outcomes?

Heroin overdose is an epidemic in Ohio (see the post: Found Down With A Needle In The Arm). At issue was a patient transferred to our hospital two days ago from a smaller hospital in Southern Ohio after an out-of-hospital cardiopulmonary arrest following a heroin overdose. He was found apneic and pulseless. The EMS personnel did CPR and managed to get his heart started but by then, he had sustained severe anoxic brain injury. He was intubated and on a mechanical ventilator. He had shock liver and acute kidney failure. On admission to our hospital, he was suspected of being brain dead but the hospitalist needed to wait until the following day for a physician credentialed in brain death determination to assess the patient.

So, the issue was, do we admit him to the ICU as a regular hospital admission or do we put him in observation status? In a previous post, Moon Over Medicare Or Mooned By Medicare?, I laid out the differences in regular admission status versus observation status. The bottom line is that the hospital gets paid a lot more if a patient is in regular admission status than if they are in observation status; a patient in observation status is considered to be an outpatient rather than an inpatient and is anticipated to be in the hospital for < 2 midnights. For a patient being admitted to the ICU after a cardiac arrest who is in acute respiratory failure, acute liver failure, and acute renal failure, normally, this would be a slam-dunk regular hospital admission. The DRG associated with this admission would pay the hospital pretty well. But, you can also make the argument that since the patient was suspected of being brain dead, he could also be in observation status since life support would be discontinued the following day if he is truly determined to be brain dead.

On the other hand, if he is in regular admission status, he counts against our hospital’s publicly reported inpatient mortality rate but if he is an outpatient in observation status, his death would not count against our inpatient mortality rate.

Last year, our hospital finished with an inpatient mortality index of 0.54. This was the second to the lowest mortality rate of all academic hospitals in the United States and we are incredibly proud of it. This year, however, we have seen our mortality index creep up and for the month of December, it was greater than 1.0. In drilling down into our hospital deaths this year, the only thing different is that we have been taking more hospital transfers this year, that is, patients admitted to another hospital and then transferred to our hospital for a higher level of care. In fact, hospital transfers account for 3% of all of our hospital admissions but account for 24% of all of our hospital deaths.

We like hospital transfers because these patients have diagnoses that put them into higher-paying DRG classifications and they tend to have a lot of co-morbidities that amplify the DRG and get the hospital paid even more. But these transfers come with a cost of a higher likelihood of dying in the hospital.

Yesterday, I had to make the decision: should we put the patient in regular admission status and get paid more but take a hit on our mortality rate? Or should we put him in observation status and get paid considerably less but not have his death count against our inpatient mortality rate? I spoke with a number of people in our hospital. Some recommended taking the money and the mortality hit. Others recommended avoiding the mortality and take the financial hit.

So last night I made my decision before we pronounced him brain dead.

What would you have done?

February 16, 2017

Categories
Hospital Finances Operating Room

Thou Shalt Not Covet Thy Neighbor’s Surgeon

penguin-rockIf you are addicted to the National Geographic Channel, like I am, then you’ve probably seen videos of Adelie penguins. The males build nests out of stones in frozen Antartica in order to attract female penguins. Instead of going out and collecting their own stones, some criminal male penguins will steal stones from one his neighbor’s nests when his neighbor is out stone-hunting. Hospitals do the same thing – except instead of stones, they steal surgeons.

Surgical admissions to the hospitals are more lucrative than medical admissions. Surgical admissions account for 29% of all hospital admissions but account for 48% of hospital costs. If you are paying out of pocket, the hospital expense of a heart valve surgery is about $117,000 and a hip replacement is $39,000. For most hospitals, surgeries are their lifeblood. And inpatient surgeries are far more valuable than outpatient surgeries. Consequently, hospitals are constantly on the prowl for surgeons, especially those surgeons who do big-ticket surgeries that bring patients into the hospital and who can do a large volume of surgeries with low complication rates.

There are two ways that you can get acquire a high-volume, low-complication surgeon. You can hire him or her straight out of residency and then develop him/her by careful mentoring. Or, you can recruit them from another hospital. Recruiting from an out-of-state hospital is usually seen as fair game. A hospital in Columbus, Ohio doesn’t really compete with a hospital in Tampa, Florida when it comes to doing hip replacement surgeries so leaving a hospital in Columbus for a hospital in Tampa is not seen as taking surgical market share to Tampa.

moses-10-commandmentsBut recruiting a surgeon from one hospital to a different hospital in the same city is typically seen as playing dirty. First, that surgeon likely has a large referral base of primary care physicians and those physicians will continue to refer their patients to the surgeon regardless of which hospital he/she is operating at. Second, the first hospital has invested several years developing that surgeon to get him or her to a point of efficiency and notoriety.

A great surgeon wasn’t a great surgeon the day he/she finished residency. It takes time after training to become really great. In his book Outliers: The Story of Success, Malcolm Gladwell proposed that to be really great at something, you need to spend 10,000 hours in meaningful practice of it. For example, Bill Gates spent about 10,000 hours programming before he came up with the foundations of Microsoft’s operating system. The Beatles practiced and played concerts together in Germany for 10,000 hours between 1960-1964 before they made music history. A surgeon can’t get 10,000 hours of operating room time during a 5-7 year residency. Most of their operating time during training is spent as an assistant rather than being the primary surgeon and even so, they’d have to spend 40 hours a week operating for 5 years to get to 10,000 operating hours. So it takes some time after residency to make a good surgeon a great surgeon – I think it is typically about 7 years. Those 7 years are kind of like the time the Beatles spent in Germany before they became famous.

Not only does it take time for a surgeon to hit peak surgical skill, but it also takes time for that surgeon to cultivate a referral base and to become efficient. That part typically takes about 5 years. Therefore, the hospital has to subsidize the surgeon for about 5 years during the surgeon’s start-up period. So, a typical start up funding package from the hospital for a newly trained surgeon might be $250,000 for year 1, $150,000 for year 2, $125,000 for year 3, $100,000 for year 4, and $50,000 for year 5. That’s a total of $675,000 that the hospital invested in that surgeon to get them to a level of self-sustaining practice.

Now, if you are a competing hospital in the same city, you can either spend $675,000 cultivating your own surgeon right out of residency or you can spend $675,000 recruiting another hospital’s surgeon who is at the end of their 5-year start up. And if you really want to come out ahead financially, you can give that surgeon an extra $150,000 per year for 4 years (total $600,000) and save yourself $75,000 that you would have spent cultivating a newly trained surgeon.

pattonWhen leaving Africa in 1943, General George S. Patton famously said “No dumb bastard ever won a war by going out and dying for his country. He won it by making some other dumb bastard die for his country.” Similarly, a hospital wins the surgery volume war not by paying to develop its own surgeons but by making some other hospital pay to develop the surgeon… and then stealing them.

Not all types of surgeons are equal in this regard. For example, a surgeon who is really good at something unique and cutting edge that brings in lots of new lucrative elective surgeries to the hospital, like robotic prostatectomy, makes for great stealing. On the other hand, a general surgeon in a city with 50 general surgeons may not be worth spending as much to steal.

Additionally, optimal efficiency is not just a function of the surgeon but it is the entire operating room team, including the physician assistant, nurses, and operating room technician. It is much harder to steal an entire team from a hospital so there is inevitably some lost efficiency from a newly stolen surgeon.

Hospitals create barriers to other hospitals absconding with their surgeons by implementing “non-compete” clauses in the surgeon’s contract. A typical non-compete clause will say that the surgeon cannot work at a hospital within 10 miles for a year after resigning. There are ways around the non-compete clauses, however. They can be contested in court and the surgeon may or may not win. Or the hospital stealing the surgeon can locate the surgeon in a branch hospital or surgical center just outside of the non-compete radius. This happened to us a couple of years ago when 2 plastic surgeons a few years out of residency were recruited by a competing hospital system in Columbus that then located them at one of their branch hospitals that is 10.5 miles away from the OSU Medical Center, a half mile beyond the non-compete radius.

So in deciding whether to grow your own surgeon or steal someone else’s, it all comes down to financial strategy. Either approach can be cost effective and it is ultimately finances and not morality that guides behavior.

December 6, 2016

Categories
Hospital Finances Medical Economics

How Many Researchers Can You Really Afford?

Academic medical centers’ reputations are rarely built on the quality of clinical care or the quality of education. Reputations are built on the volume of research grants and publications. The academic medical center becomes famous by doing research about clinical care and publishing about education. Similarly, to be promoted as a faculty member at most colleges of medicine in the U.S., it is not enough to be a great clinician or great teacher, you have to do research and publish about medicine and teaching. In theory, devoting a lot of time to research and publication about clinical care and education will also make the institution a better place to provide clinical care and medical education. But in reality, the best researchers and journal article writers are not necessarily the best clinicians or teachers.

To be successful obtaining and implementing research grants, physicians have to have “protected time”. This is time that they are not assigned clinical duties and can devote to scientific investigation and writing in order to be competitive for research grants. The most prestigious grants for physicians are those from the National Institutes of Health and these grants provide money to conduct research projects and also provide money to pay for the physician’s “protected time”.

But we have a problem in American research. Grants from the National Institutes of Health don’t really cover the physician’s protected time. It all comes down to something called the NIH salary cap. This is the maximum salary that can be paid from an NIH grant. Currently, the salary cap is $185,100. To any normal human being, this seems like a lot of money, a whole lot of money. The problem is, that physicians doing clinical practice usually make more than this. In fact, according to the MGMA salary survey, the average salary for most specialties is higher than $185,100. This means that to be a researcher, you either have to accept a lower salary than a clinician in the same specialty or someone else needs to subsidize your salary.

Lets take an example of a group of physicians who have 50% protected time, meaning that they see patients half of the work week and do research funded by the NIH for the other half of the work week. In the table below, the salary is taken from the MGMA survey. The the cost of 50% protected time is listed as 50% salary. The NIH salary cap is for a 100% full-time researcher is $185,100, so half of that (to cover the 50% protected time) is listed as 50% NIH cap. For most specialties, the NIH salary cap will not fully cover the salary that the physician would receive if her or she was a full-time clinician; this difference is listed in the last column.

nih-salary-analysis

From this analysis, you can see that a hospital can afford to have 4 specialties do research without having to subsidize them: infectious disease, general internal medicine, nephrology, and general pediatrics. For any other specialty, the hospital has to come up with additional funds to make up the difference between the NIH salary cap and what that physician could make doing pure clinical practice. Neurosurgeons are the most financially challenging since they have the highest salaries: you can fund 19 endocrinologists to do research for the price of funding one neurosurgeon.

In reality, most researchers accept a lower income than full-time clinicians. Researchers don’t have to round on weekends, don’t get called in at night for emergencies, and don’t have malpractice suits filed against them. But there are limits and even the most scientifically curious physicians will find the allure of an extra $50,000 or $100,000 too much to keep them in research.

As a consequence of this, an academic medical center that wants to get the greatest return on research investment will seek a lot of researchers from endocrinology, physical medicine, infectious disease, and nephrology. Researchers who are neurosurgeons, orthopedic surgeons, and cardiologists are too expensive to have more than a small number of researchers.

One of my colleagues who is a cardiologist on his division’s finance committee once told me that that the worst news he can get is a mass congratulatory email from the division director telling all of the cardiologists that one of their peers just got an NIH grant. The unwritten implication of that grant was that the rest of the cardiologists were going to have to pony up to help subsidize the portion of the grant awardee’s salary not covered by the NIH salary cap. Now days, the clinical physicians usually can’t afford to pay this difference because it means that they have to take a pay cut in order to support their research colleagues. Therefore it comes down to the hospital to provide the salary difference subsidy.

So as a hospital medical director, how should we view this? We only have a limited amount of money to invest in researchers so we have to be prudent in how we spend it and who we spend it on. It is like investing. For high salary specialties, the hospital can only afford a small number of researchers and they have to have a high probability of research success – think of this as buying 1 expensive stock share in Apple. For lower salary specialities, the hospital can afford a larger number of researchers and can afford to take a chance on researchers with a less certain probability of research success – think of this as buying 1 inexpensive stock share in each of 10 start-up companies.

The holy grail of research funding is the endowed chair where the academic medical center can use money from donors to off-set the NIH salary cap difference. This is pretty easy at a well-endowed college of medicine like, for example, Harvard. But it is not so practical at a state-supported college of medicine (like Ohio State) with relatively meager endowment funds. For institutions with less endowments, you have to decide what the right ratio of clinicians:researchers is. That ratio will vary depending on the specialty and the percent protected (research) time that the researchers have. The goal is to have the right balance so that you have enough research to make the institution famous but not so much research that institution goes into debt.

December 3, 2016

Categories
Hospital Finances

A Cheap Tool Is An Expensive Tool

toolIt is one of those sayings that everyone’s father or grandfather told them at some time and it basically means that you get what you pay for. An inexpensive tool that has to be replaced because it wasn’t well made costs you more in the long run than the well-made expensive tool. Same goes with hospital purchases.

In hospitals, we buy expensive stuff. An MRI machine is going to run you $1 million. If you want to buy a da Vinci surgical robot, you’re going to need $2 million. A pair of endoscopes to do ERCP is about $50,000. When you are buying equipment that is this expensive, there is a good chance that your hospital is going to put out an RFP (“request for proposals”) and then use those proposals to work the price down as low as possible by creating a bidding war between different manufacturers.

Before I go on with this post, I have to make a confession. I used to hate to buy cars. No matter how much I paid for one, I was always sure that at some level, I was getting ripped off. Now, however, it’s not so bad. You can check on Edmunds or Consumer Reports and get a good idea of what a fair price is. And you can get an on-line price so you don’t have to spend horribly unpleasant time in a dealer showroom while the salesman “…checks with the manager about your counter offer price”. But buying equipment for the hospital still has that car dealer feel to it. You can’t go to consumer reports to get ratings and average prices on ultrasound equipment.

So, it takes a little bit of work to decide if the equipment that you are buying is really a good deal or not. First, talk to the physicians who will be using the equipment. Second, meet with the manufacturer representatives (but only after you have done enough homework and reading to know what questions to ask them). Third, check on-line and with other hospitals that have recently made similar purchases. Fourth, work with your purchasing department in case the purchase can be bundled as a part of a larger equipment purchase or an exclusivity contract. Fifth, don’t be in a hurry – if you are buying a car, it is best to wait until the end of the month or during the winter to get your best price, similarly, waiting will get you a better price if the sales rep or the company needs to move medial equipment inventory before the end of their fiscal reporting period. You are usually not going to just pay the sticker price for medical equipment.

Once you have a price, you’ll need to determine if there is an adequate return on investment or whether you’re going to lose money on it. To do this, you’ll need to draft a “pro forma” which is a document that projects the future net revenue that a new capital purchase will bring. Here is where you have to be particularly careful because a pro forma can be manipulated to show almost anything you want. Here are some of the steps you’ll need to take:

  1. Accurately project how often you’re going to use it. Your physicians are going to over-estimate how much they’ll use a piece of equipment – it’s just human nature. If you have children, when they reach age 11, they’re going to come home and tell you that “…every single one of their classmates is allowed to see PG-13 movies”. It may seem like it to them but the reality was that 2 of their classmates snuck into a PG-13 movie when they told their parents that they were going to see the Finding Dory at the multiplex cinema. If you aren’t sure how often equipment will really get used, call some of your counterparts at other hospitals to get an idea of actual equipment use frequency.
  2. Determine depreciation. If you depreciate a piece of equipment too quickly, then the cost of that piece of equipment will appear to be too high. For example, let’s say you need a new bronchoscope that costs $18,000 and you expect to use it 100 times a year. If you depreciate it over 3 years, that will be an equipment cost of $60/bronchoscopy. If you depreciate it over 6 years, then the equipment cost drops to$30/bronchoscopy. Accurately projecting the life expectancy and frequency of use of a piece of equipment is critical to calculating your return on investment.
  3. Project revenue. To do this, you’ll need to know how much the hospital is going to get paid for using the equipment. This is pretty easy to do for outpatient procedures since you can determine how much Medicare, Medicaid, and commercial insurance companies are going to reimburse for a particular CPT code. Just be sure you are not mixing “charges” with “receipts” since your charges are always going to be a lot higher and do not reflect what you will actually get paid for the procedure. For inpatients, this can be difficult because the hospital is going to be paid by the DRG and not by the individual procedures done during the hospitalization.
  4. Make sure you account for all of your expenses. We are starting an endoscopic ultrasound program at our hospital. In this case, it wasn’t just the expense of the equipment but also the disposable needles, the depreciation on the machine that cleans the equipment, the time for a cytopathology technician to do real-time microscope slide preparation, and the depreciation cost of a tele-pathology microscope so that a cytopathologist at a remote location can do real-time preliminary interpretation of those slides. The best way to be sure that you captured all of the expenses is to map out the procedure and include the time cost of every person involved in the procedure, preparation, disposables, cleaning, etc.

Buying a piece of medical equipment is a lot more complicated than buying a car. Getting your hospital purchasing department involved early can help keep you from buying a cheap tool that ends up becoming an expensive tool.

September 13, 2016

Categories
Hospital Finances Inpatient Practice

How Many Patients Should A Hospitalist See A Day?

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

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

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

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

August 13, 2016

Categories
Hospital Finances Medical Education

Financing American Colleges Of Medicine

IMG_0715Recently, the Association of American Medical Colleges (AAMC) released a report on how American colleges of medicine are funded and how this funding has changed over the past several decades.

As a hospital medical director, this has enormous implications for hospitals associated with medical schools and the report is pretty sobering. Let’s take a look at 2 years: 1980 (the year I started medical school) and 2015, thirty-five years later.

In 1980, the biggest source of income for colleges of medicine was state governments which accounted for 29% of the total funding. Support from federal research was next at 22%. Income from clinical practice (both from physicians and hospitals) was also 22%. Tuition accounted for 6%.1980 COM funding

Jump ahead to 2015 and there has been a huge shift in where the money comes from. Now state governments dropped to 6% of medical school funding. Federal research dropped to 14% of medical school funding. But clinical practice income now accounts for 60% of medical school funding. Of that 60%, 18% comes from hospital revenue and the other 42% comes from physician revenue. Tuition accounts for 4%.2015 COM funding

It is not that the state governments are paying less. Indeed, in 1980, the states contributed $1,639,000 to medical colleges whereas in 2015, the states’ contributions rose to $6,990,000. The problem is that the total cost of colleges of medicine has exploded, rising from $5,645,000 in 1980 to $112,978,000 in 2015. In order to support this exponential increase in costs, medical schools have had to depend more and more on clinical practice income, from both physicians and hospitals.

On the surface, this might seem that the colleges of medicine are like giant parasites feeding off of the toil of physicians and hospitals but the reality is more complex. In 1980, most academic physicians were in private practices, with a rather small portion of their income coming from colleges of medicine; the physician practice income went to the physicians and not to the colleges. By 2015, most academic physicians were no longer in private practice but rather were employed by either the teaching hospitals or by the college of medicine (and sometimes the hospital and the college are essentially the same thing). Therefore, with the changes in physician employment, the total cost of a college of medicine has had to go up since the college now has to pay physician salaries but the amount that the colleges receive from clinical practice income has also gone up since the college-employed physicians clinical practice income is now credited to the college instead of a private medical practice.

So what is the implication of all of this to the hospital medical director? First, if you are a medical director of an academic teaching hospital, you will have an increasing percentage of your physicians employed by the colleges and universities rather than being in separate private clinical practices. Second, with 15% of college of medicine revenues coming from the academic teaching hospitals, these teaching hospitals will have additional expenses not borne by non-teaching hospitals. Although academic teaching hospitals do have additional federal income that non-teaching hospitals do not have in the form of federal direct graduate medical education and indirect graduate medical education funding, these funding sources alone will not sustainably cover the hospitals’ contribution to colleges of medicine in the future.

So what can we do as hospital medical directors? We are and for the foreseeable future will be inextricably intertwined in a symbiotic relationship with our colleges of medicine and academic physicians. We will need to recognize that our hospitals will be obligated to help support activities that are not historically part of the hospital mission, such as pre-clinical medical education and medical research. We also need to be stewards of the hospital’s resources since the hospital administrative leaders will rely on our expertise to advise them on where money should appropriately be allocated. And as part of being stewards of those hospital resources, we will need to hold the colleges and the physicians accountable to ensure that hospital funding is being used wisely and for the purposes that it was intended.

I still firmly believe that being an academic physician is one of the highest career callings in healthcare. And being a medical director of an academic teaching hospital is for me the culmination of that career. As medical directors, we face the controversies, conflicts, and challenges posed by the dynamic relationships between the hospitals and the colleges but in the end, there is no better job on the planet.

July 27, 2016