Inpatient Practice Medical Economics

Inpatient Palliative Medicine Services: Making The Right Economic Projections

The demand for inpatient palliative medicine services is very high and the supply of palliative medicine physicians is rather low. When considering bringing palliative medicine services to your hospital, the real value of palliative medicine is in what does not appear on the basic accounting pro forma. A robust palliative medicine service is a multidisciplinary team composed of a variable group of individuals that may include: physicians, nurse practitioners (or physician assistants), social workers, pharmacists, psychologists, and clergy. Palliative medicine is expensive and virtually all palliative medicine services will require some subsidy by the hospital since it is exceedingly difficult to pay for palliative medicine from professional billing alone. Here are some of the factors to consider when contemplating bringing palliative medicine to your hospital.

Estimate the clinical volume.

A commonly quoted figure is that 5% of the hospital census will use palliative medicine services (excluding maternity and psychiatry patients) and some literature supports up to 20% of inpatients will utilized palliative medicine. However, there is danger is just using a flat percentage of the hospital census. For example, patients in observation status rarely require palliative medicine. These are patients who are technically outpatients but who spend 1-2 days in the hospital, often for evaluation of symptoms such as chest pain, syncope, or vomiting.  Although many times these patients may have underlying diagnoses that warrant care by a palliative medicine specialist, this care is often better provided in an outpatient office setting due to their short stay in the hospital. Therefore, a hospital that has a high percentage of observation status patients will have less overall utilization of inpatient palliative medicine services.

One way of estimating the demand for palliative medicine consultation is to survey your inpatient services. The best way to do this is to take a “snapshot” of the demand on any particular day. To do this, pick a typical day and contact each hospitalist and admitting physician on that day to ask: “Hypothetically, if there was palliative medicine consultation today, how many of your patients would warrant palliative medicine services?”. Then check to see what each of these physicians’ hospital census is at that moment. In a typical community hospital, most of the patients who would warrant palliative medicine services will be medical (as opposed to surgical) patients. In a tertiary care hospital that has a lot of subspecialty surgical services (such as burn, trauma, surgical oncology, or thoracic surgery), this may be different. Next, take the total number of patients who would warrant palliative medicine services on that particular survey day and divide by the average length of stay – most hospitals will track medical and surgical patient length of stay separately so if all/most of the patients who are identified as potentially benefiting by palliative medicine are medical patients, then use the medical patient length of stay. This will give you the average number of new palliative medicine consults per day that you can expect. If you anticipate that you will only have routine palliative medicine consultation on weekdays, then multiple your number by 1.4 to estimate the number of new consults per day given a 5 weekday work week.

Estimating the number of inpatient return visits (after an initial palliative medicine consult) is tricky. On the surface, you could use your average hospital length of stay and assume that the palliative medicine consult is done on day one and then the palliative medicine service sees that patient every day for the rest of the hospital stay – so if your average length of stay is 4 days, then the number of return visits would be 4 -1 or 3. There are a couple of problems with this analysis, however. (1) Palliative medicine consultation may not be done on day #1 either because the need for palliative medicine services is not clear on the first hospital day or because the first hospital day falls on a weekend when palliative medicine services may not be available. Also, if a patient is admitted at 6:00 PM, then the initial palliative consult will not be done until the following day (second hospital day). (2) The palliative medicine service may not need to see the patient every day of the patient’s hospital stay (for example, when waiting for a critical test result, waiting for family members from out of town to arrive for end-of-life discussions, or weekends when palliative services may not be as regularly available). (3) The hospital average length of stay can be misleading since patients requiring palliative medicine services tend to have a higher length of stay than the average hospital patient. If you are unsure, then estimate 4 return visits for every 1 new consult.

The disease mix of the hospital will also impact the utilization of palliative medicine services. The big three are cancer, congestive heart failure, and COPD. So, even if there is a big cancer hospital in your community where most of the cancer patients go, you will still have a lot of need for palliative care if you have a high percentage of COPD and heart failure admissions.

Estimate The Professional Revenue

Ever since Medicare eliminated consultation codes a few years ago, all consultants now have to bill an inpatient new visit (CPT 99221, 99222, or 99223) rather than a consult code. Most initial palliative medicine visits will be 99223, for which Medicare pays $200 (99222 pays $136). CPT 99223 consists of 5.73 total RVUs (3.86 work RVUs, 1.58 expense RVUs, and 0.29 malpractice RVUs).  Therefore, the amount of money to go toward a physician’s salary from a new patient level 3 visit is about $135 (3.86 wRVUs x $35/RVU Medicare conversion rate). Lets say you do your survey of the need for palliative medicine services and you determine that working Monday through Friday, there would be an average of 3.8 palliative medicine consults per weekday and lets further assume that the palliative medicine physician works 46 weeks a year (assumes 3 weeks of vacation, a week of CME, and 2 weeks of holidays per year). That means that the palliative medicine physician will generate $118,000 toward salary + benefits from initial consults alone.

Next assume that there are 4 follow-up visits for every initial consult and assume an even mix of level 2 (99232) and level 3 (99233) return hospital visits. Using the same analysis as above, a level 2 return visit will generate 1.39 wRVUs ($49) and a level 3 return visit will generate 2.00 wRVUs ($70). Therefore, the palliative medicine physician would be expected to generate $55,000 per year toward salary + benefits from return visits.

By combining the projected new patient consults plus return visits, in this example, you come up with the palliative medicine physician being able to generate $173,000 toward salary plus benefits. Assuming a 25% benefit rate, that works out to generating $138,000 toward salary. Further assuming a $230,000 salary for a palliative medicine physician, this works out to the physician being about to generate about 60% or his/her salary by professional billing.

Should Palliative Medicine Physicians Bill Time-Based CPT Codes?

But what about time-based billing? Frequently, palliative medicine physicians spend an enormous amount of time for each visit, particularly when discussing end-of-life care or withdrawal of life support in the ICU. In these situations, it can be advantageous to bill “prolonged service” CPT codes in order to get paid for time rather than purely being paid a conventional level of inpatient service. The prolonged service CPT code 99356 (first 30 minutes to 60 minutes of prolonged services) generated 1.71 wRVUs ($60) and the prolonged service CPT code 99357 (each additional 15-30 minutes of prolonged services) also generates 1.71 wRVUs ($60). To bill prolonged services, the physician must first meet the time threshold for a regular new patient or return patient visit CPT code and then a minimum of an additional 30 minutes (99356) or 75 minutes (99356 + 99357). From the table, you can see the total thresholds that Medicare uses for prolonged service billing and that physician’s actual time has to be documented in the physician’s progress note in the patient’s chart. Using the prolonged service charges helps recoup the cost of the palliative medicine physician’s time when he/she needs to spend a lot of time counseling the patient and their family. But you really can’t make a living billing by time. If you calculate out the physician reimbursement on an hourly basis, then if a physician bills prolonged services, it works out to between $70 and $118 per hour from wRVUs. If you assume that the average palliative medicine physician spends 40 hours a week in patient care (leaving an additional 12 hours of a 52-hour work week doing non-reimbursable activities), works 46 weeks a year, makes $230,000 per year, and has an additional 25% benefit cost, then billing purely based on time, the palliative medicine physician can generate only about $139,000 per year toward his/her take home salary or about 60% of their income.

Either way you look at the professional billing in this model, the physician can generate about 60% of his/her income through billings (based on Medicare reimbursement levels). This means that a hospital is going to have to come up with about $115,000 subsidy per palliative medicine physician in order for the physician to have a competitive salary. In an academic medical center, it may take more than $115,000 per year after factoring in the addition costs of Dean’s tax, unfunded teaching/research, fellow’s salaries, etc.

Don’t Forget About The Intangible Benefits

After reading this analysis so far, you might wonder why any hospital would want to have palliative medicine? The physicians can’t cover their salary, they don’t bring any new admissions to your hospital, and they don’t bring in high value surgical cases. It may seem like all that they bring is additional costs. The real benefit of palliative care lies beneath the standard Profit and Loss Statement. The value of palliative medicine lies in the intangibles.

There is an abundant literature about the indirect cost benefits of palliative care. A meta-analysis of palliative care consultation in the ICU in the Journal of Intensive Care Medicine in 2016 showed that palliative care reduced the ICU length of stay and reduced the ICU costs by $1,100. A recent meta-analysis in the journal Palliative and Supportive Care showed that whereas there was a slight increase in total hospital length of stay by 0.19 days by bringing in a palliative care service, there was a 34% decrease in inpatient mortality. In a study of 2 academic medical centers published in the Journal of Palliative Medicine, the authors found that palliative medicine reduced hospital costs by $2,141 per patient for those patients with lengths of hospital stay < 7 days and by $2,870 per patient for those patients in the hospital for > 7 days. In a study from the Journal of Palliative Medicine from a single large urban academic medicine center, palliative medicine consultation in the hospital resulted in a reduction in 30-day readmission rate from 15.0% to 10.3%.

From these and other studies, we can make the following conclusions:

  1. Palliative medicine probably won’t improve your hospital’s overall length of stay
  2. Palliative medicine will improve the ICU length of stay
  3. Palliative medicine will reduce the inpatient mortality rate (by encouraging discharges to hospice when appropriate)
  4. Palliative medicine will reduce ICU costs
  5. Palliative medicine will reduce overall hospital costs per admission
  6. Palliative medicine will reduce 30-day readmission rates

The quality metrics of 30-day readmissions and inpatient mortality rates have minimal dollar costs to them but as publically-reported measures, these two metrics can have substantial public relations costs to them. On the other hand, because the ICU can often be a patient-flow bottleneck in many hospitals, there is a more direct financial benefit by reducing ICU length of stay in order to create additional ICU capacity.

Does Palliative Care Pay For Itself In Reduced Hospital Costs?

The real savings comes from reducing hospital costs per admission. By reducing ICU length of stay, the expense of the ICU’s higher nurse:patient staffing ratios, more intense use of respiratory therapists, use of mechanical ventilators, etc. can be reduced. Patients receiving palliative care can often have de-escalated care resulting in less frequent blood tests, lower use of antibiotics, discontinuation of chemotherapy medications, and reduced imaging tests. If you assume an average cost savings from the published literature of $2,500 per admission for those patients receiving palliative medicine consultation, then the hospital would need on an annual basis:

  1. 115 patients to cover the total cost of a palliative medicine physician (assuming that physician did no billing at all).
  2. 46 patients to cover the hospital’s subsidization cost per palliative medicine physician (assuming the physician bills for 40 hours a week of patient care).
  3. 50 patients to cover the cost of a nurse practitioner (assuming the NP does no additional billing)
  4. 28 patients to cover the cost of a social worker

Adding all of these together, to have a robust palliative medicine service with a physician, a nurse practitioner, and a social worker, the hospital would need to have 124 palliative medicine consults per year in order to break even.

Not all palliative medicine consults have equal economic benefit. Because of the high cost of the intensive care unit and long length of stay of patients requiring ICU care, palliative medicine consult to the ICU has the greatest financial benefit. Because ICU care can additionally be emotionally taxing for both patients and families, palliative medicine in the ICU can be particularly effective at improving patient comfort and satisfaction. Therefore, if there are only enough resources to provide limited palliative medicine consultation, start in the intensive care unit.

“Charge” Savings ≠ “Cost” Savings

There is a danger in preceding analysis, however. In many journal articles, investigators will report “costs” in the studies but what they really looked at was the patient charges in a hospital’s charge master. It is easy to figure out the patient charges but relatively hard to actually calculate the hospital’s true cost. For example, the hospital may charge $300 for a dose of an antibiotic but the true cost of the antibiotic medication is only $24; however, the charge will have to not just cover the actual purchase price of the drug but also the pharmacist’s time, the price to store the medications, the administrative cost of negotiating the purchase price from the manufacturer, the cost of the infusion pump to push the antibiotic through the patient’s veins, etc. The hospital also has to inflate the charges to make up for all of the uninsured patients or Medicaid patients that the hospital loses money on. Furthermore, the charges posted on the hospital’s charge master are only charged to uninsured patients – insurance companies individually negotiate what they will pay a particular hospital for any given service and the negotiated price is always less than the hospital’s charge listed on the charge master. Furthermore, Medicare will only pay the hospital the Medicare rate for any service, regardless of what the hospital charges for that service.

So, if we take a more conservative approach to interpreting the literature on cost savings by palliative medicine and assume that most of the time, when studies say costs but really mean charges, that the true financial benefit of palliative medicine is less than the benefit in charge reduction. Lets assume that a hospital has a gross collection rate of 40%, meaning that they get paid, on average, 40% of whatever charge is listed on their charge master. Then if the reduction in hospital’s charges is $2,500 per admission then the reduction in actual costs is about $1,000/admission. That changes the previous analysis so that the hospital would need on an annual basis:

  1. 287 patients to cover the total cost of a palliative medicine physician (assuming that physician did no billing at all).
  2. 115 patients to cover the hospital’s subsidization cost per palliative medicine physician (assuming the physician bills for 40 hours a week of patient care).
  3. 125 patients to cover the cost of a nurse practitioner (assuming the NP does no additional billing)
  4. 69 patients to cover the cost of a social worker

That robust palliative medicine service with a physician, nurse practitioner, and social worker would now need 309 palliative medicine consults per year in order to break even. The good news, is that 309 palliative medicine consults per year is a very low number and even a small hospital should be able to generate far more palliative medicine consults per year. For a very rough estimate, if your hospital has 2,500 medical admissions per year (not including observation status), then you will break even on your robust palliative medicine service.

Estimate Donor Potential

If you read the obituaries in your local newspaper, you’ll often find the sentence “In lieu of flowers, the family asks for donations to the Acme Hospice”. This isn’t surprising since the surviving family members see first-hand the enormous good that palliative care does. Furthermore, charitable donations are a little like a game of musical chairs, whoever is sitting in the chair when the music stops playing, wins – in this case, whichever charitable cause is with the patient when they die, wins.

So, when you set up a palliative medicine service, also set up a development fund where grateful families and friends can make tax-deductible donations in honor of those patients who benefitted by your hospital’s palliative medicine services. You can take about 5% out of a development fund per year and still keep that fund running in perpetuity without running out of money so once your palliative medicine fund reaches $2.25 million, you can cover the hospital’s subsidy costs to pay for your palliative medicine physician. Thus, a palliative medicine service is a long-term hospital investment: each year you have palliative care, your development donations add up and eventually your investment pays off.

The Bottom Line

The reason so many hospitals struggle with palliative medicine is that you cannot use the same type of pro forma that you would use for any other medical or surgical service. There is not much of a ramp-up period and it won’t bring you new business. The real benefit is improving the financial margin by cost reduction. Improved margin, better patient care, how can you lose?

December 27, 2017


By James Allen, MD

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