Inpatient Practice Medical Economics

Is A Nurse Practitioner Cost-Effective?

One of the most common requests that I get this time of year is for a doctor or a service to ask for hospital support for a nurse practitioner or physician assistant. In each instance, you have to do an analysis to determine if adding an NP or PA for inpatient management is financially worth it. In Ohio, although PAs and NPs have different training, they have similar scopes of practice and are often used interchangeably. So in this post, when I refer to nurse practitioners, it can also mean physician assistants.

In most situations, you want to ensure that by using an NP, that you are at least breaking even with the cost of the NP by the revenue generated by the NP. In Ohio, NPs can write prescriptions and bill independently. In the hospital, there are two ways that NPs can provide care with regular daily visits. (1) They can do a “shared visit” so that they do part of the encounter and documentation and the physician does part of the encounter and also does part of the documentation – in this case, the reimbursement is 100% of the physician’s reimbursement. (2) They can do an independent visit in which case the physician does not need to see the patient or document anything – these are reimbursed at 85% of the physician’s reimbursement.

NPs can either be hired by the hospital or hired by the physician. The key difference is that if they are hired by the hospital, then they are a hospital employee and as such, none of their documentation can be used for the physician’s note in order to bill a daily hospital visit. Therefore, if a physician wants an NP to help with daily rounds and note writing, then the physician has to hire the NP. Otherwise, it is a Stark violation. This primarily applies to medical admission patients – since surgeons get paid by a global fee for a given surgery, they are not required to have the same degree of individual documentation for billing daily encounters and so documentation by a hospital-employed NP doesn’t affect the physician’s reimbursement for the surgery. For hospital-employed NPs, there are creative ways that the physician can lease a portion of the NP’s time from the hospital but the NP would still need to generate enough income to pay for the portion of time that the physician leases.

In our hospital, there is a bylaw that requires that a patient has to be seen by a physician daily. Therefore, having an NP on an admitting service limits them to doing shared visits – they cannot see patients independently without a physician also seeing that patient. However, on a consult service, the NP can see a patient without the physician also seeing the patients, since the admitting physician is also seeing/documenting a daily visit on that patient. Therefore, an NP on a consult service can either do shared visits or independent visits.

Lets take the situation when the NP is on a consult service and is seeing patients independently. The average NP salary is $100,000; add in 25% benefits and that comes to $125,000. NPs tend to usually work closer to a 40-hour work week so let’s say they see inpatients Monday through Friday and the physician covering the weekend sees all of the patients the NP was following during the weekdays. We will further assume that the NP works 46 weeks a year (4 weeks vacation and 2 weeks of holidays over the course of the year).

Therefore, the salary/benefits cost of the NP is $2,717 per worked week or $544 per worked day. In order to break even on the cost of that NP, the NP would need to generate $544 of revenue per day after expenses. In a private practice, there are relatively fewer overhead expenses but in an academic practice, there are a bunch of expenses, for example: Dean’s tax, departmental expenses, divisional expenses, malpractice, billing/administrative expenses, etc. All told these typically run about 21%. So, taking into account overhead, the NP would need to bring in $688 per worked day to fully break even.

In most practices, the physician will see the initial consult on a patient and the NP will see the return visits to that patient – a consult is usually a request for the learned opinion of an experienced specialist who has spent additional years of training to become an expert in an area of medicine and so the physician usually does the initial visit and lays out an impression and plan for that admission. So, we’ll assume that the NP is seeing only return visits and bills, on average, level 2 returns (CPT 99232) – Medicare pays $71 for this level of visits; adjusting this for the 85% reimbursement received by NPs for independent visits, this equates to $60 per encounter (a little less for Medicaid and a little more for commercial insurance). Therefore, based on Medicare reimbursement, the NP would need to see 11.5 inpatient return visits per day in order to pay for his/her salary. That would work out to about 40 minutes per return visit encounter which is very achievable (assuming that the consult service is large enough to support this volume of return visits).

Physicians have higher salaries than NPs and thus the cost per hour of a physician’s time is greater than the cost per hour of an NP’s time. Therefore, NPs can be cost effective when doing very time-intensive activities such as palliative medicine, smoking cessation counseling, diabetic education, etc. Also, you have to take into account what the physician will be doing if they don’t see the return consult visits. If the gastroenterologist will be able to do more colonoscopies or the cardiologist will be able to read more stress tests, then you can afford to lose money on an NP’s salary and still come out ahead because you are able to do a lot more of a more highly reimbursed activity than you otherwise would.

So, putting all of this together, what can we conclude:

  1. NPs need to see an average of 11.5 return visits per workday in order to break even financially.
  2. It can be cost-effective for an NP to see fewer than 11.5 return visits per day on procedure-oriented services such as surgery, cardiology, or gastroenterology since the NP frees up the physician to do more procedures that pay more per hour than return hospital visits.
  3. The practice’s payor mix affects the number of visits necessary to pay the NP’s salary – a practice with little Medicaid and a lot of commercial insurance may only need the NP to see 9-10 visits per day whereas a practice with a lot of Medicaid may need the NP to see 13-14 visits per day.
  4. It is financially more advantageous to have NPs do time-intensive activities (such as counseling, arranging follow-up testing, etc.) instead of having physicians do these.
  5. It is financially more advantageous to have NPs see uninsured/charity care patients since the cost of the NP’s time is less than the cost of the physician’s time.

If the NP is doing a shared visit (either with the admitting service physician or a consult physician), then the number of return visits needed to cover the NP’s salary is less – 9.7 per day. However, since the physician still needs to see each of these patients and do a component of the progress note documentation for each of these patients, that physician’s time now needs to be considered since all of the revenue from those 9.7 encounters will be going to cover the NP’s salary.

February 5, 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