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• Filed under: Columns, President’s Column, Practice Management

• Keywords: economy, operations, metrics, admissions, financial support, labor shortage, reimbursement

The Sky Isn’t Falling, Yet

From: The Hospitalist, December 2008

by Patrick Cawley, MD, FHM

“Hospital Doctors Brace for Layoff.”

As I was scanning an online news source recently, the headline above caught my eye. The story detailed a U.S. hospital experiencing a loss in the past year, and one of the cost-cutting measures being considered by the hospital administration was a layoff of some of the health system’s hospitalists.

Now, while the story caught my eye, I was not surprised. All hospitalists and hospital medicine group leaders should take this as a warning and be prepared for potential cost tightening at your local hospital in the next year. Many hospitalist groups are vulnerable to cutbacks, because support often is needed to maintain the viability of the HM program and, in tough economic times, all HM support receives closer scrutiny.

It’s no secret; the U.S. economy is in a decline. A recession has yet to be declared, as a recession normally is defined as two consecutive fiscal quarters of negative gross domestic product growth. However, this economy has been flat the past two quarters, in terms of GDP, and expectations for the fourth quarter aren’t good. Additionally, the country is experiencing increased costs across the continuum related to oil prices, food prices, the housing downturn, and the mortgage mess. So, while there may not be an official recession, many businesses are experiencing a financial tightening, with decreased revenues from slower growth and higher costs from a variety of areas.

Even Healthcare Has Soft Spots

On Wall Street, conventional wisdom dictates the healthcare industry is more stable and resistant to recession than other industries. The general belief is people get sick no matter the state of the economy. But the healthcare industry is diverse and revenue has many avenues. Certainly in biotechnology and pharmaceuticals, there is a greater degree of recession resistance, but within the healthcare industry, hospitals and providers are much more sensitive to an economic downturn, even though a large percentage of revenues are from government sources.

In an economic downturn, hospital demand decreases secondary to a less admissions and elective procedures, particularly in patients with non-government payers. Additionally, the number of uninsured rises, which results in a change in payer mix at hospitals. Finally, due to the rise in out-of-pocket expenses associated with health insurance, it is highly likely patients will forgo healthcare at a quicker rate than in past recessions. When things get tough, patients must pick and choose what to pay for, and with the higher out-of-pocket expenses, healthcare is not as easy to access for many people.

In the meantime, the cost of running a hospital continues to escalate. Labor shortages continue, so hospitals must continue to pay competitive salaries to attract and maintain employees. Hospitals have made significant investments in patient safety, information technology, new construction, and physician practices in the past several years. All of these factors continue to contribute to the high fixed costs of hospital financials.

And so, as hospitals begin to look at costs that are not as fixed, and thus easier to cut, payments to physician groups are one of the early items undergoing close examination. Hospitalists aren’t alone in this budgetary fix, as hospital CEOs are scrutinizing all physician support. Emergency medicine, surgeon on-call pay, medical directorships, and group practice support are just a few examples.

Proactive Steps

So what is a hospitalist group to do? Be prepared! Here are some steps you can take to stay ahead of the game.

• Understand the financial situation at your hospital. Is the hospital making money? Is it spending money on capital equipment? What is the hospital’s margin? What is the pattern over the last several years?
• Understand your HMG’s impact on the hospital. Regardless of your employment status, you need to know the impact. Do not rely on a hospital administrator to do the impact analysis for you. Don’t wait to seek out the data until you are forced to defend your group’s value. If you get into a situation where you must quickly defend your group’s value, time usually is not on your side, and it may be difficult to obtain the appropriate data in a timely manner. It is best to have the analysis already complete.
• Write down the impact analysis, obtain data to back up the assertions, and regularly review it with senior hospital leaders, medical staff leaders and your group. While a full SWOT analysis is ideal, as this provides a complete picture of your HMG’s strengths, weaknesses, opportunities, and threats, a regularly updated impact analysis is a living document that should be shared.

Executing an Impact Analysis

Begin by putting all your hospitalists in a room for a few hours and have everyone brainstorm the HMG’s impact on the hospital. The entire group should be involved, because it is important each individual hospitalist understands the impact you have on the facility.

• What is your impact on PCP referrals? What is your impact on elective surgical cases coming to the hospital? What about subspecialty care? Do you admit all the subspecialists’ patients? What is your impact on quality and patient safety? What is your impact on hospital committees?
• Once you have listed your potential impact areas, have a discussion about the kinds of data needed to back up each impact assertion. Find the data (hospital sources, practice resources, SHM data, etc.) and put it in the impact analysis.
• If your impact analysis exceeds two pages, you need to do an executive summary. The goal is for leaders to read this on a regular basis and understand the larger, global points.
• Update this impact analysis regularly. At a minimum, this should be yearly, but at times it may require updating every three to four months.

No Need to Reinvent the Wheel

None of this information is new at SHM. One of our core commitments is to make sure you have the information to understand your HMG’s value to the hospital and what you can do to provide greater value. The practice management committee has published a series of value-added articles, as well as a regular update on management best practices. SHM leaders have been talking about value and impact for years, and the need to keep your hospital group knowledgeable at all times.

But we also realize in a high-growth practice, some operational details are left to later. So, if you have not done an impact analysis, or if you have one and haven’t updated it in a while, use the urgency of the general economic downturn to get started. You, your group, your hospital, and your patients will be much better off if you are prepared. TH

Dr. Cawley is president of SHM.