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Budget Checkup


Editor’s note: Part one of a two-part series.

Why does a particular hospitalist practice require more than the typical amount of financial support from a hospital? This is one of the most common questions I am asked. This month and next, I will provide a thorough list of potential answers.

SHM’s “2007-2008 Bi-annual Survey on the State of the Hospital Medicine Movement” showed that hospitals pay an average of $97,400 per year in support per full-time hospitalist. I suspect that amount is higher now. Nevertheless, hospital executives and hospitalists should understand the reasons why the hospital support that is required for their practice might be more or less.

A comprehensive list of potential reasons would include dozens of factors, and my intent is only to highlight some of the most common and significant ones.

Documentation, Coding, Billing, and Collecting

This is an area in which many, if not most, practices have room for improvement. One very simple way to estimate how your group is doing on these things is to think about how you’re performing on the following tasks:

  • Do the hospitalists really understand the documentation requirements for each CPT code, and is their performance in selecting CPT codes audited regularly (e.g., annually)?1
  • Does the group have a reliable method of charge capture that minimizes problems like lost charges? Is there an established “chain of custody” of this information, from the hospitalist to the biller?
  • Is there a rigorous review or audit of the biller’s performance? Does the group monitor metrics, such as days in accounts receivable, collection rate, etc.? Is there a periodic audit of the biller? An audit could be as simple as tracking down five to 10 billed encounters from six months prior for each doctor in the practice, and reviewing the status of each bill (e.g., paid, written off, or perhaps the bill has vanished or never made it into the billing system).
  • Is revenue appropriately applied to the hospitalist cost center? For many hospital-employed hospitalists, payors might be including their professional fee payments on the same remittance advice as hospital inpatient payments (due to same tax ID number). The hospital’s business office might be unable or unwilling to break these payments into hospital and professional fee portions and apply them correctly. Hospital-employed hospitalists should know whether their collections are being applied to their revenue center accurately.

Payor Mix

The two factors that govern the amount of professional fee revenues a hospitalist practice will collect are the integrity of the billing process (described above) and the payor mix. The payor mix for most hospitalist practices is roughly 55% to 60% Medicare, 5% to 10% self-pay, 5% to 10% Medicaid, and commercial insurance for the rest.

A hospitalist practice that is significantly different from this example should expect professional fee collections to vary accordingly.

Hospitalist Fee Schedule

My experience is that very few hospitalists know their own fee schedule. The term “fee schedule” is generally used to mean the billed charge for each type of service provided. A hospitalist fee schedule usually fits on a single page, with a list of CPT codes (admits, consults, followups, etc.) down one column and the charge for that service in a second column to the right. It would be reasonable to post the fee schedule in hospitalists’ offices.

Groups that use electronic charge capture, in which the doctor enters into a computer the CPT code to bill for each patient daily, can often see the related charge for each code as it is entered.

Someone connected to the practice, often in the billing office, should review the fee schedule—at least annually—to ensure that services aren’t being billed below the rate allowed by payors.

Negotiated Rates Paid by Commercial Insurance

Some hospitalist groups are able to negotiate higher payments than the typical rates paid by commercial payors. Because commercial insurance is a relatively small portion of most hospitalists’ payor mix, this might not have a large impact on the overall practice finances. So my sense is that most groups don’t pursue this opportunity.

Groups in markets with significant managed care are an exception. They usually are aggressive in negotiations for commercial payor rates.

Some hospital-employed HM groups might end up with lower commercial rates than they could have. Here is how it might happen: A hospital negotiates with Aetna to pay rates for hospital services (the bills submitted by the hospital, not the physician bills) that are attractive to the hospital. To make this proposal more palatable to Aetna, the hospital says it will accept lower rates for its employed physicians, including hospitalists. So the hospitalists’ collections end up lower, and the support paid by the hospital to the hospitalist group is correspondingly higher. The hospital ends up fine in this scenario, because it is being paid an attractive rate by Aetna for hospital services, but the hospitalist practice appears to be underperforming financially.

It is worth knowing if this is an issue at your practice, but in most cases it won’t explain larger problems in the hospitalist budget or amount of support required from the hospital.

Accounting Issues

Budgets and financial statements can be confusing, and revenues and expenses might not be what you expect. For example, in my practice, auditors told our accountants that we needed to accrue an extra month of salary into this year’s budget. So when looking at our fiscal year-end financial statement, the salary expense is for 13 months instead of 12 months. This quirk made it appear that we required more than the budgeted amount of support from our hospital, when in fact we performed better than budget this year.

I certainly can’t explain all the reasons for unusual accounting issues, and I still struggle to understand why accrual accounting is better than cash-basis accounting. My best advice is to have the lead hospitalist in your group get to know the accountant who handles your budget and financial statements. The accountant should explain all of these issues clearly.

In next month’s column, I’ll review how a hospitalist practice’s internal operations, such as staffing and scheduling, can have a major influence on the budget and the amount of support required from the hospital. TH

Dr. Nelson has been a practicing hospitalist since 1988 and is co-founder and past president of SHM. He is a principal in Nelson Flores Hospital Medicine Consultants, a national hospitalist practice management consulting firm ( He is also course co-director and faculty for SHM’s “Best Practices in Managing a Hospital Medicine Program.” This column represents his views and is not intended to reflect an official position of SHM.


  1. Centers for Medicare and Medicaid Services. Improper medicare fee-for-service payments report, November 2006: long report. CMS Web site. Available at: Accessed Sept. 1, 2009.

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