Practice Economics

How High Can Your Support Payments Go?


Last December, St. Peter’s Hospital, a 122-bed acute-care facility in Helena, Mont., crossed a symbolic line in the decade-long evolution of the financial payments that hospitals have provided to HM groups to make up the gap that exists between the expenses of running a hospitalist service and the professional fees that generate its revenue.

Hospital administrators asked the outpatient providers at the Helena Physicians’ Clinic to pay nearly $400,000 per year to support the in-house HM service at St. Peter’s, according to a series of stories in the local paper, the Helena Independent Record. The fee was never instituted and, in fact, some Helena patients and physicians have questioned whether the high-stakes payment was part of a broader campaign for the hospital to take over the clinic, a process that culminated in March with the hospital’s purchase of the clinic’s building.

Still, the Montana case focused a spotlight on the doughnut hole of HM ledger sheets: hospital subsidies. More than 80% of HM groups took financial support from their host institutions in fiscal year 2010, according to new data from SHM and the Medical Group Management Association (MGMA), which will be released in September. And the amount of that support has more than doubled, from $60,000 per full-time equivalent (FTE) in 2003-2004 to $136,400 per FTE in the latest data, according to a presentation at HM11 in May.

HM leaders agree the growth is unsustainable, particularly in the new world of healthcare reform, but they also concur that satisfaction with the benefits a hospitalist service offers make it unlikely other institutions will implement a fee-for-service system similar to that of St. Peter’s (see “Pay to Play?,” p. 38). As hospital administrators struggle to dole out pieces of their ever-shrinking financial pie, hospitalists also agree that they will find it more and more difficult to ask their C-suite for continually larger payments (see Figure 1, “Growth in Hospitalist Financial Support,” p. 37). Even when portrayed as “investments” in physicians that provide more than clinical care (e.g. hospitalists assuming leadership roles on hospital committees and pushing quality-improvement initiatives), a hospital’s bottom line can only afford so much.

“It’s not sustainable,” says Burke Kealey, MD, SFHM, medical director of hospital specialties at HealthPartners in Minneapolis and an SHM board member. “I think hospitals are pretty much tapped out by and large.

Growth in Hospitalist Financial Support

Money paid to HM groups from hospitals and other sources has been around from the earliest days of the specialty. At right are median survey data per full-time equivalent (FTE) from SHM and the Medical Group Management Association (MGMA) on how much has been provided over the past eight years. The data currently represent adult HM groups but in past years have included pediatric groups, so this chart is reflective of “all hospital medicine groups.” In the two most recent surveys, the data were collected jointly for the SHM-MGMA State of Hospital Medicine report (the 2011 report will be released in September). All previous data were collected solely by SHM.

Growth in Hospitalist Financial Support click for large version

click for large version

“What we’ve been seeing is practices have been able to ramp up their productivity, but people have also found other revenue streams, be it perioperative clinics, be it trying to find direct subsidies from specialty practices, be it educational funds for teaching. … We’re kind of entering a time when payment reform of some sort is going to have to come into play.”

History Lesson

Support payments have been around since HM’s earliest days, Dr. Kealey says. From the outset, it was difficult for most practices to cover their own salaries and expenses with reimbursement to the charges that make up the bulk of the field’s billing opportunities. “The economics of the situation are such that it is pretty difficult for a hospitalist to cover their own salary with the standard E/M codes,” he adds.

Hospitals, though, quickly realized that hospitalist practices were a valuable presence and created a payment stream to help offset the difference.

John Laverty, DHA, vice president of hospital-based physicians at HCA Physician Services in Nashville, Tenn., says four main factors drive the need for the hospitalist subsidy:

  • Physician productivity. How many patients can a practice see on a daily or a monthly basis? Most averages teeter between 15 and 20 patients per day, often less in academic models. There is a mathematical point at which a group can generate enough revenue to cover costs, but many HM leaders say that comes at the cost of quality care delivery and physician satisfaction.
  • Nonclinical/non-revenue-generating activities performed by hospitalists. HM groups usually are involved in QI and patient-safety initiatives, which, while important, are not necessarily captured by billing codes. Some HM contracts call for compensation tied to those activities, but many still do not, leaving groups with a gap to cover.
  • Payor mix. A particularly difficult mix with high charity care and uninsured patients can lower the average net collected revenue per visit. There also is the choice between being a Medicaid participating provider or a nonparticipating provider with managed-care payors. So-called “non-par” providers typically have the ability to negotiate higher rates.
  • Expenses. “How rich is your benefit package for your physicians?” Laverty asks. “Do you provide a retirement plan? Health, dental and vision? … Do you pay for CME?”

Dr. Kealey says it’s not “impossible” to cover all of a hospitalist’s costs through professional fees; however, “it usually requires a hospitalist be in an area with a very good payor mix or a hospital of very high efficiency, where they can see lots of patients. And often, there might be a setup where they aren’t covering unproductive times or tasks.”

Click here to listen to more of our interview with Dr. Laverty

Another Point of View

Not everyone thinks the subsidy is a fait accompli. Jeff Taylor, president and chief operating officer of IPC: The Hospitalist Co., a national physician group practice based in North Hollywood, Calif., says subsidies do not need to be a factor in a practice’s bottom line. Taylor says that IPC generates just 5% of its revenues from subsidies, with the remaining 95% financed by professional fees.

He attributes much of that to the work schedule, particularly the popular model of seven days on clinical duty followed by seven days off. He says that model has led to increased practice costs that then require financial support from their hospital. The schedule’s popularity is fueled by the balance it offers physicians between their work and personal lives, Taylor says, but it also means that practitioners working under it lose two weeks a month of billing opportunities.

He’s right about the popularity, as more than 70% of hospitalist groups use a shift-based staffing model, according to the State of Hospital Medicine: 2010 Report Based on 2009 Data. The number of HM groups employing call-based and hybrid coverage (some shift, some call) is 30%.

When the pie shrinks, the table manners change. People are going to have to figure out how to slice that pie.

—Todd Nelson, MBA, technical director, Healthcare Financial Management Association, Chicago

“There is nothing else inherent in hospital medicine that makes this expensive, other than scheduling,” Taylor says. “Absent a very difficult payor mix, it’s the scheduling and the number of days worked that drives the cost. … We have been saying that for years, but we haven’t seen much of a waver yet. Once hospitals realize—some of them are starting to get it—that it’s the underlying work schedule that drives cost, they’re not going to continue to do it.”

Todd Nelson, MBA, a technical director at the Healthcare Financial Management Association in Chicago, agrees that the upward trajectory of hospital support payments will have to end, likely in concert with the expected payment reform of the next five years. But, he adds, the mere fact that hospital administrators have allowed the payments to double suggests that they view the support as an investment. In return for that money, though, C-suite members should contract for and then demand adherence to performance measures, he notes.

“Many specialties say, ‘We’re valuable; help us out,’ ” says Nelson, a former chief financial officer at Grinnell Regional Medical Center in Iowa. “In the hospital world, you can’t just ‘help out.’ They need to be providing a service you’re paying them for.”

SHM President Joseph Li, MD, SFHM, associate professor of medicine at Harvard Medical School and director of the hospital medicine division at Beth Israel Deaconess Medical Center in Boston, could not agree more. “The way I view monies that are sent to a group for nonclinical work is exactly that,” he says. “It’s compensation for nonclinical work. Subsidy, to me, seems to mean that despite whatever you’re doing, you need some more to pay because you can’t make your ends meet. That’s not true. What that figure is, for my group and for the vast majority of groups in this country, is really compensation for nonclinical efforts.”

HM groups should take it upon themselves to discuss their value contribution with their chief financial officer, as many in that position view hospitalist services as a “cost center” rather than as a means to the end of better financial performance for the institution as a whole, says Beth Hawley, senior vice president with Brentwood, Tenn.-based Cogent HMG.

“You need to look at it from the viewpoint of your CFO,” she says. “It is really important to educate your CFO on the myriad ways that your hospitalist program can create value for the hospital.”

There is nothing else inherent in hospital medicine that makes this expensive, other than scheduling. Absent a very difficult payor mix, it’s the scheduling and the number of days worked that drives the cost.

—Jeff Taylor, president, COO, IPC: The Hospitalist Co., North Hollywood, Calif.

Hospitalist John Bulger, DO, FACP, FHM, of Geisinger Medical Center in Danville, Pa., says such education should highlight the intangible values of HM services, but it also needs to include firm, eye-opening data points. Put another way: “Have true ROI [return on investment], not soft ROI,” he says.

Dr. Bulger suggests pointing out that what some call a subsidy, he views as simply a payment, no different from the lump-sum check a hospital or healthcare system might cut for the group running its ED, or the check it writes for a cardiology specialty.

“There’s a subsidy for all those groups, but it’s never been looked at as a subsidy,” he adds. “But from a business perspective, it’s the same thing.”

The Future of Support

The relative value, justification, and existence of the support aside, the question remains: What is its future?

“Subsidies are not going to go away, because you can’t recruit and retain physicians in this environment for the most part without them,” says Troy Ahlstrom, MD, SFHM, CFO of Hospitalists of Northern Michigan, a hospitalist-owned and -managed group based in Traverse City. “Especially not when physicians coming out of residency have a desire to maintain a reasonable work and personal life, with fewer shifts where possible, fewer patients per shift. And they also have income goals that they have to maintain with that because they’re coming out of training with larger debt loads than ever before. That’s the tricky part for CMS and the federal government moving forward.”

Nelson, however, says that the future of support will be tied to payment reform, as bundled payments, value-based purchasing (VBP), and other initiatives to reduce overall healthcare spending are implemented. He said HM and other specialties should keep in mind that the point of reform is less overall spending, which translates to less support for everyone.

“When the pie shrinks, the table manners change,” he adds. “People are going to have to figure out how to slice that pie.”

Click here to listen to more of our interview with Dr. Ahlstrom

Accountable-care organizations (ACOs) could be one answer. An ACO is a type of healthcare delivery model being piloted by the Centers for Medicare & Medicaid Services (CMS), in which a group of providers band together to coordinate the care of beneficiaries (see “Quality over Quantity,” December 2009, p. 23). Reimbursement is shared by the group and is tied to the quality of care provided. Nelson says the model could significantly cut the need for support, as HM groups are allowed to share in the upside created by the ACO.

The program is set to go live Jan. 1, 2012, but a leading hospitalist already has questioned whether the proposed rules provide enough capitated risk and, therefore, whether the incentive is enough to spur adoption of the model and the potential support reductions it would bring.

“You can certainly start by taking a lower amount of risk, just upside risk,” Cogent HMG chief medical officer Ron Greeno, MD, FCCP, SFHM, told The Hospitalist eWire in April, when the proposed rules were issued. “But your plan should be not to stay there. Your plan should be to take more and more risk as soon as you can, as soon as you’re capable.”

Nelson says that the support can continue in some form or fashion in the new models as long as the hospital and its practitioners are integrated and looking to achieve the same goal.

“The reality is, from the hospital perspective, you need to make sure you’re getting some value,” he says. “What are they buying in exchange for that [payment]?” TH

Richard Quinn is a freelance writer based in New Jersey.

Pay to Play?

Dr. Bulger

When St. Peter’s Hospital in Helena, Mont., proposed charging an outpatient clinic nearly $400,000 a year to use its in-house HM group, it prompted a new question from the hospitalist field: Will hospitals begin charging a fee for HM services?

The near-universal answer from hospitalists is no.

“At the end of the day, what the hospital wants is to keep peace in the valley and drive volume,” says John Laverty, DHA, vice president of hospital-based physicians at HCA Physician Services in Nashville, Tenn. “Any way that they encourage volume by going out and adding subscribing physicians, or docs that want to turn their patients over to hospitalists, I can’t see a hospital charging a fee for that service. Obviously, they’re cutting their nose off because they’re going to limit [referrals].”

Hospitalists have heard about institutions attempting to institute a fee, but pushback from stakeholders usually makes the paradigm unworkable.

Hospitals usually value their relationships with primary-care physicians (PCPs) too much to alienate them, says hospitalist John Bulger, DO, FACP, FHM, of Geisinger Medical Center in Danville, Pa. This is particularly so, he says, when PCPs point out that should they object to paying such a fee to use HM services, many of their patients would end up in a hospital regardless of referrals.

In that context, the attempt by St. Peter’s to charge a fee is the perfect example of the failed premise: The idea was raised but never executed.

“PCPs love hospitalists,” Dr. Bulger says. “But part of the reason they love HM is it’s free.”—RQ

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