Big Picture
SHM’s most recent survey reflects the average hospitalist medicine group’s business model. Production is flat; compensation is up 13%; and 91% of HMGs receive subsidies nearing $1 million each. From a dollars-and-sense vantage point, the business case for hospital medicine doesn’t work. So why do hospitals go along with a broken business model, especially at a time when a hospital’s cost curve is growing faster than its revenue curve, making it even more difficult to justify HMG subsidies?
The short answer is that most hospital medicine programs are invited in by hospital administrators and serve a specific purpose related to overall revenue generation and/or cost controls. Common reasons for creating hospitalist programs are improving Emergency Department throughput, relieving community-based physicians from hospital duties, boosting subspecialist revenues with medical co-management, and cost cutting through reduced length of stay and improved resource utilization. Each has different financial metrics associated with it, and HMG leaders should understand each metric thoroughly.
If, for example, relieving the pressure on community-based doctors is the HMG’s primary goal, an HMG leader’s strategy might be to attract the best hospitalists available, offering a high compensation package and recruiting bonus. That would help cover the increased patient load, but it might pressure the hospital to shoulder a steep subsidy.
Alternatively, relying on financial and performance metrics might yield better rules about when to justify a new hire. Seasoned HMG leaders would rely on a group’s average daily census of 50 to 70 patients as the tipping point for adding a FTE hospitalist. Similarly, night admissions of 10 to 14 patients should trigger the hiring of a nocturnist, with his or her premium pay.
Brian Bossard, MD, founder of Inpatient Physicians Associates in Lincoln, Neb., relies on that type of data and other “lean” management concepts. To optimize each physicians’ patient loads and productivity, he has patients assigned by physical proximity, so his hospitalists won’t waste time running around the hospital seeing patients. Saving time and manpower contributes to an HMG’s financial health.
Once HMGs satisfy the primary service goals set by their hospitals, leaders should focus on enhancing their hospitals’ revenue generation from various sources. The typical mix of hospital revenue streams are, in size order—clinical services, research, philanthropic grants, interest income on cash assets, and royalties from intellectual property. Clinical services and research account for about 95% of the average hospital revenues, with the balance split among the other three.
Hospitals try to boost revenue by adding product lines, enhancing the value of current products, increasing market share, and capitalizing on production efficiencies. Translating business concepts from widgets to wards, increasing both volume and acuity of patient encounters, should be commonplace and a revenue booster. Research revenues are another story, particularly with slowdowns in National Institutes of Health funding. Recruiting hospitalists who want to do research leaves hospitals covering their salaries and labs for long periods of time without revenue generation.
Focusing on proven revenue generators—enhancing the value of current products, increasing market share, and boosting production efficiencies—can help HMG leaders carve out a niche that truly creates value for the hospital.
It may take a lot for an HMG leader to build solid financial performance on a strong clinical foundation, however, it is doable. Dr. Liu sums up how HMG finances will improve: “As hospital medicine matures, expect its leaders to mature as well,” he says. “They will become more business savvy and learn to speak the language of business, even if they have to force themselves to learn.” TH