Hospitalist Service Benefits Everyone. But How Much?

Dr Wes opined about his interpretation of the benefit a hospitalist service can offer its hospital.  I hope to set a few of his opinions straight and explain that the reality is not all that meets the eye.  Let me clarify several things as I see them from a hospitalist service in the trenches. When you present $268 as the bottom line, you miss out on a whole lot of other lines that an excellent hospitalist service brings to the table.

Lets start with that $268 figure. Let us assume that a 300 bed hospital is always full. Let us assume the average hospital stay is 5 days long. How many admissions or diagnosis related groups (DRGs) can a hospital collect in a year? A 300 bed hospital at maximum load will have 109,5000 patient days. If the average length of stay is 5 days, that represents 21,900 admissions to the hospital or DRGs.

Now imagine if all those 21,900 DRGs, all were taken care of by internists. Then the following year, all of them were taken care of by hospitalists. What is the savings from a well run hospitalist service?  That total is $268 * 21,900 or 5,869,000 dollars. Almost six million dollars could be earned by a hospital  if all medical admissions once cared for by community internists were instead cared for by a hospitalist service. Obviously in a hospital, not all admissions are handled by internists. Some are surgical, some are observation, some are family practice, so the benefit in direct resource utilization is not quite as high.

Now let us take my hospitalist service for example. Let us use a daily census of 75 as an example. If you plug in this same data, and assume a LOS of 5 days, then our hospitalist service will see on average 5475 DRGs a year. If all were previously admitted by community internists, that $268 just became 1.5 million dollars a year in direct costs savings from resource utilization. So what may seem like chump change, is in fact a huge chunk of change in the tight margins of hospital economics.

Now, this $268, is actually the smallest benefit by far to the hospital. Imagine a full hospital system. If your hospital is at maximum capacity and payment is based on DRG, then the quicker you get them out, the more room you have to admit other patients of higher potential margins from Medicare.  The reason it pays to get medical patients out as quick as safely possible is because medical admissions generally loose money to a hospital system. So even $268 per DRG is a WIN-WIN.

But let us go back to the length of stay benefit of 0.4 days. Let us dissect that number. Imagine again our 300 bed hospital at maximum load. Let us again imagine a LOS of 5 days. That gives 109,500 patient bed days. If the average LOS is 5 days, that gives 21,900 DRG payments. Hospitals are paid on diagnosis related groups (DRGs), so if you are in the hospital for 2 days or 20, they get paid the same (with some minor adjustments). Let us just use a DRG payment of $5000 for simplicity.

Revenue for that hospital for the year would be 21,900 * $5000. Or $109,500,000, without the hospitalist service.  Now let us imagine if the hospitalist service admitted every single patient to the hospital and was able to shave just 0.4 days off the hospital stay. How many DRGs could a hospital collect in that year?

Well, at a LOS of 4.6 days instead of 5, at a 300 bed hospital, at full capacity, that equates to 23, 804 DRGs, an increase of 1904 DRGs. Let us use that $5,000 average DRG payment (which would actually go up as better paying procedural admissions were made possible with open beds) and you see that a hospital can collect an additional $9,520,000 in DRGs based solely on a decrease length of stay of less than 1/2 day per patient, if a hospitalist service had their mittens on every patient brought into the hospital.

This is where the actual direct costs savings come into play. By allowing the hospital to optimize their staffing (the nurse will get paid the same whether there are 21K or 23K DRGs, every additional DRG is pure profit to the hospital. Making beds available for those elective total knees and bypass surgeries increases the average DRG payment, the stuff that drives profit.

All of this is the result of The Medicare National Bank's fantasy land economics and has resulted in skewed incentives for the development of specialty based procedural hospitals which can, in the long run improve quality and decrease costs. Unfortunately, it also puts an unfair burden on full service hospitals which require the skewed economies/DRG reimbursement of procedures to make up for my money losing pneumonia admissions.

$10 million dollars a year. That's how much a hospitalist service could bring to the table.    If you imagined a hospitalist group getting 4 million dollars a year in support to see all 300 patients every day in the hospital (at maximum efficiency that would require a group of about 40 docs ), the yearly return on investment of 4 million dollars is 250%, starting at year one. The per doc support would be about $100,000.

Can you think of any other business decision that result in immediate 250% ROI? I can't.  That's why hospitalist services and hospitalist compensation are in demand. 

This is a simple run down on why a hospitalist service makes sense and why administrators that get it are willing to support a WIN-WIN solution.    The benefits don't stop at money.  I can't tell you how many times I have had nursing staff tell us they are so glad we are here.  We are much more accessable in emergencies.   The ER loves us because we are there to improve throughput in the ER.  The specialists love us because we can quickly do floor consults for routine management of medical problems like diabetes and hypertension  and to quickly evaluate a decompensating surgical patient.

The primary care docs, whose patients we see at their discretion, love us because we see their patients for them, we do a great job and we allow them to increase their office practice with 100% paying customers.  Families love us because we have time to talk to them and to give them the time of day.  Our satisfaction surveys are routinely higher  from all comers.

Your point about finding a new doctor is well taken.  But I must also remind you that this fragmentation of care occurs among all specialists that we work with as well.  Every week the ID, the cardiologist , the GI, the nephrologist and even the surgeon changes.  They go through their week of hospital rotation and then their partner comes on.

To single out a  hospitalist service is in my book unfair.  A changing service is universal in hospitalized patients.    As far as "bonuses and production",  the last time I checked,  salary compensation based on length of stay was illegal.    If you think about it,  this is actually counter intuitive, and the opposite of what you suggest.   The longer you hold onto patients,  the more RVU's you will generate and therefore more production and more money.  But also less benefit of the length of stay, and therefore less benefit of the program in general.  That's why I am a staunch believer in a well run private practice hospitalist program where the administration understands the value hospitalists bring to the table.

Let the private practice hospitalist service sort out the details reimbursement/staffing/bonuses/benefits.  The hospital's only job is should be to  ensure that their hospitalist group survives and thrives.  The benefits will come to the bottom line and to all those around it.

I can assure you in my 5 years of private practice,  there has never been one patient I have ever discharged where I felt it was based on any type of financial reward to me.    I discharge a patient when I feel they are medically stable.  My malpractice risk doesn't afford me to practice any other way.  In a well run program the limitations are mostly overcome.  The transfer of information is quick, between hand offs, between hospitalist and primary care doc.

The one  trade off of having a hospitalist vs primary care doc?  Well,  we are not their outpatient doc.  You have correctly stated that fact.  But we are highly professional doctors who can efficiently care for very sick people.  And do so quickly.    I once had a consult at midnight on a surgical patient for "high blood pressure." Hypotension causes me to jump.  So does unexplained hypertension in a young one.  It was presented to me as non urgent, but when I saw the patient,  that night,  it became quite clear to me the patient was in florid alcohol withdrawal.    I had, in fact had the patient intubated that night.  There is nothing that compares to the bed side evaluation,  something outpatient doctors are not available to do at all hours of the day.

So the trade offs are all relative.

I am very proud of our program.  We have grown from 5 docs to 18 docs in 5 short years.    I practice medicine in a WIN-WIN situation, where I honestly can't think of a single loser.  In fact, I am so proud of how well our group functions, that I think our model of care should be exported to all hospitalist groups in this country.  I hear stories all the time about how hospitalist programs fail, and the problem often times is not with the doctors themselves, but with the way the program was established, the unmanaged patient realities and the lack of administrative support, financial or otherwise.

So Dr Wes,  While I may not be your doctor, but rather just a doctor, I am a doctor who comes with untold benefits both seen and unseen.  And I can assure you when I am taking care of a patient, I am in control.

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13 Outbursts:

  1. just curious, how many hospitals do you guys cover? do you offer 24 hour in house coverage?

  2. Happy,

    Let me be clear. I agree there are wonderful economic (and patient care) benefits having hospitalists. But for the average "joe" outpatient private practice internist or family practitioners, it presents a double threat. First, they cannot compete economically as I suggested in my recent post, and more to the point, hospitalists are encouraged to refer "within the system" - that is, to consultants on salary with the "mother ship." It is no wonder that hospitalists are the fastest growing medical subspecialty - and certainly many are fantastic physicians as you suggest. But here's the question: once everyone's a hospitalist, then who'll serve as primary care docs?

    It's just further disincentive for our general internists and family practice docs to endure the continued negative amortization of their earning potential and professional stature.

    Then again, I guess there's doc-in-the-boxes, eh?

  3. we cover two hospitals, both under the same name. We are a regional referral center with a level 1 trauma and an in patient psychiatric hospital.

    We have it all.

    And we cover in house 24 hours a day.

  4. dr wes. I would like to make clear that I believe the hospitalist movement was a response to the decline in primary care reimbursement, not the cause of it. A a resident, if I have the opportunity to practice medicine on patients with an average encounter of 1/2 hour vs 12-15 minutes and get paid more for doing it, the answer is easy.

    If the Medicare National Bank hadn't screwed up the economics of health care delivery, you and I would have never met in the blogosphere. If the Medicare National Bank created equality in disease instead of creating profit gradients within disease, then I don't believe hospitalist medicine would have ever flourished.

    As it stands, hospitalist medicine is the result of Medicare policies.

    As far as who will be primary care once everyone is a hospitalist, I suspect once the government gets their heads out of their asses and starts reimbursing cognitive medicine at sustainable rates that primary care will return. Until then we get what we pay for.

    And that's specialists and their procedures. And we will have to live with a system that is bankrupting itself with excess and inefficiency and redundancy.'

    As far as referring, I refer to whom ever I think is the best doctor for my patient. It's no different than a private doctor referring to whom they feel is best for their patient. If the specialist happens to be part of the "mother ship" as you say, I could care less, as long as they do my patient well.

  5. Well said happy. I have worked in:
    1: University
    2: VA
    3: County hospital
    4: Community hospital with no hospitalists
    5: Community hospital with hospitalists

    By far the best functining institution was number 5. It wasn't even close. In fact pretty much every patient (except CT sx) either was on the hospitalist service or had a hospitalist consult. Dr. Wes bemoans the loss of the PCP when very simply the system that rewards him and other procedure docs at the expense of non-procedure docs is the issue. You don't get paid to think in medicine. You get paid to do. It is this shell game why derm, rad, and CARDS are sitting on green grass. It is rather hypocritical of Dr Wes to whine about an issue he benefits from.

  6. i think dr wes is concerned about the disappearing primary care outpatient physician because it does not appear patients will have anyone to go see in the very near future. a lot of experienced physicians have made the same observation, along with the comments that the new generation of doctors don't seem to have the same commitment that they had. will we see the hospitalists start their own follow up clinics so that the discharged patients can be seen quickly?

    i do think the hospitalist movement attracts a lot of people for lifestyle issues--they continue practicing what they are comfortable with (although i wonder how much care of surgical patients most internal medicine residencies offer), better pay, off when you are off, less paperwork hassles. of all those, i suspect that more pay is lowest on the priority list.
    at some point, we will see some blowback from hospitalists. if you are able to have enough hospitalists, it is great. some of the programs i deal with send out a letter every month outlining what they won't do. i hear them yelling at primary care docs for dumping on them-using them only when the primary care docs go on vacation or on weekends or at night. i see them saying they will no longer cover primary care admissions during the daytime unless certain criteria are met. apparently they still cover the surgical patients since the surgeons have the most political clout with the hospital that supplements the revenues that support the hospitalist. i wonder what the payscale will be when the hospitals no longer need to support the hospitalists due to supply balancing out the demand?

    anyways, jmo

  7. Happy,

    I am a big fan of yours. I think you make a lot of great points.

    I have worked as both a hospitalist and an internist. I currently am an internist and see my own patients in the hospital daily.

    Interestingly in the NEJM paper the cost for care between hospitalist and family practice physician was not statistically significant and thus technically there was no difference. So at least in 1 of 2 groups studied hospitalists did not improve cost of care.

    Your point about length of stay is right on. However, By rounding first thing in the morning as opposed to rounding in the afternoon I can discharge my patient's just as fast as any hospitalist and frequently do. I have an EMR in my office and can write discharge orders and moniter labs and vitals all day. By small changes in behavior internists could decrease their LOS easily.

    One interesting point is that in the NEJM study quality of care seemed equal in all groups.

    Hospitalist's are definitely here to say and I believe they are good for the system. On the other hand, for the patients I see in the office I am happy to see them in the hospital and feel that I am best able to manage their care.

    Jordan Grumet

  8. Jordan,
    I have not read the details of this study to see if each group had a similar " casemix".
    One big difference between hospitalists and private internist is ( at least at the Hospital where I work) that the office internist, gets to choose who he/she picks to be their patient. At the Hospital where I work, there is one private group that makes a big deal about their improved outcomes and lower LOS ( as compared to the Hospitalist group). This private group fires patients faster than any other group in town. If they are too complex, old, uninsured or noncompliant they are sent packing. As a hospitalist we admit "all comers" including the sicklers, homeless, uninsured alcoholics, schizophrenics with chronic untreated illness, etc. I asked one of the internists in this group, who was boasting about his length of stay, that because he was such an efficient MD why doesn't he help the Hospital out by admitting some of the unassigned patients out of the ED? It shut him up pretty fast. I suspect we may be comparing apples to oranges in some of these studies.

  9. Great post and discussion. I think that our hospital would see a decent ROI by investing in more housekeepers to prepare the rooms between discharge and new admission as well as more techs/transporters/assistants/secretaries to do the grunt work.

    And maybe more hospitalists to take some of those 3 am admissions after they've already had enough. Our hospitalists seem to have taken on a bit more than they were prepared to handle, so they have become a bit more selective at times.

    "I asked one of the internists in this group, who was boasting about his length of stay, that because he was such an efficient MD why doesn't he help the Hospital out by admitting some of the unassigned patients out of the ED? It shut him up pretty fast."

    Maybe because he isn't being subsidized by the hospital to do so?

  10. From a nursing standpoint, it is great to have the doctor in the house who's sole concern is their inpatients, not their office visits. In my institution, they round and discharge early freeing up inpatient beds quicker than the docs that used to come and discharge after office hours. They also take a great deal of direct admits that used to come to the ER because the internist on call didn't want to be bothered. They have time to spend with the patients and families so the patients and families love them.

  11. maybe it is a generational thing, but i see a lot of hospitalists who are young and only seem to worry about metrics. how many am i seeing in a day? how fast can i get the patient out?
    they have a trigger finger on the consult button and want results within minutes of calling,ie why can't you cath him right now instead of 3 hours from now? they seem to have taken over the roll of the nurse who used to pester everyone about los and admission criteria.
    i'm sure the senior leadership of the group needs to keep track of these things, but the way the new guys are doing it is irritating and insulting.

    i think scalpel is dead on with regard to more ancillary support helping a lot, but with all the lean thinking in healthcare, unlikely to happen.


  12. As an RN, I am very thankful for hospitalists. They are easily accessible and usually answer pages very quickly, and are very thorough.

  13. I have been a hospitalist for the past three years and now I am on my third full time job which I am happy with. But recently one of the hospitals I moonlight at just laid off ten hospitalist and brought in a private group who can do the job for cheaper. They offer some people new contracts which offer less pay for seeing 25 plus patients/day with no vacation time and no benefits. Supposedly you can make partner in 1-2 years but I hear the head guy skims off the top so you will always be cheap labor. This made me realize that unless you form a private hospitalist group yourself or join a honest group, you will always be someone else's employee with no real say in anything. But question is how often are private hospitalist groups profitable and sustainable? Not just with one or two head guys who are making money getting cheap labor (seeing too many patients in one day) from a bunch of foreign grads with visa issues who gets the promise of full partnership that never comes.


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