Hospitalist Advantage Worth 57 Million Dollars.

Some have questioned the economic value of hospitalists. That having hospitalists offer no additional advantage to patients or hospitals.    Some studies have suggested that hospitalists do not save money. I would suggest those studies have been either
  1. Performed at places with poor hospitalist programs
  2. Poor hospitalists
  3. Poor hospitals.
Let's assume for a moment that hospitalists don't save any money. Don't order fewer tests. Don't order fewer medications. Don't order fewer consultants. Let's assume for a moment that hospitalists don't keep PCP's happier or keep subspecialists happier.Lets assume for a moment that the only benefit of a hospitalist program is decreased length of stay (LOS), which is a clearly defined benefit of most programs.

Let's even assume this decreased LOS is only 0.5 days. Now. Let's run some numbers and assumptions. Last week, Happy's Hospital was full to the brim, overflowing with patients with no place to go. No nurses to care for them. Without nurses you have no bed. You could have 100 open beds, but with no nurses, you have 100 less beds.

What happens when you don't have nurses to care for patients? Emergency rooms go in diversion, sending sick patients to other hospitals. Insurance paying customers vanish. Elective surgeries and procedures get cancelled. Hospitals take big hits when they have to divert patients to their competition. They lose market share which can damage them for years.

All the profit in medical care is derived from volume of scale. How can you squeeze more patients into the same overhead cost structure. It's no different from selling widgets. So let's do a crude economic analysis on the value of hospitalists to a hospital. You will understand why hospitalists are in such demand. If you don't, you're in denial.

Here are the assumptions for a hospital with no hospitalist program
  1. 300 bed hospital
  2. Average length of stay: 4 days
  3. Average (diagnosis related group) DRG collection per patient stay: $5,000 (a likely gross underestimation)
For an always full to the brim hospital, you have 300 beds * 365 days =109,500 bed days/year.

Now, if each length of stay is 4 days: 109,500 bed days per year/4 day LOS= 27,375 different patient DRG's/year.

At $5,000 per DRG, a hospital could collect a maximum of $136,875,000 a year from patient stays in an always full hospital. For an always full hospital, more patients can't be admitted. That means ER's close to ambulances. Surgeries get canceled and patients get diverted to other hospitals for their illness. The ONLY way a hospital get's paid by Medicare is to fill their beds. More patients mean more money.

Now lets look at some assumptions for a hospital with a hospitalist model in place that has no economic value except a decreased length of stay:
  1. 300 bed hospital
  2. Average length of stay 3.5 days
  3. Average DRG per patient of $5,000 ( I suspect a gross underestimation)
In the hospitalist model the 109,500 bed days/year are now divided by a length of stay of 3.5 days instead of 4 days. What does that do for you?

109,500/3.5 = 31,285 different patient DRGs/year in an always full hospital.

At $5,000 a year, this same hospital could generate a maximum revenue of 31,285 * $5000= $156,428,600 from patient stays in an always full hospital.

Now, I'm not mathematics professor, but you don't have to be a professor to understand what the value is in a good hospitalist program in an always full hospital by doing nothing more than decreasing the length of stay by 1/2 a day.

20 million dollars

Now lets think about one other aspect before we assume that hospitalist efficiency benefit is only 20 million dollars. Let's assume that because there are more available patient admissions, more surgical admissions and elective procedures are performed. Let's do a highly conservative 20% increase in average DRG payment and make it $6,000.

So 31,285 DRGs * $6,000 = $187,710,000

That's 50 million dollars more.

Now, let's assume that because hosptalists are much more likely to document what the hospital needs to get paid a higher payment rate based on severity of illness complicating and major complicating conditions. Things like writing the key words "uncontrolled diabetes" or "acute systolic heart failure" or "severe protein malnutrition". Let's assume conservatively that the hospital makes, on average, $200 extra per DRG in good documentation.

31,285 DRGs * $6,200 = $194 million dollars.

That's 57 million dollars more.

You have just witnessed the value of a hospitalist program. Increasing the hospital revenue by $57 million dollars a year by doing nothing more than decreasing length of stay, documenting and increasing the capacity of a hospital to accept more volume in the setting of a fixed labor pool of nurses.

In this example, there are 300 patients a day to round on. Let's assume 85 are discharged and 85 new admissions. That's 385 encounters a day. (that's a LOS of 3.5 days). If each hospitalist has a maximum of 15 encounters a day that's having 25 hospitalist rounding every day. Now. For every hospitalist working, you need to have one not working to get time off. That's the standard way a hospitalist schedule is managed. So lets assume this group of hospitalists have 50 hospitalists total.

At a subsidy of 5 million dollar ($100,000 per doc) the hospital's return on investment in additional DRG collections of 57 million dollars just made their return on investment of greater than 1000%, per year, every year till the end of time.

Now, I ask you again. Do you still think hospitalists are not valued at $100,000 a year in subsidy, when the return is $1 million per doc? This is why happy hospitalists make for happy hospitals and why their salaries continue to rise.  Make sure to review my hospitalist resource area for a wealth of information on hospitalist practice management.  

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10 Outbursts:

  1. I don't know, Happy.
    You seem pretty desparate to make your point, with some Rube Goldberg logic.
    The truth is that it is so dependant on the quality of the doctor's involved that any generalizations are null and void.

  2. The point of this exercise was to show how length of stay reduction can have huge implications on revenue even though it's not a "cost cutting" benefit that many skeptics of the hospitalist model like to point out.

  3. I think our group had decreased LOS by 1 day or something. Then some crazy patient who knew how to game the system ended up boarding for 6 months and messed everything up.

  4. The new method of measuring LOS is not by individual physician or group, it is by assinging "avoidable days" which is often assigned to radiology (CT not done) or GI (PEG not placed) and then the answer is to fix the system, rather than blame the doctor (or praise the hospitalist). I think this is a better way to decrease LOS, but perhaps not as good as trying to justify subsidising hospitalists.

  5. Exactly. There is more than just a hospitalist mixed into the variables for determining a length of stay. Happy, you just said it yourself (indirectly). You are working for the benefit of the hospital, and your job just happens to be a physician. Hospitalists contribute to the worsening fragmentation of healthcare and are providing a lumen for the abscess of primary care to drain into. It does nothing to stop the festering abscess.

  6. there is some truth to deferring studies to outpatient. However, in my experience, it is a small fraction. Most of the efficiency is gained by being there 24 hours a day. Initiating work ups at 2 am, not 9 am when you role in from home. CT scan results back by 8 am, not 2 pm. Going back and discharging a patient that doesn't need to be there at 6 pm instead of waiting till the morning.

    Everything happens faster when you have someone around to address issues now, not the next morining.

    Deferring work up to outpatient is but a fraction of the improved efficiency, at least in my experience.

  7. a hospitalist can see a patient with low risk chest pain, get a non invasive stress test done, read, and patient discharged in the same day.

    non hospitalist docs may have the patient admitted, over the phone from the ed doc. see the patient later that day. order the non invasive stress test for the following day. get the result the next day, and discharge the patient.

    there's value to being there, being in the hospital, knowing the nursing staff, knowing the ins/outs of the radiology department, knowing the subspecialists and surgeons, etc.

  8. Non hospitalists can order stress test and order discharge home if stress test negative, and thus achieve the same efficiency as a hospitalist, that is how we do it, and everyone complies.

  9. Can someone point me to the actual studies that have demontrated the effects of hospitalist on LOS, quality, etc..


  10. I think Happy Hospitalist is spot on. Most hospitalists provide superior hospital care: Decreased LOS, decreased cost, increased patient satisfaction, increased compliance with core measures, improved patient safety. There isn't a robust evidence base, yet - but this is a relatively new specality (~15-20 years). In addition, the core competencies for hospital medicine, and a focus in hospital medicine have still not materialized. When this specialty is fully functional, and groups are organized in principal and practice, hospitalists will most definitely produce the revenue Happy Hospitalist suggests. Remember, the payment structure may be distorted into paying cognitive services less, however the bean counters aren't stupid - they know a good bet when they see one. The key is to organize and get credit for the value that you provide the hospital in which you work


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