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Financial support from the hospital? Not for these groups
Subsidy-free hospitalist groups cherish their independence
by Bonnie Darves



Published in the September 2008 issue of Today's Hospitalist

In 1994, when David Engleking, MD, started a hospitalist group at Huguley Memorial Hospital in Fort Worth, Texas, the word “hospitalist” hadn’t even been invented. But now, 14 years later, he says that he’s gone from being a pioneer to a dinosaur.

That’s because his private hospitalist group, which is now four physicians strong, has never accepted a hospital subsidy. As a result, his group uses a business model that puts him in a distinct minority of his colleagues.

According to data from the Society of Hospital Medicine, more than 90% of hospitalist groups
“We don’t like the idea of a hospital telling us what to do.”

–John Womack, MD
Kansas Inpatient Services

accept some form of financial support, typically from the hospital where they work. While the exact form of support varies, funding from hospitals or multispecialty practices is critical to keeping most hospitalist groups in business.

That’s not the case for groups like Dr. Engleking’s, which have learned to not only survive with no outside financial support, but thrive. While many hospitalists may think that working at a subsidy-free group entails long hours and a heavy patient load, the physicians who work in these groups say there are plenty of benefits.

One major perk is pay, says Martin Buser, MPH, a founding partner of Hospitalist Management Resources LLC, a consulting and management company based in San Diego. Many physicians working in groups that don’t accept subsidies earn significantly more than the average hospitalist, between $250,000 and $350,000 a year, he says.

These hospitalists acknowledge that they may work harder for that income. But they have significantly more autonomy when it comes to choosing everything from which patients they accept to which specialists they refer to. Working in a subsidy-free zone may not be for every hospitalist, but most physicians in these groups say they have no interest in switching business models.

Paying attention to patient base
For John Womack, MD, co-founder of Kansas Inpatient Services in Wichita, one big payoff of working in a hospitalist group that receives no hospital subsidy is the freedom he and his colleagues enjoy.

An example? “The hospital systems here make strong recommendations for their hospitalists regarding specialists and staying within a certain insurance base,” he says. “I call whichever specialist I think is best for the case.” While Dr. Womack says that his group is very involved with the hospitals it serves as far as committee work, “we don’t like the idea of a hospital telling us what to do.”

That freedom has implications, however. Put simply, hospitalist groups that don’t receive hospital or group subsidies tend to be more careful about where they get their patients. Because all of their revenue comes from billings, they need to pay close attention to payer mix and, often, to opt for high productivity and low overhead.

Most financially successful hospitalist groups that don’t need subsidies steer clear of unassigned patients in the emergency department to the extent that it’s practically—and politically—possible. “The ED-patient reimbursement,” says Mr. Buser, “is typically the bottom of the financial barrel.” These hospitalists do, however, see the patients of referring physicians in the emergency department.

Another defining characteristic? Many choose to not maintain an office or support staff. “In many groups I’ve talked to,” Mr. Buser says, “their equipment amounts to a stethoscope and possibly a fax machine.”

An “always-say-yes” policy
To keep his nine-physician group afloat, Dr. Womack takes a relatively straightforward approach to revenue. He says that 80% of the group’s patients are direct referrals from community physicians, and that 90% of group revenue comes from admissions, rounds and discharges.

Another key to the company’s success, Dr. Womack says, is an “always-say-yes” policy when it comes to referring physicians, including subspecialists. “Very rarely do we turn anybody down,” he explains. “If someone calls us, we pretty much say, ‘We’ll take care of it.’ ”

Dr. Womack notes that other physicians warned him against this approach, claiming that some primary care physicians would refer only their low-paying patients. That hasn’t been the case.

“When a community doctor refers his patients to us,” Dr. Womack says, “I trust that he’s going to give me his paying patients and his non-paying patients. We’re going to take the same risks that he does being out there in the community. To date, we don’t see people cherry-picking.”

In Elizabethtown, Ky., Biren Desai, MD, who has run a solo hospitalist practice since 2003, says he chooses his referring physicians carefully, working only with select primary doctors who he feels provide high-quality care. He also doesn’t typically treat ED unassigned or Medicaid patients, except as a consultant.

And while he gets most of his revenue from admissions, rounding and discharges, Dr. Desai also receives income from ICU duties and procedures, including intubations, thoracentesis and ventilator management.

Better continuity of care
In Fort Worth, Dr. Engleking’s group likewise admits for primary care physicians, as well as a growing number of medical and surgical subspecialists.

But one major selling point for his group, he explains, is the fact that his hospitalists follow inpatients into other care settings, including long-term acute care. (Dr. Womack’s group also follows patients into long-term care, skilled nursing facilities and hospice.) That approach, which Dr. Engleking describes as a triangulation strategy, appeals to referring physicians because the group offers an unusual level of continuity of care.

While the group takes ED call, 85% of its patients are insured, a payer mix that is much better than that of competing hospitalist groups. “We don’t work as hard in some ways as some of our competitors who have tried to corner the unassigned ED market,” Dr. Engleking says. “We feel like we’re working smart.”

He points out that his group’s daily census per physician runs between 10 and 12 patients, while a typical work week amounts to between 50 and 60 hours. That covers both clinical and administrative duties.

But physicians don’t work shifts, don’t provide cross coverage and don’t hand off patients. That means that everyone in the group takes his or her own call and remains on call most of the time, except for vacations.

“If a patient from one of our referral sources comes on my service,” he explains, “even if I’m not on call, I’m going to maintain care of the patient throughout the course of the hospital stay. I make all the decisions relative to that case.”

Good hospital citizens
In Wichita, the physicians with Dr. Womack’s group work longer hours: about 70 a week, seeing 20-plus patients a day and working 12- to 14-hour days. Schedules tend to be 10-days on/five-off. “We see a few more patients and we work a few more hours than hospitalists in the employed groups around here,” Dr. Womack says.

Dr. Desai, an admitted “workaholic,” says he sees 25 patients when it’s slow and up to 35 on a “rough day.” A typical work week is about 80 hours, he explains, “maybe more when I’m on call.”

While these physicians tend to view themselves as partners with their primary care referral base, that doesn’t mean they aren’t engaged with the hospitals they cover. Both Drs. Womack and Desai claim that their groups outperform their competitors when it comes to length of stay and resource utilization.

And Dr. Engleking points out that he has been chief of staff twice during his tenure, while his partner has also served in that capacity. “We’ve probably spent a total of 20 years sitting on hospital committees of some sort,” he says. “We’ve tried to be good citizens.”

His group’s high volume, Dr. Womack adds, helps avoid any turf battles. “If we decided to close our doors tomorrow,” he says about competing hospitalist programs, “they’d be in trouble. There’s no way the other groups could handle the volume that we carry in addition to what they’re already doing. We’re a little bit of a necessary evil in their minds, I think.”

Recruitment troubles
Several of the hospitalists interviewed for this story say that they’d be willing to go after a larger slice of their hospitals’ business if they didn’t keep hitting such a wall recruiting. While recruiting hospitalists is difficult for everyone, it may be an even bigger challenge for private groups. Dr. Engleking says that because of his group’s business model, it took him two years to recruit a fourth physician.

When he began the practice, he explains, most of the physicians who signed on were, like him, approaching middle age and coming from long years of running a private practice. But now he finds that most physicians right out of training are more interested in shift work and leaving at a specific time—and getting a set salary.

“You talk to them about a productivity-based model like we have,” Dr. Engleking says, “and they shudder at the thought. I can’t ramp up my group unless I’m willing to change my model.”

Shared incentives
What’s the future for practices that live solely off billings? Mr. Buser says several trends indicate that these groups aren’t going away in the near future.

For one, hospitalist groups in some parts of the country are developing new income models as they take on more and more services for primary care physicians. Some groups are taking not only admissions but also ED call schedules. In return, Mr. Buser says, some primary care physicians are paying the hospitalist groups a monthly retainer.

Mr. Buser also speculates that hospitals may soon start scrutinizing the subsidies they’re willing to pay hospitalist groups. (Those subsidies are on the rise: The latest industry survey found that the average subsidy is now $97,000 per hospitalist, up from $64,000 in 2005-06.) Having recently negotiated a $2 million subsidy that a hospital is giving its hospitalist group, Mr. Buser says that hospital administrators were clearly “starting to strain” under such a high dollar amount. “They’re starting to question the value of the program.”

While there are relatively few unsubsidized hospitalist groups today, Mr. Buser thinks a subsidy ceiling or even subsidy reversal may open up the market for entrepreneurial-minded hospitalists. That scenario, however, could be modified by the likely emergence of payment models already in the pipeline, like pay-for-performance initiatives and possible gainsharing arrangements, where hospitals could share cost-savings with physicians.

As these types of initiatives put hospitalists in control of securing (or losing) large sums of money that hospitals will be vying for, the question is which model—groups that receive financial support or no subsidy—will be best positioned to share the wealth.

Mr. Buser says he expects to see hospitals interested in writing risk contracts with private groups that will share that wealth. Dr. Engleking points out that he will wait to see the details related to any pay-for-performance initiatives. “There are certainly costs that would be associated with that implementation, so we’ll have to see what the cost-to-benefit ratio is.”

And according to Dr. Womack, his group has been talking to hospital administrators about the possibility of quality incentives and reimbursement for services that help hospitals meet core measures.

“Unfortunately at this point,” Dr. Womack says, “the hospital sees this more as a chance to force us into an employed model, rather than as an opportunity to collaborate.”

Bonnie Darves is a freelance health care writer based in Lake Oswego, Ore.
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