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Hard times and hospital medicine
What effect will the recession have on the financial health of your practice?

Keywords: In difficult economy, hospitalist groups consolidate, renegotiate contracts, and adjust to reduced hiring


by Deborah Gesensway



Published in the January 2009 issue of Today's Hospitalist

While the conventional wisdom holds that health care is recession-proof, many hospital CEOs are worried that the financial crisis that is circling the globe may be the exception to the rule. Leaders of the hospitalist movement, however, say there may actually be a silver lining to the dark financial clouds that are causing so much anxiety.

While emergency departments are already reporting drop-offs in paying patients, hospitalists, the vast majority of whose patients are on Medicare, have yet to see similar shifts. And while surgeons are reporting that some patients are putting off
“People are taking their medications less for the first time in 20 years.”

–Erik DeLue, MD, MBA
Virtua Memorial Hospital
elective procedures like knee replacements and bariatric surgery, the urgent nature of hospital medicine has kept most hospitalists busy, with some even seeing growth in patient volumes.

That’s not to say that hospitalists can expect to escape the current financial crisis without taking some kind of hit. Some, for example, say that their hospitals are already scrutinizing contracts and subsidies much more carefully than before. Others say that financial pressure has caused hospitals to put plans to start or grow hospitalist programs on hold.

But for the most part, the consensus is that most hospitalist groups are thriving, and they expect to be an even bigger part of the solution for hospitals weathering tough times.

“As a field, I think we are reasonably well-protected, assuming we have demonstrated our value and have the right data,” says Robert Wachter, MD, the head of hospital medicine at the University of California, San Francisco, and one of the leaders of the hospitalist movement since its beginnings. “We become even more valuable at times of economic scarcity.”

Making business ends meet
The picture for hospitalists is probably the least rosy on the business side for some small hospitalist groups that are struggling to make ends meet as their accounts receivable grows and their cash on hand starts to shrink. Several of the largest national and regional hospitalist companies say there’s been brisk interest from smaller groups that want to join their ranks.

“Let’s be honest,” says Stephen L. Houff, MD, founder, president and CEO of Hospitalists Management Group (HMG), headquartered in Canton, Ohio, which has 250 hospitalists practicing in 35 sites across the country. “Weaker players in our space will be driven out or will be consolidated in larger, stronger organizations.”

Until now, Dr. Houff adds, “I think we have had a little bit of a honeymoon because of the fervent desire of our hospital clients to get these programs started yesterday.” He predicts that “we are going to have to become better managed businesses—leaner and meaner—to really thrive in the new environment.”

Recession may also mean the end of the recruitment heyday. Hospitalist demand will still outstrip supply, and no one sees looming cutbacks or layoffs. But many predict the start of a more conservative approach to recruiting.

There are already reports of slots going unfilled because the experienced hospitalists recruited for them can’t sell existing homes and relocate. Robert Bessler, MD, president and CEO of Sound Inpatient Physicians in Tacoma, Wash., says that 65% of Sound’s new recruits a year ago were experienced physicians.

“This year,” Dr. Bessler explains, “it’s only about 40%, and it has to do with the real estate market. We are not in a position to pay for people’s homes.”

The impact on hospital subsidies
Then there’s the fallout from the financial shortfalls that hospitals expect to face. Hospitals now have to figure out how to cope with shrinking patient revenue, changes in Medicare and Medicaid, growing accounts receivable, constrained philanthropy, and a worldwide credit crunch that limits their access to the bond market. That has many experts predicting that the financial support that many hospitalists receive is unlikely to survive a deep recession unscathed.

“The greatest threat that many hospitalist programs have faced over the last three years has been wage inflation,” says HMG’s Dr. Houff. “That has been good for many physicians, but many hospitalist companies hadn’t anticipated it.” While he believes those rapidly rising salaries will now level off, he sees two new threats: the shift in the payer mix to more patients who are uninsured, and the “softening of the financial position of our hospital partners.”

It remains to be seen how well hospitalist groups will balance subsidies and the types of services that such support buys, including 24/7 coverage, rapid response teams, and new potential revenue sources like observation units or preop clinics.

“The reality is that there is going to be more pressure to justify our existence,” says Erik DeLue, MD, MBA, director of the hospitalist program at Virtua Memorial Hospital, a community hospital in Mt. Holly, N.J. “But the great news is that this is a wonderful time to be a hospitalist. Hospitals may ask us to justify our existence, but the paradox is that they need us more than ever to try to contain costs.”

Today’s Hospitalist asked leaders in the field what global economic turmoil may mean for hospital medicine. Here’s what they had to say.

“Hospitals are going to scrutinize every expense.”
Stephen Houff, MD
President and CEO
Hospitalists Management Group (HMG), Canton, Ohio

Many HMG groups work in hospitals throughout the particularly hard-hit Midwest. Some of those groups are beginning to see commercial payers, including large self-insured employers, delay paying their bills. The result is larger amounts in accounts receivable, leading some groups to borrow more. With rates for that type of credit on the rise, some practices are going to be squeezed.

“No one is saying that these large companies are not going to live up to their financial obligations, but insurers and third-party administrators are finding ways to slow down payments.” Dr. Houff says. “It is going to be increasingly important for companies in our space to be well-capitalized and have adequate access to credit markets.”

Meanwhile, one hospital that HMG contracts with is actually in danger of going out of business. “They are reviewing all their vendor relationships to look for ways to cut expenses,” Dr. Houff says.

As a result, the hospitalists are negotiating with the hospital to reduce currently available services, such as cutting back on overnight coverage. According to Dr. Houff, many hospitalist programs may need to restructure their contracts to “trade subsidy payments for a percentage of the value we create, streamline services and find novel ways to make due on less financial support.”

“This may have some downstream impact on the perceived level of service available to patients,” he says, “but tough times call for tough choices when resources become constrained.”

Dr. Houff is also hearing from hospitals that have yet to bring hospitalists on board that now isn’t the time to launch a new program. One facility, in fact, has already postponed a start-up for six months. “They told us they remain committed to the concept,” he points out, “but their board has them now very deeply involved in refining their financial plan.”

It’s just one more example of how the downturn is forcing hospitals to become more “careful consumers,” Dr. Houff says. “You get the sense anecdotally that maybe the dollars aren’t coming like they used to.” As those dollars tighten, “hospital leaders are going to scrutinize every expense they have, and we are most certainly on the list.”

“Get bigger to be safer.”
Adam Singer, MD
Chair and CEO
IPC The Hospitalist Company, North Hollywood, Calif.

In this market, being bigger is better in many ways, contends Adam Singer, MD, CEO of IPC The Hospitalist Company. That maxim applies not only to economies of scale, he says, but practice management and information technology.

In times when accounts receivable may be creeping up, Dr. Singer point outs, it’s important to be able to attract the kind of top-notch business managers who can stay on top of billings and collections. “In a constrained market, every 1% you are off is going to be painful,” he says.

According to Dr. Singer, IPC has been fielding “quite a few calls” from small groups looking for the kind of “shelter in the storm” that a big umbrella company can offer, particularly those in markets where hospitals themselves are considering consolidation. IPC, which is headquartered in North Hollywood, Calif., is now the nation’s largest private practice hospitalist company, with more than 800 physicians in more than 300 facilities throughout the country.

“Hospitalist groups need to get to some size to leverage professional infrastructure, acquire technology and have capital to hire new physicians,” he says. “Groups are going to have to get bigger to be safer.”

Dr. Singer characterizes the timing of IPC’s public offering last year as “very fortunate.” Going public, he explains, allowed the company to raise growth capital, reduce company debt and create liquidity. In the third quarter of 2008 alone, IPC acquired practices in Florida, Texas and Arizona. And despite the overall dramatic drop in the financial markets, IPC’s stock has not suffered a similar tumble.

Long a critic of subsidies, Dr. Singer sees a recession increasing not only the vulnerability of groups that depend on subsidies, but the need within many groups to reorganize.

“They are going to have to learn how to market their practices,” he says. “They are going to have to learn how to create better staffing models so they can reduce their number of FTEs. And they are going to have to learn how to improve the productivity of the doctors they have.”

“Get back to fundamentals.”
Martin B. Buser, MPH
Hospitalist Management Resources LLC, Del Mar, Calif.

Just because hospitals now view hospitalists as “indispensable” doesn’t mean that doctors aren’t going to be asked to defend themselves vigorously. That’s the message from veteran consultant and former hospital CEO Martin B. Buser, MPH, a founding partner of Hospitalist Management Resources LLC, a national consulting and management services company specializing in hospital medicine.

Just two years ago, he says, “we could develop a pro forma” during financial negotiations over taking on ED unassigned and in-house 24/7 coverage “and administrators would want to proceed. Now they want to examine every line item. We have to defend the return on investment analysis in more detail.”

Groups should look to hire less expensive extenders, like nurse practitioners and physician assistants, and at tapping community physicians looking for extra work rather than turning to locum tenens companies. Hospitalists should also make sure their charting and coding are up to speed, and that billing and collection efforts can maximize collections.

“When times get tough, you have to get back to fundamentals,” says Mr. Buser. Hospitalists need to exhibit “a little more hustle” and show they are “team players.” They should also keep asking what is on the hospital’s agenda and show value by helping administrators solve problems by, for instance, adding preop clinics, reducing ED throughput time and improving discharge times.

Hospitals also use recessionary periods, he explains, as “an opportunity to clean house. There is so much anxiety in the market that administrators don’t get much pushback from the media or from medical staff. It’s a good time to do some dramatic things to cut out the fat.”

On a personal level, he adds, hospitalists should get their own financial house in order by reducing household debt and keeping their cash flow up.

“During these periods, the person who has cash is king,” Mr. Buser says. “If I were a young hospitalist just starting out now, I would work as many shifts as I could tolerate, rack up as much cash as I could, pay off my debts and be in a position to buy real estate when this market finally reaches its bottom. Long term, it will give you more options.”

“Tough times are when hospitals need us most.”
Robert Bessler, MD
President and CEO
Sound Inpatient Physicians Tacoma, Wash.

After hiring 90 doctors in 2008, Robert Bessler, MD, says it’s a good thing that Sound’s hospitalist groups have relatively few slots to fill because it is getting harder to recruit experienced hospitalists.

“We do a lot of recruiting out of the Midwest, and physicians are having an incredibly hard time selling their homes,” says Dr. Bessler. “They can buy a more affordable home, which is nice, but they have difficulty selling. The only people who can move into new jobs right now are those who don’t already own a home, who are mostly residents.”

That also means, Dr. Bessler says, that groups have to spend more time teaching new doctors how to practice efficiently and effectively. Sound, for instance, decided several years ago to create a “hospitalist institute.” The SIP Hospitalist Institute allows company physicians to get required training in what Dr. Bessler calls “the real world” of cost and risk, management, communication skills, utilization improvement strategies, documentation and teambuilding.

Those skills are now more important than ever because hospitals are turning to hospitalists to do more, not less. “We are not seen as a cost center, but as a way to create sustainability in uncertain times,” Dr. Bessler says.

With money for building harder to come by and construction costs rising, Dr. Bessler says hospitals are now more interested in how to free up beds than in building new ones. “We have a lot of hospitals asking us how to drive earlier discharge order times,” he says. “The take-home message for us is that tough times are when hospitals need us most.”

“Are you the first thing cut or the last?”
Robert Wachter, MD
Chief of the hospital medicine division
University of California, San Francisco

Because hospital medicine is “uniquely dependent on hospital support and the kindness of others,” says Robert Wachter, MD, hard times will likely put “a magnifying lens” on the specialty.

As hospitals become more prudent shoppers, he says, “your support will be based on demonstrable value. Some of that will be data. Some will be how you have positioned yourself politically in the hospital. And then it’s smart and savvy negotiation.”

This is why, he points out, hospitalist group leadership is so key. “You take someone who is pretty new to this—maybe three years out of residency and running a program because he or she is the most senior hospitalist in the program—and that’s a tricky situation to be in,” he says. That’s particularly true, he adds, when you’re sitting across the table from a hospital CFO who’s explaining that the hospital is $30 million down from where it was last year.

“You need to be able to negotiate with that CFO in a fairly hardnosed way when necessary,” Dr. Wachter says. “You need to be able to say, ‘OK, if you want to cut us, these are the things we can’t do for you anymore,’ and point out that a lot of that is mission critical for the hospital.”

While health care remains somewhat “recession-resistant,” Dr. Wachter says, “belts will tighten. Are you the first thing cut or the last? My mantra has been that we need to make ourselves absolutely indispensable.”

“Non-reimbursable roles could be cut back.” Jennifer Myers, MD Academic hospitalist and patient safety officer, Hospital of the University of Pennsylvania, Philadelphia

As a hospital patient safety officer, Jennifer Myers, MD, says she is concerned that a natural response to having less staff around—a real possibility in times of hiring freezes and layoffs—means remaining staff have to work harder, resulting in fatigue and cutting corners.

“This can lead to them not having enough time to take the necessary steps to provide safe patient care, whether it is adherence to specific guidelines, communicating with primary care doctors or double-checking home medication lists for safety,” she says. “We all know that when we are busier, we do things differently.”

Dr. Myers also worries that hard times will mean that hospitals will cut back on services they consider nonessential. These may include patient safety and quality improvement programs, many of which have been spearheaded and sustained by hospitalists.

“A lot of the non-reimbursable roles that hospitalists have in quality improvement and even education could be cut back,” Dr. Myers says. “Many hospitalists currently have protected time for these important hospital and academic missions, and I worry that these may be considered as something that is less necessary in times of economic hardship.”

“A lot of smart people are now going to become doctors.”
Erik DeLue, MD
Director of the hospitalist program
Virtua Memorial Hospital, Mount Holly, N.J.

Erik DeLue, MD, MBA, is sure this recession is going to be “deep enough and strong enough for us to feel it.” Nonetheless, he has no doubt that hospitalists are “better positioned” to weather it.

Just think, for instance, of all the smart people who became investment bankers during the boom years, he says. “They went into it for the money. Now, it’s not as sure a job. If you are looking at long-term positives, I think you will see a lot of smart people who previously were going to be investment bankers and the like who are now going to be doctors.”

In his mind, there is no question that hospitalists will still be in great demand. But there are enormous questions about what the economic turmoil may have in store. Will the government ride in and “rescue” hospitals on the brink of folding? How many more uninsured are we likely to see? Will the crisis atmosphere stimulate health care reform? And what happens when millions of people can’t afford their medications, which appears to be happening?

“People are taking their medications less for the first time in 20 years,” points out Dr. DeLue. “It’s a reasonable assumption that if people don’t take their medicine, they are going to be sicker, and that will have a direct effect in the near short term.”

This is, he adds, “the real tragedy of any discussion on the effect of the recession on hospitalists.” While most doctors choose to go into medicine because of a desire to help people in crisis, “any solace we may find in our job security is already being offset by stories of our patients’ socioeconomic heartbreak. Patients’ health is going to be very adversely affected by the severe economic downturn, and there is much suffering in store.”

Deborah Gesensway is a freelance health care writer based in Sierra Madre, Calif.
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