Published November 2014 issue of Today’s Hospitalist
FOR RAJ MAHADEVAN, MD owning a local private hospitalist group in southwestern Florida means developing a high tolerance for market turmoil.
Last year, Dr. Mahadevan, who owns Cape Coral Hospitalists, sold a part of his practice to one national company, only to see that company ousted just months later when the hospital gave the contract “along with the contract for its ED “to another national company. Then this September, the same thing happened with a two-hospital contract his group has had.
Dr. Mahadevan was able to sign a “new, more lucrative contract with another hospital 30 miles away.” But among his various contracts, he points out, his group of 15 full-time physicians, eight part-timers, and six NPs and PAs now covers a combined census of about 160 patients per day. That represents a 28% drop from the group’s peak volume of 220 patients per day.
Dr. Mahadevan’s group is far from alone in watching longstanding business go instead to management companies offering both hospitalist and ED coverage. Hospitals are turning to combined ED-hospitalist services as a way to take advantage of economies of scale “and to use, analysts say, profits from booming EDs to offset soaring hospitalist subsidies. Proponents of the model say that it offers not only financial savings but quality and operational benefits as well.
But critics of the push to integrate services, like Dr. Mahadevan, say such arrangements represent “mercenary hospital medicine” and lead to a loss of local control and physician input. And some ED physician organizations such as the American Academy of Emergency Medicine strongly object to the way that integrated service lines are being structured, claiming they siphon profits away from ED doctors to subsidize other service lines.
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Analysts note that integrated service contracts are attracting not only big hospital chains, but smaller community hospitals. And the outsourcing of combined ED-hospitalist contracts to regional and national companies is affecting not only local private groups, but hospital-employed programs.
“This is a real paradigm shift,” says Martin Buser, MPH, founding partner of Hospitalist Management Resources LLC, a national hospitalist consulting firm. “If I were a hospitalist program holding a stand-alone contract with a hospital that has a busy ED and a good payer mix, I’d be worried.”
Experts say that several factors over the past year are driving hospitals’ interest in integrated services. One is the Affordable Care Act.
“Within the last year, the value-based purchasing percentage finally has some real teeth,” says Denise Brown, MD, vice president of practice development at the Emeryville, Calif.-based CEP America. Her company, which is now in nine states and the District of Columbia, has integrated service lines at 12 sites. “The vast majority of requests for new business are asking about the integrated approach.”
Combine readmission and other penalties with the average hospital’s profit margin, which is in the low single digits, and it’s no surprise that administrators are scrutinizing line items for places to cut costs. Too, administrators are finally getting their heads around the fact that even as hospitalist volumes rise, the subsidies hospitals have to pay them aren’t going away.
“It’s exactly the opposite,” says Oliver Rogers, executive vice president and chief operating officer of TeamHealth, one of the largest national groups offering integrated ED, hospitalist and anesthesia services. “The bigger the program, the more subsidy you have to pay. We’ve seen an explosion in what hospitalists provide, but that has not led to profitability. What they can bill and collect is just not sufficient to pay the costs of the physicians.”
According to 2014 Society of Hospital Medicine data, the average per-FTE hospitalist subsidy now is $156,063. For some groups in the 90th percentile in the South and Midwest, per-FTE subsidies top $300,000.
While some ED groups are subsidized, emergency medicine is much more profitable than hospital medicine. That profitability gives large national companies an incentive to take a loss on their hospitalist service, says David Grace, MD, senior medical officer of hospital medicine for The Schumacher Group, a physician staffing company based in Lafayette, La., that staffs and integrates both EDs and hospitalist programs.
“If we need a $1 million subsidy for a stand-alone ED and $2 million for a stand-alone hospitalist group,” says Dr. Grace, “we may get by with a $1.5 million combined subsidy for both. For the hospital, that’s a win.”
An issue of subsidies?
But according to Dr. Mahadevan, subsidies are just one factor leading hospitals to turn to companies that can integrate hospitalist and ED services. The stipend he received for his contract that was recently cancelled was less than $300,000. That amount was not per FTE, but for an entire program providing 24/7 coverage in two hospitals.
“That was a pittance,” he says of the stipend, particularly when you consider that his group’s reducing the average length of stay at the two hospitals from 5.6 days to 4.2 “probably saved the hospitals $2 million.” His program also took the hospitals’ HCAHPS scores from the 55th percentile to the 85th. “So why kick us out?”
In Florida, Dr. Mahadevan explains, just about every hospital used to have at least one local entrepreneurial group, but that’s changing. “We’re being overrun by corporations that can take bigger loss margins and effectively cut subsidies,” he notes. “We don’t have that kind of bargaining power.”
Across the country in California, another local hospitalist group made up what it lacked in bargaining power in the form of the full support of the hospital medical staff. Earlier this year, Tenet Healthcare announced that it was putting out for bid the contracts for the hospitalist, ED and anesthesia programs in 11 of its California hospitals.
The medical staff at Sierra Vista Regional Medical Center in San Luis Obisbo “made the loudest noise in the state with unanimous opposition,” says William Sogaard, MD, who works with the San Luis Hospitalists’ program there and is the hospital’s chief of staff. The hospital’s governing board “very strongly disapproved” of the proposed outsourcing, so Tenet “at least for now “”has backed off.”
The proposed contract change, Dr. Sogaard points out, “would have potentially removed three people from the medical executive committee, including the chief of staff.” And many of the affected physicians, including the hospitalists, made it clear that they would not stay to work under a new vendor. (The hospitalist group covers two other local hospitals as well.)
The hospital had announced that it was considering giving all three service contracts to one of three vendors. Dr. Sogaard says that he and a committee interviewed all three.
“We specifically asked them, ‘What quality issues is the hospital asking you to come in and fix?’ ” Dr. Sogaard points out. “And each of them said, ‘None.’ ”
Difference in “bandwidth”
Dr. Brown from CEP America understands local groups’ concerns. “I ran my own shop,” she notes.
But she eventually joined CEP, she explains, “just to have all the things that are so important for success like data management and IT services.” For many local groups, “it would be daunting to even access the kind of information required to answer questions on these RFPs [requests for proposals].”
Mr. Rogers from TeamHealth notes that taking over contracts “is always controversial,” adding that his company has been “on the losing side of the proposition, which never feels good.” But he’s convinced that size counts and that many local groups “don’t have the bandwidth” to provide competitive services “or even pay themselves the right level of compensation.
“We often have the ability to recruit or help groups collect enough to pay at market rate,” he says. “Because of our size, we will bill more than 13 million patient encounters this year and credential over 9,000 providers. We do a lot of it, and we do it very well. That’s one way we can actually put more money into compensation.”
No more “dumping” syndrome
While many hospitalist groups that find themselves on the chopping block may produce stellar outcomes, others have performance problems. That’s a big reason that hospitals put contracts out to bid or outsource the management of their own employed groups.
Performance issues can run the gamut, from subpar leadership or communication skills to an unwillingness to have performance measured. And hospitals with several hospitalist groups find themselves struggling with the lack of standardization among clinical protocols and admission processes.
But perhaps most importantly, explains Schumacher’s Dr. Grace, “In 80% of the cases where hospitals approach us, there is less than optimal functioning between their emergency medicine and hospital medicine groups.” Bringing both services under one management, he says, removes much of that traditional opposition.
“If I’m an ER doc, I want all the utilization for a patient pushed into the admission because it won’t fall on my spreadsheet,” Dr. Grace points out. “But if I’m an independent hospitalist group, I want all the tests and money spent in the ER on someone else’s balance sheet.” With one entity running both services, he adds, “what matters is net utilization, and you hope to have a net improvement.”
Mr. Rogers agrees. Within integrated services, he says, both lines are “incented to achieve the same metrics, so the historical angst of ‘one of us is dumping on the other’ goes away.”
Could be too big?
Some hospital administrators, however, are reluctant to put all their eggs in one basket. Sound Physicians, which is based in Tacoma, Wash., is a physician-led organization whose partners build and lead hospitalist programs, ICUs and post-acute care facilities nationwide. But the company does not staff EDs, notes founder and CEO Rob Bessler, MD, despite the fact that he is board certified in emergency medicine.
“We added 27 hospitals in 2013, and we expect to add approximately the same number this year,” says Dr. Bessler, pointing out that his business is booming even though the company doesn’t offer integrated ED-hospitalist service lines.
He doesn’t think you need one parent company to get EDs and hospitalist programs to work well together. “We do a lot of things to improve throughput from the ER,” he says. “We have a very high-touch model with ER docs, and we treat them like our clients.”
And while Dr. Bessler doesn’t find hospitals pushing back on hospitalist subsidies, they are demanding value. “They need better outcomes in terms of cost per case, mortality and readmission rates,” he points out. “The hospitals hiring us want best in class.”
But Christopher Frost, MD, chief medical officer for hospital based physicians at Hospital Corporation of America (HCA) in Nashville, Tenn., notes that the efficiencies gained through integrated services go well beyond costs.
As Dr. Frost explains, HCA has formed a joint venture with EmCare “the country’s largest ED staffing company “called Valesco Ventures that currently has 24 integrated ED-hospital medicine programs. (The joint venture also has 33 stand-alone emergency medicine programs and “a handful” of stand-alone hospitalist programs.)
Each HCA hospitalist and ED program, Dr. Frost explains, is assessed according to a standardized dashboard that includes several different metrics, including geometric mean length of stay, core measure performance, patient satisfaction scores, and readmission and mortality rates.
“We’ve really seen advantages, both on the ED and the hospital medicine side,” he says. “When you look at the joint venture’s performance across those metrics and compare it to the aggregate performance of other providers, it ends up doing very well.”
A winning strategy?
Part of the reason for that better performance, he says, is that ED and hospitalist providers in integrated services collaborate effectively and meet regularly. “We see much more coordinated handoffs,” Dr. Frost says. “And there’s more of a balanced consensus on issues that might otherwise be difficult for groups that aren’t integrated.”
He notes that the joint venture is not exclusive and that HCA uses other regional and national companies to manage integrated services. HCA also has many stand-alone ED and hospitalist programs as well as hospital-employed ones.
“The primary driver of the success of this integrated model has been the impact on clinical and operational performance,” he says. “Whatever approach a hospital chooses, it’s vital to use meaningful metrics that drive continual improvement.”
According to Mr. Buser, the integrated service model “as long as its done right “is a winner, at least in the short term.
“Five years from now, if we get some traction on ACOs, then maximizing revenue in the ED won’t be the only game in town,” says Mr. Buser. “With a capitated population, you actually want to keep patients out of the ED and the hospital, so your models will have to change.”
Long-term, he thinks acute-care services will want to integrate with outpatient clinics and medical homes instead. But until ACOs mature, Mr. Buser says, integrated services have the potential for strong growth because ED services will remain in demand.
For Dr. Grace from The Schumacher Group, the rise in integrated services means that the era of small local groups, at least in larger hospitals and hospital chains, is coming to an end. While big hospital chains may not want all their service lines under one umbrella, “it’s much easier to deal with only a few, large companies, not 300 independents.”
By the same token, he expects there to be as many as 10% or even 20% fewer hospitals in the next several years due to mergers.
“No margin, no mission,” says Dr. Grace of hospitals’ need to cut costs. “Five or 10 years ago, it was OK for hospitalist groups to be only OK, but now you need to be exceptional.”
Phyllis Maguire is Executive Editor of Today’s Hospitalist.
What happens under new management?
WITH HOSPITALS SHOWING INCREASED INTEREST in outsourcing ED, hospitalist and (sometimes) anesthesia service lines to a single vendor, some urban legends have grown up about such takeovers.
That’s according to Oliver Rogers, executive vice president and chief operating officer of TeamHealth, one of the largest groups in the country offering integrated services. One legend is that integrating ED and hospitalist services under one umbrella allows companies to do away with subsidies.
“There are a lot of hospitals in the country where we as well as others continue to receive subsidies,” Mr. Rogers says. “It’s really all over the board, depending on the payer mix at a particular hospital in a particular state.”
Another myth, he says, is that companies taking over integrated services fire all the older doctors, hire only young physicians and pay them less than what group members used to make.
“If we did those things, we would not be able to come in and perform,” Mr. Rogers says. Typically, he adds, “we find that we have to increase the hours of coverage and we certainly maintain salary levels, or increase them.”
As for retention, “we ask the facility to give us the names of those physicians it would like us to retain,” he explains. “Our track record among those identified runs between 85% and 90%.”
Denise Brown, MD, vice president of practice development for the Emeryville, Calif.-based CEP America, which also operates integrated sites, says that “everybody is welcome to join, although that doesn’t mean there are any shift guarantees.” CEP America’s retention rate after taking over integrated services also runs higher than 80%.
The company, Dr. Brown explains, makes physicians partners from Day 1; after four years of sweat equity, doctors become full partners. But “there are some people who just want to come in and punch a time card.”
That tends to produce “a bit of turnover in the first six months,” she adds, “but then more than 80% of physicians end up becoming key partners.”
CEP America’s service lines also receive subsidies: “We share some burden and some risk with hospitals,” she notes. In terms of subsidies, “I’m hoping we’re at one end of the pendulum swing now and that we’ll move away from cost, back to value in the middle.” At the same time, she says, “the consolidation of doctors and the effort to ‘reduce physician spend’ are very real. The onus is on us to demonstrate our value.”