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Wednesday, September 25, 2013

How subsidizing doctors' salaries can be financially sound

I have been doing locum tenens work as a hospitalist for nearly two years. One of my reasons for doing this is that the practice of medicine in the U.S. is very interesting, and by working in very different places I get to see how things work and don’t work, and make up cool theories. I have time to read and listen to people and have become curious about several true things which don’t seem to fit together.

1) Hospitals are paid an absurd amount of money to take care of patients.

2) Small hospitals can barely survive financially.

3) Small hospitals, rural ones with 25 beds or fewer (critical access hospitals) are paid more generously by Medicare than large hospitals.

4) Hospitals that employ physicians subsidize them above the money they bring in as professional fees, to the tune of about $100,000 per year per physician.

5) Hospitalists and hospitalist programs are expensive, in the range of 1-2 million dollars per year for a 25 bed hospital.

6) Hospitals are willing, even happy, to start hospitalist programs.

7) Hospitals have a slim enough margin (net income divided by total revenues) that changes in payment schemes has resulted (in times past) in the financial collapse of many of them, especially those that serve vulnerable populations.

So how can hospitals be so financially tenuous despite the fact that they are the largest cost center of the huge health care sector of our economy? Are they just whining?

I have been eager to get my hands on a hospital budget or two to try to piece together how hospitals spend their money, to see if there is some obvious extravagance. I have asked to be allowed to see the budget of the hospital that I know best, and somehow e-mails were lost or it wasn’t very high on anyone’s to-do list or it was a deep dark secret or something. Finally I Googled the right collection of words and found a link on the Washington Department of Health website where I could see quite a number of budgets for Washington State hospitals, even ones I knew something about.

I learned various things, which should be taken with grains of salt, because these budgets were not very detailed and may have misrepresented the truth in some important way. Still. It is the best I can do, and is somewhat instructive. I looked at one 300 bed hospital and one 25 bed critical access hospital and this is what I learned.

1. Hospitals have a profit margin of about 3-4%, which is a fact I have also read this elsewhere. This is considered very small, and makes them vulnerable to small changes in payments.

2. Hospitals bring in about $4,000-$5,000 per patient per day spent in the hospital. They also make a pretty big portion of their revenues by serving outpatients (doing things like blood tests and imaging and outpatient procedures.) Since most hospitals are paid according to diagnosis rather than length of stay, at least for a large proportion of patients, they make more money with fewer resources if the patients are discharged sooner rather than later. Small hospitals make more per patient per day than large ones.

3. The majority of a hospital’s expenses are the salaries of the many people who work there, nurses, technicians, administrators, employed physicians, janitors, cooks etc. These costs generally go back into the communities they serve since people usually spend their money for food and rent and stuff they buy.

What I glean from this is that significant cutbacks in hospital expenses will probably involve cutting local jobs. That may not be a bad thing, in the big picture, especially if the workers are perpetuating an inefficient system, but hospitals are often the economic heart of their communities, so cutting jobs is not ideal. There may be some extravagance in some salaries and there may be waste elsewhere, but finding it will probably be laborious.

I also figured out how it might serve a hospital to have an expensive hospitalist program. If a hospital spends $1 million dollars to have a hospitalist program, with an average length of stay of about 4 days and a daily revenue per patient of about $5,000, and if a that hospitalist program resulted in only 50-60 more patients being admitted to the hospital in a year, the program would pay for itself. The same goes for other subsidized physicians. If a hospital has to pay each of 3 surgeons an extra $100,000 per year above their actual professional fees to work at that hospital, those surgeons would only have to bring in a total of 20 more patients to pay for their subsidy. Not having a viable surgery department in the hospital, on the other hand, would result in a tremendous loss of patient volume, which would be financially devastating.

Because the budget information is so vague, I can’t tell how much of a hospitals’ costs are fixed and how much are based on volume of patients, which could significantly alter my calculations. Still, with very, very round numbers, it does appear that attracting more patients, especially those whose insurance pays well, would easily make it worthwhile for a hospital to employ physicians in various capacities.

So how does this information fit in with my ongoing thesis that health care is too expensive because we do stupid things? Much of the volume of actual work done in a hospital is aimed at servicing the wasteful procedures and tests which we do because that is how we do things. If we truly want to reduce health care costs, we need to be thrifty in a way that saves hospitals as much money as is necessary to offset any reduction in payments. This is definitely possible, but we do need to be sensitive to details of cost efficiency and realize that spending less on health care, at least at the level of hospital services, will impact the folks who are employed by the hospital and the communities where they live.

Janice Boughton, MD, ACP Member, practiced in the Seattle area for four years and in rural Idaho for 17 years before deciding to take a few years off to see more places, learn more about medicine and increase her knowledge base and perspective by practicing hospital and primary care medicine as a locum tenens physician. She lives in Idaho when not traveling. Disturbed by various aspects of the practice of medicine that make no sense and concerned about the cost of providing health care to every American, she blogs at Why is American Health Care So Expensive?, where this post originally appeared.

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Blog log

Members of the American College of Physicians contribute posts from their own sites to ACP Internistand ACP Hospitalist. Contributors include:

Albert Fuchs, MD
Albert Fuchs, MD, FACP, graduated from the University of California, Los Angeles School of Medicine, where he also did his internal medicine training. Certified by the American Board of Internal Medicine, Dr. Fuchs spent three years as a full-time faculty member at UCLA School of Medicine before opening his private practice in Beverly Hills in 2000.

And Thus, It Begins
Amanda Xi, ACP Medical Student Member, is a first-year medical student at the OUWB School of Medicine, charter class of 2015, in Rochester, Mich., from which she which chronicles her journey through medical training from day 1 of medical school.

Auscultation
Ira S. Nash, MD, FACP, is the senior vice president and executive director of the North Shore-LIJ Medical Group, and a professor of Cardiology and Population Health at Hofstra North Shore-LIJ School of Medicine. He is Board Certified in Internal Medicine and Cardiovascular Diseases and was in the private practice of cardiology before joining the full-time faculty of Massachusetts General Hospital.

Zackary Berger
Zackary Berger, MD, ACP Member, is a primary care doctor and general internist in the Division of General Internal Medicine at Johns Hopkins. His research interests include doctor-patient communication, bioethics, and systematic reviews.

Controversies in Hospital Infection Prevention
Run by three ACP Fellows, this blog ponders vexing issues in infection prevention and control, inside and outside the hospital. Daniel J Diekema, MD, FACP, practices infectious diseases, clinical microbiology, and hospital epidemiology in Iowa City, Iowa, splitting time between seeing patients with infectious diseases, diagnosing infections in the microbiology laboratory, and trying to prevent infections in the hospital. Michael B. Edmond, MD, FACP, is a hospital epidemiologist in Iowa City, IA, with a focus on understanding why infections occur in the hospital and ways to prevent these infections, and sees patients in the inpatient and outpatient settings. Eli N. Perencevich, MD, ACP Member, is an infectious disease physician and epidemiologist in Iowa City, Iowa, who studies methods to halt the spread of resistant bacteria in our hospitals (including novel ways to get everyone to wash their hands).

db's Medical Rants
Robert M. Centor, MD, FACP, contributes short essays contemplating medicine and the health care system.

Suneel Dhand, MD, ACP Member
Suneel Dhand, MD, ACP Member, is a practicing physician in Massachusetts. He has published numerous articles in clinical medicine, covering a wide range of specialty areas including; pulmonology, cardiology, endocrinology, hematology, and infectious disease. He has also authored chapters in the prestigious "5-Minute Clinical Consult" medical textbook. His other clinical interests include quality improvement, hospital safety, hospital utilization, and the use of technology in health care.

DrDialogue
Juliet K. Mavromatis, MD, FACP, provides a conversation about health topics for patients and health professionals.

Dr. Mintz' Blog
Matthew Mintz, MD, FACP, has practiced internal medicine for more than a decade and is an Associate Professor of Medicine at an academic medical center on the East Coast. His time is split between teaching medical students and residents, and caring for patients.

Everything Health
Toni Brayer, MD, FACP, blogs about the rapid changes in science, medicine, health and healing in the 21st century.

FutureDocs
Vineet Arora, MD, FACP, is Associate Program Director for the Internal Medicine Residency and Assistant Dean of Scholarship & Discovery at the Pritzker School of Medicine for the University of Chicago. Her education and research focus is on resident duty hours, patient handoffs, medical professionalism, and quality of hospital care. She is also an academic hospitalist.

Glass Hospital
John H. Schumann, MD, FACP, provides transparency on the workings of medical practice and the complexities of hospital care, illuminates the emotional and cognitive aspects of caregiving and decision-making from the perspective of an active primary care physician, and offers behind-the-scenes portraits of hospital sanctums and the people who inhabit them.

Gut Check
Ryan Madanick, MD, ACP Member, is a gastroenterologist at the University of North Carolina School of Medicine, and the Program Director for the GI & Hepatology Fellowship Program. He specializes in diseases of the esophagus, with a strong interest in the diagnosis and treatment of patients who have difficult-to-manage esophageal problems such as refractory GERD, heartburn, and chest pain.

I'm dok
Mike Aref, MD, PhD, FACP, is an academic hospitalist with an interest in basic and clinical science and education, with interests in noninvasive monitoring and diagnostic testing using novel bedside imaging modalities, diagnostic reasoning, medical informatics, new medical education modalities, pre-code/code management, palliative care, patient-physician communication, quality improvement, and quantitative biomedical imaging.

Informatics Professor
William Hersh, MD, FACP, Professor and Chair, Department of Medical Informatics & Clinical Epidemiology, Oregon Health & Science University, posts his thoughts on various topics related to biomedical and health informatics.

David Katz, MD
David L. Katz, MD, MPH, FACP, is an internationally renowned authority on nutrition, weight management, and the prevention of chronic disease, and an internationally recognized leader in integrative medicine and patient-centered care.

Just Oncology
Richard Just, MD, ACP Member, has 36 years in clinical practice of hematology and medical oncology. His blog is a joint publication with Gregg Masters, MPH.

KevinMD
Kevin Pho, MD, ACP Member, offers one of the Web's definitive sites for influential health commentary.

MD Whistleblower
Michael Kirsch, MD, FACP, addresses the joys and challenges of medical practice, including controversies in the doctor-patient relationship, medical ethics and measuring medical quality. When he's not writing, he's performing colonoscopies.

Medical Lessons
Elaine Schattner, MD, FACP, shares her ideas on education, ethics in medicine, health care news and culture. Her views on medicine are informed by her past experiences in caring for patients, as a researcher in cancer immunology, and as a patient who's had breast cancer.

Mired in MedEd
Alexander M. Djuricich, MD, FACP, is the Associate Dean for Continuing Medical Education (CME), and a Program Director in Medicine-Pediatrics at the Indiana University School of Medicine in Indianapolis, where he blogs about medical education.

More Musings
Rob Lamberts, MD, ACP Member, a med-peds and general practice internist, returns with "volume 2" of his personal musings about medicine, life, armadillos and Sasquatch at More Musings (of a Distractible Kind).

Prescriptions
David M. Sack, MD, FACP, practices general gastroenterology at a small community hospital in Connecticut. His blog is a series of musings on medicine, medical care, the health care system and medical ethics, in no particular order.

Reflections of a Grady Doctor
Kimberly Manning, MD, FACP, reflects on the personal side of being a doctor in a community hospital in Atlanta.

The Blog of Paul Sufka
Paul Sufka, MD, ACP Member, is a board certified rheumatologist in St. Paul, Minn. He was a chief resident in internal medicine with the University of Minnesota and then completed his fellowship training in rheumatology in June 2011 at the University of Minnesota Department of Rheumatology. His interests include the use of technology in medicine.

Technology in (Medical) Education
Neil Mehta, MBBS, MS, FACP, is interested in use of technology in education, social media and networking, practice management and evidence-based medicine tools, personal information and knowledge management.

Peter A. Lipson, MD
Peter A. Lipson, MD, ACP Member, is a practicing internist and teaching physician in Southeast Michigan. The blog, which has been around in various forms since 2007, offers musings on the intersection of science, medicine, and culture.

Why is American Health Care So Expensive?
Janice Boughton, MD, FACP, practiced internal medicine for 20 years before adopting a career in hospital and primary care medicine as a locum tenens physician. She lives in Idaho when not traveling.

World's Best Site
Daniel Ginsberg, MD, FACP, is an internal medicine physician who has avidly applied computers to medicine since 1986, when he first wrote medically oriented computer programs. He is in practice in Tacoma, Washington.

Other blogs of note:

American Journal of Medicine
Also known as the Green Journal, the American Journal of Medicine publishes original clinical articles of interest to physicians in internal medicine and its subspecialities, both in academia and community-based practice.

Clinical Correlations
A collaborative medical blog started by Neil Shapiro, MD, ACP Member, associate program director at New York University Medical Center's internal medicine residency program. Faculty, residents and students contribute case studies, mystery quizzes, news, commentary and more.

Interact MD
Michael Benjamin, MD, ACP member, doesn't accept industry money so he can create an independent, clinician-reviewed space on the Internet for physicians to report and comment on the medical news of the day.

PLoS Blog
The Public Library of Science's open access materials include a blog.

White Coat Rants
One of the most popular anonymous blogs written by an emergency room physician.

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