Implementing a Hospitalist Program: A hospital administrator speaks out

In the late 1980’s the public pressure to control rising healthcare costs reached a near-fever pitch. By the first presidential election of the new decade, the government had made reform of the healthcare system its top priority.
In response to those outside pressures, the industry began to find new and innovative ways to control costs. The process has produced several marginally beneficial programs and some that are of no value at all. It is understandable that some programs have provided variable degrees of success, and providers are left with the challenge of continuing to identify ways in which they can decrease costs without sacrificing quality or access.

The Hospitalist concept can potentially provide more benefit to the cost structure of a hospital than any program that has been introduced over the last decade – without a negative impact on quality and with only limited impact on access. Clearly this is a concept that deserves the attention of physicians and administrators alike, and one that will benefit those who have the foresight to become involved sooner rather than later.

The great benefit of implementing a Hospitalist program is its value in virtually every market. Hospitalist programs can work just as well in a fee-for-service (FFS) market as they do in highly capitated markets. Because of their focus on the efficient provision of inpatient care, it is possible to create programs that will result in the provision of the same or better care than that which was provided previously. A review of how Hospitalist programs can impact different markets is useful in understanding their benefit.

Fee-For-Service

The typical model for a Hospitalist program is to have a group of physicians provide care for a specified group of hospital inpatients. One of the results of this type of care is a reduction in the length of stay. In a FFS market, the financial incentive for this reduction is often contrary to the implementation of the program. One can argue that even given this financial incentive, there is still a great incentive to create an effective program to address only the Emergency Services of a hospital in a FFS market. For example, assume that you work in an average community hospital which has 40,000 visits to the emergency department each year. Assume also that of those 40,000 visits, 10,000 patients are admitted to the hospital. And finally, of those 10,000 admissions, 3,500 are patients with no primary care provider (PCP) of their own who are typically referred for inpatient care to the PCP on call.

Many of those 3,500 patients will have little or no insurance, so the reimbursement from providing care for them is at best fixed. If the hospital can implement a Hospitalist program that simply takes care of the 3,500 patients with no PCP, the program will have a high probability of success. In my experience in dealing with such a scenario, our organization saved $1,200 per admission. To be conservative, let’s assume that such a program was only able to save $500 per admission. This would result in an annual savings of $1,750,000, while continuing to provide the most appropriate care to the patient.
Capitated Markets

The real potential of Hospitalist programs can be seen in capitated markets where the financial incentives become totally aligned with the concept of careful inpatient management. In a FFS market the hospital, as the main beneficiary, will typically be the driving force in creating the program, whereas is capitated markets the physicians have much more to gain financially and are more incented to begin the program on their own.
In this type of a market an effective Hospitalist program can not only gain the benefit described in the above example, but it can also be spread throughout the hospital to service all inpatients and provide a resource for surgical consults during the day while office-based physicians are unavailable. With contracts from surrounding IPAs, the hospital, and individual physician groups, a Hospitalist program in a capitated market can reduce costs and also be financially rewarding for those who provide the care.

New Opportunities

While the concept of Hospitalists is relatively new, the field continues to expand rapidly. In the future, hospitals and physicians who can work together collaboratively and quickly will be in the best position to ensure their place in the market. Many are already doing so by discovering new and expanded ways to offer the concept of Hospitalists, both in FFS and capitated markets. A summary of some of the more interesting ideas follows.

Specialty Hospitalists

One of the newer trends in the provision of Hospitalist care is the creations of specialty Hospitalist programs. These are programs that focus on one specialty and then attempt to provide the inpatient care for that specialty for a wide patient base. Because of the large patient population needed to ensure the success of a program like this, such programs usually work better in large metropolitan areas with relatively short distances between hospitals and large numbers of patients.
The system is created by a group of physicians working with a local hospital to contact with all of the surrounding groups in that specialty. For example, a group of pediatricians from one hospital may contract with every pediatrician from the nearby competing hospitals and offer, as a service, the ability to cover the call of their neighboring pediatricians—or even more, to admit the patients from their practice—thus helping neighboring pediatricians develop practices with no call and no hospital rounds. As a result, the pediatric department in the hospital that receives the patients grows dramatically, while the one in a competing hospital declines.

Outreach Programs

Hospitalist programs that have been established long enough to become comfortable in their service often look outward to new business. Some of these programs have been successful in outlying areas in attracting the inpatient business of rural hospitals and their physicians. In providing inpatient services for these hospitals, a Hospitalist program can increase the number of patients that are served and, consequently, the success of the program.

Another outreach area has been the successful marketing of the Hospitalist concept to local nursing homes. The long-term care industry has an on-going problem finding physicians who will, on a consistent basis, provide care for their patients.
A Hospitalist group that agrees to provide a permanent solution to the inpatient/emergency room needs of nursing home patients can be very effective. Additionally, if a Hospitalist practice happens to be in a market that is highly competitive this can prove to be another successful way to increase market share.

A Word of Caution

In the creation of the Hospitalist program, the hospital has much more to gain financially than does the physician group. The savings to the hospital can literally be in the multi-million dollar range. While the physician group can prove to be very financially successful by providing this type of service, their returns will never approach the possible savings for the hospital.

For this reason, it is interesting that physicians, not hospital administrators, have been and remain the driving force for the Hospitalist concept. In the future, hospitals and physicians will have to find ways to better partner on the possible respective financial gains of each group. The ideal way to ensure this partnership would be for the hospital to try to surmount the legal barriers that currently exist to allow such cost-sharing. The hospital must find ways to provide adequate incentives for physicians in Hospitalist groups to come to provide this care at their facilities. The process of creating a contract that can adequately incent the physicians to work diligently at the hospital is complicated and one that needs to be completed with caution and careful legal advice.

Conclusion

With the continued public mandate to achieve effectiveness in both costs and quality, the Hospitalist program is the most promising opportunity to be presented this decade. As programs grow and evolve, they will also become a great resource in defending and increasing market share. Those who can early on become effective in the implementation of a Hospitalist program will certainly reap the greatest rewards in the future.

- by Rulon F. Stacey, MD

Dr. Stacey is Chief Executive Officer of the Poudre Valley Health System in Fort Collins, Colorado

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