Why It’s Time to Talk About the Value of Your Hospitalist Program (And How to Calculate How Much Revenue Your Hospitalist Generates) | Part 1

So, what is the value of a hospitalist program and how much revenue does your hospitalist generate? It’s easy to think of your hospitalists as a cost center since the impact they have on revenue generation is not as obvious or clear as other specialties. But when you start to dive into the metrics that hospitalists have the biggest impact on, then it’s clear that hospitalists generate significant revenue for your hospital. 

Here’s how to start thinking about the ROI of your hospital medicine program.

The first thing to measure is revenue. What are the collections from the professional services that my hospitalists provide? While this is the easiest to measure and has a large impact on cash flow, it’s probably not where the greatest ROI from hospitalists comes from. If we want to think about what that is, we have to think about where hospitalists started, and what the alternative to hospitalist medicine might be. 

Way back in the day, at the beginning of my career, hospital medicine was a brand-new field.  Prior to its adoption, primary care doctors would come to the hospital and see their patients before the clinic, at lunch, after clinic, or when there was an emergency. It’s hard to believe now, but there was a time when there were no doctors on the hospital floors for most of the day. The ED docs were in the ED and surgeons were in the OR, but there might be no doctors at all on the med surgery floors. The problem with this was that, while everyone wanted what was best for the patient, the incentives for doctors and the hospitals weren’t otherwise necessarily aligned.  Patients might stay in the hospital for prolonged periods of time, doctors might not document as well as the hospital needed for billing purposes, and so on.   

By having dedicated hospitalists (especially ones that were either employed by or under contract with the hospital) the hospital now had much more influence over the practice of hospital medicine and could prioritize different things that they wanted their hospitalists to do.  So, while everyone wants patient care to remain excellent, there are other metrics that the hospital is interested in managing – and hospitalists became part of the process. What are these metrics?   

Length of Stay  

For many/most patients, the hospital will be reimbursed on a DRG (diagnosis-related group) basis. Meaning the hospital will collect a fee based on the diagnosis, regardless of what the actual expenses are. So, if they can care for the patient efficiently, they will have more of that DRG money left when the patient is discharged. If they are inefficient, the costs of caring for the patient may exceed the DRG patient, and the hospital can lose money. One of the key drivers for this is length of stay.  

For every day a patient is in the hospital, it costs money. Nurses, allied health professionals, custodial staff, PPE, meals, supplies, etc… All of this adds up without even considering the extra labs, imaging, medications, and other expenses that go along with longer hospital stays.  All of this eats into that DRG money, and therefore the hospital very much would like to reduce length of stay to reduce those expenses.   

While it’s hard to find current data (since almost everyone is cared for by hospitalists), in a retrospective cohort study of almost 2 million Medicare admissions (published in 2010), the authors found a 7.1% reduction in length of stay for patients cared for by hospitalists. This length of stay reduction has enormous financial benefits for the hospital as it reduces expenses and allows them to preserve more of the DRG payment. 

In addition, with hospitals filled to the rafters like they are today, lowering length of stay eases some of the volume pressures that hospitals are dealing with, which can have a considerable impact on revenue. When hospitals are full, they will often have to cancel elective procedures, as there is no place to recover the patient when the procedure is finished. This is a major loss of revenue for hospitals (and a terrible inconvenience to patients), and a reduction in length of stay can help to improve capacity (as beds are turned over more quickly) allowing those elective cases to proceed. 

In what other ways can hospitalists have an impact on hospital revenue? Stay tuned for part two. 

To be continued…