Musings of a Dinosaur

A Family Doctor in solo private practice; I may be going the way of the dinosaur, but I'm not dead yet.

Monday, November 10, 2008

What the Happy Hospitalist and Subprime Mortgages Have in Common

There is a hospitalist physician who blogs under the name The Happy Hospitalist, whose blog I read from time to time. Aside from some mediocre writing and way too many ads, Happy seems to be a competent internist specializing in the care of hospitalized patients. He also blogs at great length about the economics of American medicine, much of the time with great insight. A few months back, I pointed out to him (in a comment, I believe) that his job -- that of hospitalist -- was not financially viable in the long run, even though the "long run" in this case may very well be greater than the span of his professional career. All I got in response was some gobbledygook about how his hospital recognized the "value" he brought to his job, and so it didn't matter that his salary was greater than what Medicare paid the hospital for his services.

Given the current situation (please note this stipulation; Happy and some other bloggers have a way of switching back and forth between discussing things as they are and as they would like them to be) I submit that at the most basic economic level, Happy's job is not financially viable over the long run. Here's why:

Happy admits that his salary is greater than what Medicare pays his hospital for his services.

Think about that. Happy's hospital (or independent contracting group; it really doesn't matter) pays Happy more money than they are able to collect for the services he provides. In order for that to happen for any period of time without going broke, there have to be some other things going on.

Certainly Happy's payor mix is something other than 100% Medicare. Perhaps other insurers pay more; perhaps enough to cover not only Happy's salary, but also enough to make up what the hospital is losing paying him to care for Medicare patients. (I doubt it.) Perhaps the hospital is able to recoup enough extra money somewhere else in its operations. (I have no idea where.) Perhaps he performs other services for the hospital aside from direct patient care. (He hasn't mentioned anything.) Maybe the hospital administrators agree to smaller salaries to make up the difference. (Yeah; right.) Or maybe they're just shifting funds around here and there to pay the hospitalists according to the contract they negotiated, even though it is more than what they are bringing in.

This is strikingly similar to purchasing a house you really can't afford. There are all kinds of ways a fast-talking banker can structure a mortgage so that you can scrape together the payments for awhile. But eventually the adjustable rates go up, your ability to afford the payments collapses and the whole house of cards has to come tumbling down. For the homeowner, this can mean foreclosure. What about Happy?

What has to happen eventually is that the hospitals won't be able to afford him. At that point they'll either have to lower Happy's salary, find other hospitalists who will work for less (FMGs?) or close their doors.

Happy doesn't care; he says he'll just find another job at another hospital. (See Addendum) And I'm sure he will. There will always be other, richer hospitals with more cash lying around to offset the loss-leader services of hospitalists. My point is that if he cannot produce enough income to cover his salary, benefits, etc. and the hospital cannot find other monies with which to pay him, then eventually the same situation will occur at every hospital. It may take a very long time for this basic fact of economics to percolate through to the critical point -- perhaps longer than Happy's professional career, at which point he'll just retire and laugh at the rest of us struggling to take care of patients, who will always be there. But the situation is not financially stable. Eventually it will break down. It has to. It's just basic economics.

Look at the housing market. It took decades, but because of the fundamentals of subprime lending, it had to happen. You cannot go on indefinitely spending more money than you make.

The bottom line is that I don't understand how hospitalists can survive as a profession if they insist on being paid more than they can produce for their employers. Just because they do -- for now -- does not mean that basic economic principles stop working.

No one has been able to explain this to me adequately. I'm pretty smart, and I've discovered that if someone can't explain something so that it makes sense to me, they're trying to fool either me or themselves.

Again, please note that this analysis only encompasses the situation as it is today. If (and that's one enormous "if") Medicare does begin bundling physician services into its hospital payments then all bets are off; though unless they increase rates to cover those services, the whole thing comes tumbling down all that much quicker.

So what will happen?

We shall see.

Addendum 1: Perhaps the system is already starting to falter. This article (h/t Dr. RW) discusses the issue of job turnover among hospitalists. It points out the difficulties of comparing hospitalist jobs directly, because the relationships between salaries, benefits, working conditions and workloads are so diverse, and the general volatility of the hospitalist job market. Still, nothing I read in that article addressed my primary observation: the system is only functioning now because hospitals are willing to pay doctors more than they can collect for their services. This cannot continue indefinitely.

The Emperor's birthday suit is wearing a bit thin.

Addendum 2: Are those experts who claim that Hospital medicine will continue as a growth industry for the foreseeable future in the same group as the ones who were absolutely certain that the price of oil would continue to rise?


At Mon Nov 10, 09:44:00 AM, Blogger Unknown said...

I know nothing of the economics or cash flow of a hospital, but there's always the possibility that it's similar to my job. I know that, most times, what we get paid by our client is less than what I get paid in salary. It's not all *that* far off, and if I were to increase my ratio of billable to unbillable a bit I'd end up with a positive inflow. However, even as it is, it's still viable. The reason is that what I do is instrumental in bringing in new clients and retaining existing clients, and those clients are paying for high-margin services.

I'm not sure about the term hospitalist. Is it just a term for a doctor who works for a hospital, exchanging the freedom of a private practice for the stability of working for someone else (and having someone else taking care of all the non-doctoring part of a practice)?

If so, most of the private practice doctors I've gone to work out of multiple hospitals. That way, I can make a choice as to which of their hospitals I want to use. I've made choices in all ways: Sometimes I've chosen a hospital I want (for when my wife had our sons) and then used that hospital as a requirement for the private practice OB/Gyn, but I've also gone to doctors because I was referred to them or otherwise wanted a specific doctor, and then chose the hospital based on where that doctor could work.

Once again, I'm not sure of the terms or of the economics, but if patients are choosing the hospital because of this doctor, even if they aren't paying enough to offset his salary, if they are using other high-margin services to make up the difference it could make economic sense.

Just my $.02.

At Mon Nov 10, 12:13:00 PM, Anonymous Anonymous said...

They'll probably underwrite hospitalists' salaries by paying nurses and extenders less.

At Mon Nov 10, 12:15:00 PM, Anonymous Anonymous said...

He doesn't by practicing more efficiently. His length of stay is probably less therefore freeing up beds earlier so that the hospital doesn't have to hire more staff. The hospital can care for more patients for the same overhead.
He probably orders less tests as an inpatient which helps the hospital keep more of its DRG. Between both of these things their annual DRG reimbursement goes up and that's how they can afford to pay him more than he generates in patient care charges.

At Mon Nov 10, 12:16:00 PM, Anonymous Anonymous said...

oops... "does it"

At Mon Nov 10, 12:48:00 PM, Blogger The Happy Hospitalist said...

ndenunz, that's just part of the story...

At Mon Nov 10, 01:01:00 PM, Blogger SHELLY said...

What does Fat Doctor have to say on the subject? I seem to recall she's also a hospitalist, and I'd be interested in her feedback.

At Mon Nov 10, 03:11:00 PM, Blogger The Happy Hospitalist said...

This comment has been removed by the author.

At Mon Nov 10, 05:45:00 PM, Anonymous Anonymous said...

Dino, I see this as no different than a low-cost leader. The low-cost leader in a vacuum is not financially viable, but that's not the point. It's not in a vacuum, and it never will be.

At Mon Nov 10, 06:13:00 PM, Blogger HealthyRookie said...

Dino, I think you are dismissing a lot of good arguments as "gobledy-gook." Perhaps when Happy's salary is described as a "subsidy" from the hospital it seems like he's not earning his keep. But the hospital is choosing to pay him because his role is valuable; likewise, a secretary, waiter or marketer is paid because they contribute to a team in an economically beneficent way, regardless of their independent ability to generate revenue.

At Mon Nov 10, 07:59:00 PM, Blogger Nurse K said...

Not everyone who works for a company including hospitals produce income. Obviously, the housekeepers don't make the hospital money, but they are necessary for the hospital to run.

Nearly everyone who doesn't have a doctor who admits to the hospital needs a hospitalist, including patients that need cardiac caths and surgeries, so, it's in the hospital's best interest to keep everyone happy by providing easy access to an internist for everyone so the patients can get admitted and out of my department....If it's a pain the arse to find an internist to admit an unassigned patient each time an unassigned patient comes in (which is a lot, at least at my hospital), the ER backs up, people sign out, ambulances go on divert (each hour of divert costs the hospital 20K on average), job satisfaction is low, and the patient gets worse care hanging out down in the ER with us because we're not floor nurses and ER docs aren't internists. Really, a hospitalist is a necessity for patient flow if nothing else.

At Mon Nov 10, 08:07:00 PM, Blogger Nurse K said...

Oh, and you're right about the ads...sheesh, Happy, so much clutter on the blog and ads in the RSS Feed too?!

Pay-per-click ads suck and don't make anyone any money. If you're not making an asston of money with them, get rid of them; they're annoying.

At Mon Nov 10, 08:10:00 PM, Blogger Midwife with a Knife said...

I actually don't know that I agree. The thing is that Docs are worth more to hospitals than what they charge in fees. The hospitals also get reimbursed in facility fees/etc. for the patients they take care of. So, a hospitalist system brings more patients to the hospital and the hospital profits from it.

Just like my job as a perinatologist is worth more to the hospital than what I can bill because perinatologists put babies in the NICU and bring in patients to the pediatric surgeons and to labor and delivery.

The principle you're stating, however, is right. No job that's reimbursed at a point that's higher than the value that person adds to whatever is going on is financially viable in the long term.

At Mon Nov 10, 08:59:00 PM, Anonymous Anonymous said...

As above dino with one more comment. Those hospitials that don't have hospitalists would therefore need general internists and FP's to admit all the unassigned patients. Throw on top of it PCP's who are now strictly outpatient. That is not the direction we are going. I will leave you with one thought. Do you have hospital admitting priv? yes/no. What percentage of your own patients. If the answer is no or significantly less than 100% than you are part of the change undergoing medicine.

At Mon Nov 10, 10:59:00 PM, Anonymous Anonymous said...

Without reading happy's response...

The entire crux of your argument seems to rest on the idea that hospitalists operate in a revenue vacuum. It seems like it's fairly common knowledge that higher-paying DRGs subsidize lower-paying DRGs, and that moving patients quickly in and out keeps costs lower which means you get to keep more of that DRG reimbursement.

It would be pretty easy to contrive half a dozen scenarios where this phenomenon alone more than makes up for salary and benefits associated with hospitalists without having to get into the econometrics of trying to measure patient/staff satisfaction and increased productivity and all that other bullshit.

"for the foreseeable future in the same group as the ones who were absolutely certain that the price of oil would continue to rise?"

You've gone and conflated short-term with the long-run, which is one of your talking points Re: Happy. Oil *will* go back up, it is inevitable as there is near infinite demand and petroleum is obviously not an infinite good. Low prices today do not mean low prices in five years.

At Tue Nov 11, 12:34:00 AM, Anonymous Anonymous said...

Not sure what happy's deal is with his hospital but back in my hospitalist days we would only receive a bonus if our group was in the black. Guess what, we always received a healthy bonus.

At Tue Nov 11, 10:06:00 AM, Blogger Unknown said...

Thought provoking analogy, Dino.
Problem is that if we use that logic, half the hospital system would be gone. Radiologists probably earn their keep. Ditto for anesthesia. Emergency departments are supposed to be loss leaders within a hospital. Our group runs in the red due to a lousy payor mix. We only collect 30 cents on the dollar for our services. So is the ED another specialty that's on its way out?
WalMart and other stores offer prescriptions for $4 at an overall loss to get people in the doors.
Agree with Nurse K that you have to look at the whole, not just the pieces. Otherwise the system crumbles when the profit-making subspecialists have to manage their own nipride drips and figure out complex medical issues outside of their specialties.

At Wed Nov 12, 06:01:00 AM, Anonymous Anonymous said...

i'm not sure i understand whitecoat's point.
in all the hospitals i worked at, the anesthesia groups, radiology groups, ed groups were not employed by the hospital. they contracted with the hospital and worked there, but their income was derived by their billing. there may be some cost shifting that might help increase take home pay, but not usually to the tune of 100k per physician.

to my knowledge, when physicians are employed by the hospital in these healthcare systems, they typically earn less than the independent groups, ie trade $$ for job security and for example, my wife doesn't want to spend one second worrying about the business side so she essentially pays for the admin support through less take home $.

i do see more and more physician groups being taken over by the hospitals, so this may be an even bigger issue if the $ drain on hospitals increases to keep physicians at the hospitals. certainly evenutally the salaries of docs employed by the hospitals have to level off, regardless of the demand-supply mismatch.

i think the younger hospitalists don't really know or remember that there are many groups that have a demand-supply mismatch. they just can't afford to bring on another doc. they identify their mission as high quality care and complain if their pt touches are more than 15. so far they haven't had to face the reality of self funding. i wonder how hot the field would be if they made 120k?

At Wed Nov 12, 06:08:00 AM, Anonymous Anonymous said...

clarification of prev post-i picked 120k because i thought that was what they might be able to take home based on their billing.
sorry i've been up all night, i hope my incoherent and ongoing rambling was clear to whitecoat-that yes if his/her er group could only hire new people by paying them a lot more than they could hope to bill for and get paid for, yes that would be a nonsustainable model fora private practice group. so not that ed would be out, but a private practice that is in a bad payor system that couldn't recruit new docs unless paid as above, that is not a place to join as a partner. rather you would stay on salary there and have income assurance while the senior partners took home less and less every year.

but yes, taken to its extreme conclusion, if the hospitals hired their own hospitalists in every department and kept them in house, the er docs might not be needed anymore.

At Thu Nov 13, 01:09:00 PM, Anonymous Anonymous said...

Just to be clear, many hospitalist programs are NOT owned by the hospital. (I work for two different groups, and neither is owned by the hospital.) While I agree our billings may not cover our salary (but at my institutions they do,) the value, as Nurse K points out, is not measured directly by billings. Rather there is value in having a hospitalist there 24/7. So, Dino, unless PCPs want to go back to taking call, and coming into the hospital 24/7, hospitalists are here to stay.

At Thu Nov 13, 06:30:00 PM, Anonymous Anonymous said...

Way late to comment but, I believe the parallel between the subprime melt down and medical system problems will soon be more real. The issue for mortgages was they were falsely valued( false assests for investment bankers). I believe health care dollars are also falsely valued, ie. not worth the dollar invested. The Health Care dollar is protected from market valuation by the tax shelter and insurance third party payment...And investment banking was just 7% of US economy...Health care is 15%..
And I agree that blog discussions with HH are pointless.

At Fri Nov 14, 02:16:00 PM, Blogger The Happy Hospitalist said...

This comment has been removed by the author.

At Sun Nov 16, 09:36:00 AM, Anonymous Anonymous said...

The beauty of inpatient medicine isn't restricted to the pay, hours, days off, or lack of call.

In modern American society, the typical hospitalized patient is actually sick, and really does need the care of a physician. Hence, the majority of attitude-related BS that is displayed by the patients in "Chinese pager torture" is eliminated from your life.

The deeper you can nest yourself in a hospital, the more you can insulate yourself from these non-patients. An intensivist's job is the best one on the planet, because the closer one is to death, the better their attitude.

At Sat Jan 03, 01:17:00 PM, Anonymous Anonymous said...


Oh, you deserve a virtual hug. I am so grateful to hear a physician who is not be sucked in. The hospitalist model concerns me.


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