Practice Economics

The Bigger Picture


For those of you who were kind enough to pick up my column in The Hospitalist last month (see “A Critical First Step,” p. 56), you spent a few minutes reading my thoughts on the value of hospitalists. I mentioned the fact that the U.S. is moving rapidly toward a value-based system to purchase healthcare and that all healthcare providers, including hospitalists, will be increasingly judged on the value of care they deliver to their patients and the healthcare system. (Remember, value=quality÷cost.)

I believe that the hospitalist programs that are going to be the most successful are those that are able to continually measure their quality and costs, allowing them to make improvements. These are the groups that will understand their own performance well before others make their “value” judgments.

It seems that fewer and fewer people are talking about hospitalists reducing length of stay. They just expect it. LOS is raised as an issue only if it goes up. In many hospitals, the budget now takes into account the average LOS based on hospitalist care.

History Lesson

In his famous book “The Wealth of Nations,” 18th-century economist Adam Smith used the example of a pin factory to show how specialization improved human productivity. The process of producing a pin was broken down into many small tasks, each done by a different “specialist.” This resulted not only in increased efficiency, but also increased productivity. The factory was then able to reinvest the profits in even more efficient machinery, which was able to reduce labor costs. The lower cost for pins was a benefit, and it was spread across the entire population.

We have seen similar examples in American healthcare. In many American hospitals, the images of CT scans performed during nighttime hours are transmitted to India and other Asian countries where highly trained radiologists interpret the scans and transmit their interpretations back to the physicians caring for the patients. Like the pin factory workers, these radiologists are specialists with unique skills; they operate specialized machinery to make the system more efficient with resultant lower costs. At the level of the individual patient, this system means getting test results back in a more timely fashion. Increased quality and lower costs: These are high-value providers.

It should be obvious to us that hospitalists are “specialists.” While most hospitalists are trained as general internists, pediatricians, and family physicians, you and I are “specialists” who focus our efforts on the care of hospitalized patients. In the late 1990s, much was made of the fact that hospitalists were able to reduce hospital costs because of decreased length of stay (LOS) for patients, without any adverse effects on clinical outcomes. Today, hospitalists number more than 30,000 nationwide, and virtually all American hospitals with more than 200 beds have hospitalists.

Hospitals hired hospitalists in droves because they were perceived as “inpatient specialists” who were able to reduce the cost of healthcare delivery. Like lower pin costs, this economic benefit was spread across the entire population. Hospitalist “value” went up because of lower costs.

But an interesting thing changed over the past decade: It seems that fewer and fewer people are talking about hospitalists reducing LOS. They just expect it. LOS is raised as an issue only if it goes up. In many hospitals, the budget now takes into account the average LOS based on hospitalist care. (I suspect that in 18th-century Scotland, people also grew accustomed to the lower cost of pins, and grew to expect it, and the cost of pins was raised as an issue only if the price went up.)

But has anyone spoken to the hospitalists? Has anyone asked us about the benefits of our profession? Many of the hospitalists I meet mention “reduction of length of stay” as a main reason to have hospitalists. I think that response was appropriate more often than not over the past 15 years.

But today, ask any hospital administrator that same question, and what do you expect the answer to be? It should not be surprising to hospitalists that most hospitals expect much more from their hospitalist programs than “just reducing the length of stay.” These are the same hospitals that often support—to the tune of more than $100,000 per hospitalist full-time equivalent—your HM program. If your hospitalist program is anything like mine at Beth Israel Deaconess Medical Center in Boston, this represents millions of dollars to the hospitalist program budget.

Increased Pressures

The fact that hospitals’ expectations of hospitalists have changed should not come as a surprise. Americans’ expectations of hospitals have changed markedly over the past 15 years. In the 1990s, when hospital medicine was “born,” there was little mention of quality and patient satisfaction when it came to healthcare. Who would argue that improving quality and patient satisfaction is a bad thing?

Over the past decade, we’ve seen the development of Medicare core measures and the link between patient outcomes and Medicare reimbursement. Hospitals could not have achieved many of their performance improvements without their partnerships with hospitalists.

Hospitals are under increasing pressure to not only decrease costs, but also improve quality. It is understandable that they turn to the “inpatient specialists”—the hospitalists—to help them meet societal expectations. But as hospitalists, this puts pressure on us to continually improve our game—or face the consequences. A pin factory in Scotland can only survive if it produces higher-quality pins at a lower cost than its competitor.

Hospitals and our American healthcare system expect much more today from hospitalists, and they should; patients’ lives are at stake. It should not be a surprise that hospitalist programs that struggle are those that fail to meet expectations. Successful hospitalist programs, the ones that are able to demonstrate their “value,” do so well beyond knowing their patient’s average length of stay.

I am interested in learning about your efforts to demonstrate the “value” of your hospitalist group. Feel free to email me at [email protected].

Dr. Li is president of SHM.

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