With sweeping Medicare reform initiatives, like Value-Based Purchasing and Pay-for-Performance, tighter physician-hospital integration will be critical to a hospitals financial success. As hospitals search for smart ways to closely align with physicians, one common-sense strategy is creating a fully-integrated hospitalist program.

Seventy percent of hospitals have hospitalists, but few hospitals would admit they are generating the return once expected. Based on the study of dozens of hospitals nationwide, this stems from one premise: How a hospital obtains and allocates funding for its hospitalist program directly impacts performance and financial returns of the program. A hospitals philosophy around source and use of funds affects how a hospital builds, manages and resources its hospitalist program and most importantly, leads to vastly different outcomes around true alignment and financial return.

There are generally two approaches to building a hospitalist program: Traditional Approach and Visionary Approach.

Breakdown of Traditional Approach:
Funding Mentality: Build program using current operating dollars.
Structure: Simple staffing model; no alignment or sharing of risk.
Approach: Practice-centric. Physicians are our customers.
Physician Compensation: Paid on productivity.
Perception: Program is an expense line item.
Success: Judged by success of practice and resultant level of hospital subsidy.

Breakdown of Visionary Approach:
Funding Mentality: Build program using currently unrealized dollars.
Structure: Performance model; resourced accordingly.
Approach: Hospital-centric. Physicians are our partners.
Physician Compensation: Share risk with hospital; incentivized to improve key quality/financial metrics.
Perception: Program is an essential piece of hospital operations.
Success: Judged by performance in meeting goals defined by the hospital.

These differing approaches yield vastly different outcomes. The Traditional Approach typically leaves administrators and physicians frustrated, as hospitals find that hospitalists cannot cover their own cost. Programs tend to create little value for the institution, but having set precedence with referring physicians and specialists, hospitals must continue to invest in the program, resulting in perpetuation of failure.

Conversely, hospitals that employ the Visionary Approach often enjoy tremendous long-term value. Hospitalists become integral to quality, safety and efficiency initiatives, better positioning hospitals for VBP and other changes in how hospitals will be paid. These programs also deliver a high return on investment by creating value in ways not previously associated with physician practices.

Each hospital defines success of its program with varying metrics. Some examples of value creation include:

Cost Reduction
Direct Variable Cost per Case: Learn how a 442-bed Kentucky hospital system saved $2.5M in less than one year.
Revenue Generation
Volume Growth through Increased Referrals: Learn how an 800-bed Florida hospitalist program went from discharging 90 patients in October 2008 to 636 in August 2009.
Increased Inpatient Flow/Decreased Emergency Diversion: (To be illustrated by data from a Florida academic medical center.)
Increased Capacity/Decreased Length of Stay: Learn how a 442-bed Kentucky hospital system decreased Length of Stay .97 days in one year, creating capacity for 600 incremental patients.
Increased Market Share: (To be illustrated by referral map for CHRISTUS-St. Michaels )
Improved Quality Measures: (To be illustrated by CMS Data from CHRISTUS-St. Michaels)
Improved Primary Care Physician/Patient Satisfaction: Learn how patient satisfaction at CHRISTUS-St. Michaels improved from approximately 78.7% very satisfied to 96.0% in one year.
Cost Avoidance
Decreased Readmissions of Unfunded Patients: Learn how a Florida hospital used their program to avoid 650 readmissions in three years saving $4.5M in patient care costs.
Decreased Medical-Legal Liability

For hospitals with unfulfilling hospitalist programs, we will review several ways to evolve a program in order to realize greater value and true hospital-physician alignment.