These purposes are achieved through the design and execution of a physician practice model in which hospitalist services are provided as a separate but interdependent, integrated medical service along with traditional emergency medicine services. The interdependence and unique integration of these practices provide the benefits of exceptional medical quality and pays for itself by generating additional revenue that exceeds the incremental costs of these combined services. In effect, our service generates net revenue, not net costs. The integrated model typically yields a 300% to 800% annual return on investment and usually pays for itself within the first year.

Our model is successful for many reasons, but primarily because it:

• Generates increases in revenue.
• Minimizes risk by achieving results; not unfulfilled hopes and promises.
• Is accountable for achieving the hospital’s performance expectations.
• Utilizes physicians who are challenged by and enjoy a combination of higher acuity outpatients and inpatients, diagnosing medical conditions treatable within the hospital, and managing ongoing inpatient care.
• Enables the small community hospital to recruit primary care physicians, specialists, and surgeons more easily with minimal risk, and eliminates the barriers of rounding and unattached call.
• Aligns the clinical and financial goals of the hospital and HospitalMD physicians.
• Is a clinical partner with the hospital and an extension of the office-based attending physician’s practice.

Physician Alignment and Seamless Integration

Admissions decisions made for emergency medicine patients are often fragmented and dysfunctional because they are based on financial and/or convenience motives of the emergency medicine physician that are different than those of either the hospitalist or office-based attending physician. Integrating both the hospitalist and emergency medicine roles into a single practice (not just a single vendor) eliminates these barriers. The decision to discharge, transfer, or admit is made in the best interest of the hospital, patient, and office-based attending physician. This behavior is achieved by the hospitalist and emergency medicine physicians “thinking as two, and acting as one”. Seamless decisions are the ultimate in continuity. The meaning of these terms may sound subtle, but the effects are profound.

Working for the same vendor doesn’t necessarily mean working together. The successful hospitalist service for a small community hospital is not ensured by simply having the hospitalist employed by the same vendor that provides the emergency medicine physicians. Nor are the powerful financial benefits in the emergency department achieved by simply having the emergency medicine physician employed by the same vendor as the hospitalist.

The hospitalist works physically within the small community hospital and this proximity to the emergency department permits more timely response to the emergency medicine physician, expedites the admission, and improves the immediacy of care. To optimize the admission opportunities for the small community hospital, the hospitalist must become a conspicuous convenience to the emergency medicine physician to identify more admission prospects, and expedite admission to the inpatient unit.

A rounder is available within the small community hospital and accessible to the hospital staff only as long as it takes them to round. The real hospitalist is usually available for up to eight hours a day. The small community hospital’s nursing staff, medical staff, and the patient and its family, have access to HospitalMD’s hospitalist 24 hours a day, 365 days a year.

A separate document available from HospitalMD, HMD Practice Model Overview, discusses integration of these two services, and alignment of physicians’ purposes, goals, and expectations with those of the hospital, in more depth.

Extension of the office-based attending physician’s practice

The hospitalist and emergency medicine physician provide services on behalf of the office-based attending physician that the physician can’t provide in their office. Therefore, the hospitalist and emergency medicine physician must see themselves as extensions of the office-based attending physician’s practice. And, neither the hospitalist nor the emergency medicine physician has a local office practice, so the office-based attending physician does not lose patients. The patients tended by the hospitalist on behalf of the office-based attending physicians are always referred back to that physician.

Summary

Hospitals need physicians, physicians do not need hospitals. Therefore, expect physicians to do what is in their best interests. Then, to optimize small community hospital revenue, fully understand the underlying causes of physician behavior and treat the causes, not the symptoms or the behaviors. This article has attempted to explain some of the underlying causes of physician behavior that have resulted in problematic out migration; and provide a problem-solving framework to help in understanding how to overcome revenue decline.

As a courtesy to office-based attending physicians, it is commonplace for the emergency medicine physician to perform a significant amount of admission-related work on behalf of the office-based attending physician for admissions through the emergency department even though the emergency medicine physician is not paid for this service. The time required for this admission-related convenience to the office-based attending physician can take from forty-five minutes to an hour per admission of the emergency medicine physician’s time in contrast to an average of five minutes with emergency medicine patients. When this courtesy is extended, the emergency medicine physician must also agree to oversee the patient in the emergency department until the patient is handed off to the attending and is physically transferred to the inpatient unit. 

Emergency medicine physicians frequently tell us that they have been told since residency to keep patients out of the hospital to reduce health care costs. This physician view is pervasive. And, the threat of malpractice litigation causes physicians to practice defensive medicine. Together, pervasive myths about how to reduce health care costs, and acceptance of defensive medicine, lead emergency medicine physicians to transfer patients to another hospital or discharge patients to their primary care physicians often too frequently. The result of these messages is “treat ’em and street ’em”. And, since they are not paid for the work time, why should they take the risk? 

Physicians’ patterns of admissions depend on each physician’s interpretation of subjective admission guidelines and initiative to absorb work for which they are not paid. This individual physician pattern is usually made early in a physician’s career without regard to the best interests of both the patient and hospital. Once this pattern is set, the resistance to change is strong. The emergency medicine physician in a rural market is typically paid hourly. This rate varies with the volume of emergency department patient visits. The emergency medicine physician cannot be paid for admissions. Therefore, in the absence of the emergency medicine physician being paid for higher medical quality, admissions will continue to follow historic patterns. 

Furthermore, research and empirical evidence tell us that hourly pay alone is not an incentive for high performance, and may even be a disincentive. Most of us do what is in our best interests. Physicians are no different. No additional compensation to the emergency medicine physician for this added work and risk translates into lower admissions performance. The national average admission rate for the emergency department is 13%. Some HMD clients get as much as 16% to 18%. However, most small community hospitals get well below 8%, and some get as little as 4%.

We have heard these explanations for the resistance to admissions again and again which makes it easy to see why out migration occurs and why small community hospitals are not getting the admissions they should. In light of this evidence, it would seem appropriate to attack out migration in the emergency department. However, with growth in emergency department admissions, the office-based attending physician will become even less efficient and more inconvenienced. So, can a solution to the revenue problem that begins in the emergency department be designed to also solve the convenience problem to the office-based attending physician as well?

The cost of either a rounder or a hospitalist can vary widely depending on the local market and the willingness of a physician to be a rounder on an “as needed” basis. A Rounder could cost $100,000 per year with no prospect of additional revenue, and a full time hospitalist could cost $250,000. In some small markets, these may be minimums. The absolute amount is somewhat irrelevant, however, unless there is a substantial increase in revenue to offset even the more modest cost.

What are the opportunities to reduce cost?

Since a physician that rounds can bill for only one encounter per day, there is no incentive to spend as much time as a hospitalist spends to reduce costs. Nursing labor costs are difficult to reduce for smaller inpatient volumes in the small community hospital. There are opportunities with a hospitalist to reduce medication costs, supply costs, and average patient length of stay. But at low average daily census and acuity, the savings are not substantial enough to offset the cost.

What are the opportunities to increase revenue?

 The use of either a rounder or a hospitalist in community hospitals is relatively new. Therefore, it is unclear if either option leads to increased admissions. And, our experience suggests that declines in direct admits are a small part of total out migration. If true, it is unlikely that any increase in direct admissions revenue will be sufficient to offset the costs.

If the rounder or hospitalist is an internist, and can attend a higher level of acuity, one might expect some additional admissions. However, options such as these seldom achieve benefits beyond what they are designed to achieve, and both of these options are designed to offer convenience to the office-based attending physician. Therefore, any prospective revenue is a gamble and risky in light of the cost for either option.

What about continuity and duration of care?

The limitation on billing for one encounter per day imposes an economic limit on the amount of time an attending is willing to spend on an inpatient which, in turn, adversely impacts continuity and duration of care. Continuity of care with the rounder model is no different than with the traditional model in which the office-based attending physician rounds once daily. The only improvement in continuity and duration of care occurs with a hospitalist.

Hospitals are not permitted to pay office-based attending physicians for rounding. Hospitals can pay a third-party physician to round. However, in order to entice a physician to round, the small community hospital will have to subsidize reimbursement, making this option a significant additional expense. The amount of time spent on direct patient care for the rounding option is identical to the office-based attending physicians rounding on their own patients, and rounding reimbursement is no more efficient to a rounding physician than to an office-based attending physician.

Many vendors are promoting these part-time rounding services and are referring to them as hospitalists. A rounding physician is not a hospitalist. Promoting this service as a hospitalist service is misleading. The traditional hospitalist model originated in the larger, urban hospital to meet their specific needs. Its purposes were to reduce the cost per patient day, and improve the continuity and quality, of inpatient care. To achieve these purposes, it was, and is, essential that the physician be committed to full time inpatient care at least eight hours per day, serve the hospital in a leadership role, and develop more cost-effective care practices.

Rounding during regular office hours reduces the office-based attending physician’s income unless the physician sees more patients during the same office hours or extends office hours. Extended hours, and rounding before or after office hours, make for a long day. In light of reimbursement declines for rounding, rounding and call have become more and more unattractive. Old-era physicians and younger ones as well have learned that their office practices generate the greatest income per hour, and are reducing less efficient admissions and considering withdrawing from active status on their medical staffs to avoid call.

Many analysts suggest that small community hospitals are especially vulnerable – with smaller populations, limited services, and small medical staffs. Yet their value is unquestioned. A 2007 AHA study on The Economic Contribution of Hospitals (PDF) documented the importance of hospitals to communities beyond healthcare, with each hospital job supporting two additional jobs, and goods and services purchased by hospitals creating additional economic value.

Yet while governmental attention focuses largely on cost controls and insurance for all Hospitalogic, a family of companies providing physician services, consulting and hospital management, is championing change to ensure their viability for future generations.

“Our vision is for financially successful community hospitals across America,” says Hospitalogic CEO Jim Burnette. “We believe it is attainable by approaching the challenge differently.”

Financial distress, rooted in the late 1990’s when Medicare and commercial insurers systematically reduced prices paid to hospitals and physicians, turned the industry revenue model upside down, causing pressures.This transformation caused most hospitals to struggle, with nearly 80% having lost money at some point over the last 5 years. Although propped up by such Federal programs as Critical Access Hospital reimbursement, reduced revenues and rising costs squeezed profits or caused losses for many – triggering financial deterioration and hospital closures impacting hundreds of communities since 2000.

Viewing soaring costs and reduced reimbursements as symptoms rather than causes of the problems, Hospitalogic’s leadership has owned, re-opened, and operated small community hospitals – pioneering new approaches and achieving profitability while doing so.

“We know what it takes to succeed, and our methodology is proven. We’ve sat in the Board member’s and CEO’s chair, negotiated with lenders, met payrolls and worked with regulators,” states Burnette. We take on transformation projects without regard to condition because we understand first-hand the difficulties hospitals face.”

In 2000, Hospitalogic purchased and reopened Tattnall Memorial Hospital in Reidsville, Georgia.The hospital continues to operate successfully today in a service area with a population of 18,000.

For-profit North Oak Regional Medical Center in Senatobia, Mississippi had lost money for 10 straight years and was within days of closing when Hospitalogic took over in 2002. Within 18 months, the hospital was at break-even. By 2004, the organization’s unique emergency and inpatient medical practice had achieved a 936% return on investment, with profitability continuing annually since.

Sometimes the distress call comes too late, admits Burnette.Hospitalogic successfully re-opened a community hospital in Brownsville, Pennsylvania in 2008, overcoming regulatory and financial hurdles.Yet the hospital closed nine months later following a multimillion dollar judgment against the hospital’s board dating to the facility’s prior ownership.

“America needs successful community hospitals,” Burnette adds.“They are essential to community success.With passion and the right approach, it can be done.”

By James H. Burnette, President and CEO, Hospital Strategies, inc.

The Emergency Department (ED) is experiencing a variety of problems related to the quality of customer service. These problems are expressed in terms such as staffing shortages, frequent diversion, too few treatment rooms, extended patient holding, increasing acuity, EMTALA, specialty physicians unwilling to take call, leaving without treatment, and uninsured. Actually, these are symptoms, not problems. Physicians are coming under pressure to add staff. There is pressure to add hospital staff, equipment, and treatment rooms. These increase cost with no offsetting improvements in efficiency, and are often unpredictable and disappointing. The pressure and adverse press calls urgently for a solution.

MISUNDERSTANDING THE PROBLEM

The patient length of stay (LOS) is the primary determinant of customer satisfaction (effectiveness) and cost (efficiency) within the ED. As the LOS declines, customer satisfaction increases and costs decrease. On the surface, it seems intuitive that shortening any part of the overall emergency patient care process would reduce the overall patient LOS. However, this is true ONLY in the one dimensional case of one physician and one nurse caring for only one patient at a time.

Obviously, the emergency care process is actually much more complex. It is a multi-dimensional, multi-variable process in which limited resources perform many different care activities on an ever-changing number of patients with random arrival times and varying needs for care. In a multi-dimensional process, some process components can be redesigned to shorten that component time and reduce the LOS. Reducing the times of other components may have no effect at all. Some resources can be increased that may have a direct impact on reducing LOS. Other resources can be increased with no effect at all.

In order to solve the problem, one must understand the complexity of the process, apply appropriate analytical techniques suited to the unique nature of the process, and use this understanding and experience to design innovative solutions. Otherwise, from a financial perspective, the costs of process changes and resource increases are squandered with a roll of the dice.

SOLUTION METHODOLOGY

Our structured Solution Methodology permits examination of an ED patient care process and development of an efficient and effective solution that is highly predictable, cost-effective, and unique to the organization. The methodology includes the following steps:

• Approach hierarchy
• Process analysis
• Process design
• Operational testing

APPROACH HIERARCHY

There are four dimensions of the process: internal, external, process, and resource. The solution approach first looks at these dimensions as two pairs of opposite perspectives: internal v. external, and process v. resource. Internal and external focus on changes that are either within the direct control of the ED (internal) or outside the direct control of the ED (external). There is a bias within the ED that it is doing its part well and that the causes of lengthy LOS are with ancillary services or others outside the ED. However, improving ancillary service delivery problem may not reduce LOS. The solution hierarchy requires that the problems within the direct (internal) control of the ED be addressed first. Once these internal problems are eliminated, then focus on outside (external) support.

Process and resource relate to focus on changing process and adjusting resources. There is a second bias within the ED that it is doing its job as efficiently as possible and that there is no room for improvement. It is easy to think that the chaos inside the ED is caused by outside influences or lack of resources. The solution hierarchy requires that the “internal process” of providing care be addressed before adjusting (adding or reducing) resources. Actually, adding resources to a poorly functioning process may make matters worse.

PROCESS ANALYSIS

This step involves collection of data and information about the current processes in order to fully understand the components that are dysfunctional. Data and information that are typically collected include:

• Patient volume and frequency of arrival times by time of day, day of week, and month
• Frequency of acuity
• Patient care process component segment times
• Staffing plans, schedules, and staff assignment practices

Much of this data is available from current data collection and reporting procedures but can also be collected using sampling techniques. The care activity and process events for all patients arriving over a period of time (usually 12 to 24 hours) is graphically profiled for several sample days reflecting varying customer arrival frequency. This graphical profile illustrates the current process for the typical average LOS.

Analysis of historical data by HSi of many days of patient care has led to a general standard process design. It has also led to a standard design hierarchy that must be followed to create the optimal solution. This hierarchy must be followed to examine, design, and implement corrective action. The hierarchy realigns the four (4) dimensions containing two (2) pairs of polar dimensions into four combinations of four dimension sets.

INTERNAL/PROCESS

The first step is to expedite diagnostic orders within the ED. After the physician encounters the patient, accelerate diagnostic/therapeutic orders. Get the patient into a treatment room as soon as possible. This is obvious but essential, especially in the absence of standing orders. HSi has developed a proprietary protocol based on its research.
As the protocol is being used, employ information and technology tools such as computers and portable communications devices to communicate to the staff when key care events start and stop and the location of critical resources. Establish effective and acceptable policy for assignment of patients to rooms and nurses to patients.

MYTHS

One of the most common suggestions offered to reduce LOS is to speed up the diagnostic cycle time. Further, the general perception is that radiology times are significantly longer than lab times and need the most attention. This is not always true. Diagnostic cycle time is, in fact, a critical set of events that affect LOS and reducing these times can contribute to reduced LOS. However, generally, a 15 minute reduction in cycle time does not translate into a 15 minute reduction in LOS. It may not reduce LOS at all. The relationship between cycle time and LOS is indirect. Reductions in cycle time must first be accompanied by acceleration of the internal ED process.

There are actually two mistakes that can occur by starting with changes to any external influence, especially diagnostic services. The first is that reductions in cycle time may not affect LOS at all. Reducing diagnostic cycle times generally require increases in cost. Therefore, if LOS doesn’t decline, the expense is wasted. Second, since the relationship between reducing diagnostic cycle times and LOS is indirect, and not predictable, there is also no way to know how much reduction in LOS will occur with an increase in cost. It’s only possible to predict the impact of LOS that reducing cycle time will have after internal processes within the ED are optimized. The risk, and typically the outcome, is that excessive costs will be incurred to achieve at best modest reductions in LOS without knowing if the cost was necessary.

PROCESS/EXTERNAL

Once internal processes are improved, and become more predictable and measurable, the cost of reducing ancillary cycle time can be matched against reductions in LOS. Now, and only now, can we establish an optimal balance between cost and LOS and can now predict LOS reductions vs. ancillary cycle time reductions.

There are several general structural approaches to providing diagnostic services within the hospital – centralized, decentralized, and a mixture of the two. Each approach has advantages and disadvantages. Analysis is rather complex but essential to solving the ED LOS problem.

EXTERNAL/RESOURCE

This step involves determining the appropriate levels and costs of staffing for ancillary services once optimal ancillary processes are established.

INTERNAL/RESOURCES

The last step in fine-tuning the optimal LOS is to determine the appropriate levels and costs of staffing for the ED. This step is last for two reasons. First, adding staffing resources may not reduce LOS, and resource levels must be established only after processes are redesigned to be as efficient and effective as possible.

PROTOCOL AND DECISION RULES

Many cycles of process analysis by HSi have produced a proprietary process protocol and a set of decision rules that are part of the standard optimal solution. The most fundamental finding of historical analysis is that that the single most significant corrective action is to direct the physician activity because the physician is the most limiting resource.

The protocol directs the timing and sequence of internal care activity to the ED. No activity facilitates getting a patient through the patient care process until a physician writes an order (either diagnostic, therapeutic, or discharge). Therefore, the most fundamental patient care event is getting the physician to a patient for these purposes as soon as possible. If this not done, nothing else matters.

PROCESS DESIGN

Process design must occur according to the integrated elements of the hierarchy outlined within this article.

OPERATIONAL TESTING

Operational testing is actual, real-time use of the process protocol on several shifts. Shifts are selected to test the protocol for different times of day and days of the week. These tests indicate the actual results v. expected benefits, the impact on LOS, the reliability of process analysis, and changes that need to be made to tailor the protocol and its decision rules. Training staff in use of the protocol must precede operational testing.

CONCLUSION

Solutions to the problems the Emergency Department (ED) are among the most elusive and perplexing pursuits of hospital management today. Most attempts either fail or significantly increase costs. Reducing the patient length of stay is the single most significant way to eliminate these problems. When LOS declines, patient satisfaction increases and costs decline.

Most attempts fail because of a misunderstanding of the ED patient care process. Without understanding this process, it is unlikely that improvement will occur. A solution methodology that employs a process management protocol in a similar manner to the solution methodology described in this article will achieve the patient satisfaction and cost expectations noted above.

HSi’s experience has been that the Solution Methodology outlined in this article will reduce LOS by 30% to 50%. These improvements have occurred by only making process improvements within the ED and only by focusing on a physician protocol. As noted within this article, other “layers” of the process can and should be analyzed that will bring additional reductions in LOS and cost. When LOS declines in the range of 30% to 50%, labor costs can decline as much as 25%.

Hospital Strategies, inc. is a special service firm to the small community hospital. We manage and lease hospitals, manage departments or services within hospitals, and provide management consulting and advisory services.

By James H. Burnette, President and CEO of Hospital Strategies, inc.

The hypothesis of a shortage is that there are fewer nurses available (or willing to work) than needed. The cause and magnitude of a shortage vary somewhat in the literature and press. The literature is vague about both the number of available nurses as well as the number needed. The number available is probably more accurately known than the need. The number needed is undefined and thus very unclear.

It appears that the condition that has led to the conclusion that a shortage exists is more of an emotional response to unfilled budgeted and scheduled slots. But is the budgeted and scheduled really ”needed” or is the need really known? If not, we believe there are reasons to question the magnitude of the shortage and possibly the nature of a shortage.

Shortage Definitions

The approaches to providing patient care vary from all registered nurses providing all components of care to mixes of nurses, LPNs, and unlicensed care extenders. Does a nursing shortage mean literally a shortage of “registered, licensed” nurses or total care providers? Are there enough nurses registered but not enough in the active work force?

Most organizations we have worked with use the mixed skill approach. Therefore, we will address the shortage from the perspective of a mixed set of skills. Obviously, if the statement of shortage is based on only registered nurses providing care, one will reach an entirely different conclusion.

In order to evaluate the magnitude of the nursing shortage, one must know the true “need.” This is where we see cracks in the case of the shortage. Our experience is that the real need is different than the perceived need.

Current Practices

Establishing the true need is essential. Most approaches in use to establishing this number are subjective. They lack an objective, quantitative, and factual basis. Even where there are objective formulae for establishing a budget. The budget is often disregarded when developing schedules. More often than not, hospitals allow staff members to schedule themselves. Thus, staff selects the days they work based more on their convenience than on the needs of the hospital. As this process unfolds, peaks and valleys begin to occur in the schedule that need to be addressed. Peaks are ignored because they represent the preferences of staff. Valleys need to be plugged with per diem staff. The result is that the number scheduled creeps upward and the average number of staff scheduled to work each day significantly exceeds the underlying need.

There is a variation of this approach wherein per diems, ordinarily intended to fill gaps, are given preference. Many nurses have become per diems by choice and work at several hospitals. They have found that this enables them to have scheduling preferences over full time and is a superior life style.

Thus, they work when they want to. They “cherry-pick” the schedule. The hospital assumes it needs per diems. Often policies require each per diem to work a minimum number of hours per year. In order to maintain their “per diem pool,” per diem staff are permitted to select their workdays before full time staff make their selection. After per diems have their pick, the remaining slots in the schedule are filled with full time. In order to permit full time to work their “full time” hours in the pay period, the sum of hours now scheduled has exceeded need.

A second cause of excess staff is that schedules are influenced by trying to anticipate workload (or future daily census). Care providers remember well the days that they were “slammed” due to a census spike that exceeded the staff scheduled and available. Their memory of this influences them to respond to the inevitable “what it” by hedging in favor of always having more than enough staff (even too much staff) to meet these infrequent occurrences. On the other hand, they ignore the days the census dropped and actual staff exceeded that required.

Furthermore, scheduling practices are influenced by unanticipated staff absences (often in violation of policy). Contingency plans or provisions in the schedule for unanticipated absences are the solution. However, anticipation overrides planning and excesses occur.

Over time, these scheduling practices based on highly subjective factors including staff convenience prevail and actual staffing reflects anything resembling the underlying need. The effect is that the “need” or staff “required” has crept and subjective considerations overshadow any quantitative analysis.

What Then?

How do we get to the true need? The starting place is to examine historical data that include actual census by day for sample periods in order to establish workload patterns over time. Staffing standards can be applied to workload to determine the staffing requirements by hour and day and indicate where staffing requirements vary. A simple method is to use patient-to-care provider ratios such as a commonly used standard of 6 patients to 1 care provider in a medical unit. These ratios have long been used and reflect an average case mix or acuity. Other approaches can be used that improve the level of accuracy or precision. Our experience is that these ratio methods are acceptable for most needs and are easy to use. This simpler approach can be especially useful where more systematic approaches to staffing and schedules have not been previously used.

Analysis of variation and patterns permits the organization to “set the bar.” This means establishing a standard level of staffing that is practical in light of scheduling requirements. Staffing levels can vary by time of year based on analysis. However, they are impossible to accurately anticipate. Furthermore, it is impossible to spontaneously produce the exact staffing requirement as census varies without practices such as float pools. Therefore, it is important to establish a schedule for a pay period that is practical and achieves a balance of coverage and cost. It has also been our experience that over short period of time such as a pay period, actual census does not vary enough (even hour to hour) to affect the quality of patient care. As noted in the example that follows, this more systematic approach actually improved the frequency of adequate coverage by 70%.

Staffing levels in any schedule should be relatively flat. To achieve this, our approach to scheduling detours from the traditional “self-scheduling” methods. Through a policy that is fair to both the hospital and staff, slots to be filled should be filled first by the person with the first preference (e.g., based on seniority, random selection, etc.), then the second slot should be filled with the person with the second preference, and so on until all “budgeted” full time staff are scheduled and all required slots are filled. Now, and only now, should the hospital use other staffing sources such as per diem. And per diem should be used for only those slots on those days that are not otherwise filled by full time staff. Another way to view the schedule is that the number of required staff each day based on workload and standards can be met through any combination of days worked and off by each staff member but the total actually scheduled should not vary day by day.

Conclusion

The real problem is not the “shortage.” It is either (1) the absence of management skills (including analytical and problem solving skills), and/or (2) the reluctance to use the tools that are available to solve the staffing problem in the face of precedent and inertia. A substantial amount of the public discussion of the shortage is subjective. Seldom does the discussion contain objective, documentation of the real “need.” Thus, the shortage debate may never end because the facts are weak.

HSi developed a nursing staff resource management system that was implemented across 8 nursing units including medial surgical, critical care, labor and delivery, and emergency departments. This system demonstrated annual labor costs savings of 20% (equivalent to $1.2 million in this 124-bed hospital) with a concurrent improvement in staffing coverage effectiveness of 70%. This 70% in staffing effectiveness was a 70% increase in the number of hours that “actual” staffing matched or exceeded “required” staff levels based on standards. Even within the 20% savings, all nursing staff were paid for an additional 17 days annually that were not worked because the staff was not needed. This was in addition to the normal days of paid leave time. There is no question that there are solutions to the shortage. We just need to focus on developing creative, innovative new tools and design new patient care models. It is fascinating that application of our approach has achieved the same results in hospitals both large and small.

We suggest your hospital consider this approach and decide to not participate in the shortage. You don’t have to.

Hospital Strategies, inc. is a special service firm to the small community hospital. We manage and lease hospitals, manage departments or services within hospitals, and provide management consulting and advisory services.

by James H. Burnette, President and CEO, Hospital Strategies, inc.

Many hospitals across the U. S. are in financial trouble. Conventional wisdom suggests that either large hospitals only will survive or that they are more likely to succeed than small community hospitals. If true, it would also seem reasonable that hospitals in more affluent areas with higher patient volume and higher priced services would certainly succeed.

However, a recent newspaper article titled Hospital Under Stress Facing Doubts on Solvency cites the example of a large hospital in trouble in a New York City bedroom community with a population of over 900,000. In 2002, this 500-bed hospital in one of the most affluent Counties in the State had a net loss of over $60 million in spite of gross revenues of over $800 million. Unfortunately, this is not an isolated event.

Failure has not discriminated. It has come to hospitals both large and small. If it’s difficult for a 500-bed hospital in one of the most affluent areas of America to make it, what’s the prospect for a hospital in a community of 18,000? Can a small hospital be successful?

The Problem

The problem is not size. It’s not even reimbursement. These are convenient “explanations” of failure. Reimbursement may contribute to the problem. But, reimbursement has declined uniformly for hospitals of all sizes so how have some of all sizes succeeded?

One of the fundamental problems is either “insufficiency” or “dysfunction” or a combination of the two. These problems result in un-profitability because hospitals do not see themselves as businesses.

Insufficiency

The total hospital-wide volume can be defined as market share. Hospitals have lost volume over time. The typical SCH market share of 25% to 35% is “insufficient.”

Dysfunction

As an overreaction to low market share, many hospitals have gone to the other extreme and chased what has turned out to be a “skinny rabbit.” Hospitals have come to operate under the assumptions that all service volume is equal, “more” is better, and that the service line components of “more” volume don’t matter as long as “more” produces “more” revenue. The phrase “all things to all people” rings a bell and illustrates these collective assumptions.

The result is “dysfunction.” Dysfunction means that there is misalignment or imbalance of types of services, volume of services, and the specialty and number of physicians in relation to population and demographics. This seems so simple and intuitively obvious but hospitals seldom view their services this way.

Hospitals know that physicians drive volume. To get “more,” they have recruited whoever will come to town without regard to the number of physicians and their specialty. Thus, the scope of services has simply evolved. The reasons for evolution include (a) physician pressure, (b) hospitals starting new services because neighboring hospitals provide the services and the “herd” must move together, (c) gratification of the CEO’s ego, (d) naïve responses to Board pressure, or (e) succumbing to community pressure.

Toward a Solution

The first step toward overall profitability is to analyze the current scope of services in terms of service line volume and profit contribution. This analysis must address the following 3 questions:

• What is the overall service area demand for each service?
• How much of each service can the hospital expect to intercept?
• Which services yield a profit contribution?

The answers to these questions are the starting place toward the design of an optimal scope of services. The optimal scope of services will be a balance of the total potential volume and that which is feasible through a compromise of the number and specialties of physicians, profit contribution, and service delivery efficiency.

Each separate service (or product line) that makes up the whole must either individually produce a profit or two or more complementary services must jointly produce a profit when taken together. Other services must offset the profit deficit of any single unprofitable service in order for the sum of all services to be profitable.

Overall Demand

Population and demographics drive disease volume. Across America, there is a fairly consistent and predictable amount of illness by type (e.g., COPD, CFH, asthma, ED visits, gall bladder surgery, etc.). Predictable volume of illnesses is generally expressed as a rate of illness for every 1,000 people. Illness is equally consistent and predictable by age and sex.

Therefore, if the population and related demographics are known for the service area, one can know the volume of illnesses by type. The volume and illness types translate into the number of admissions by DRG, the number of emergency visits, the number of inpatient admissions that originate with these emergency visits, the number of surgery procedures, and so on.

Demand Interception

In order to intercept enough of the types and volumes of these services to be successful, an optimal medical staff must be established that will drive the desirable volume. In the same way that there is a relationship between the types and volume of illness in relation to population and demographics, there is a relationship between the number of inpatient admissions and outpatient services by physician and specialty.

Therefore, an estimate of the total potential number and types of physicians should be calculated. Comparison of the number and mix of physicians needed with the actual number of physicians by specialty indicates any variances: too few, too many, or just right. Too few mean that the hospital cannot achieve the target market share. Too many means that the individual physician practices could be in financial jeopardy.

Typically, the target market share will be an increase in volume in some areas that require adding physicians. Physicians should be added so as to not adversely affect existing practices and to ensure high quality clinical service.

Physicians whose practices are in jeopardy will make adjustments that are in their best interests and possibly punitive to the hospital. Balance is critical for mutual success and trust.

Profit Contributions

Next, we must determine the profit contribution (revenues and costs) of these volumes. The hospital’s records are a repository of vast amounts of financial and operational data. One can determine the net revenue and cost for every service that the hospital currently provides through analysis of these data. (Don’t blame failure on inadequate information systems. Most systems provide an acceptable level of detail, although the raw data may need to be analyzed manually.)

Revenue information is also available in the public domain in the form of fee schedules that are especially useful for services that the hospital doesn’t currently provide. Costs to provide current services as well as those not currently provided can be developed through use of cost accounting techniques.

Redesign Service Delivery

Most hospitals cannot possibly intercept 100% of the market share. Even at 100%, the volumes of some individual services are not economically feasible or clinically acceptable. The hospital must discriminate based on service line profit contribution and quality considerations.

The final adjustment to the scope of service to achieve the target market share is to consider the efficiency of service delivery. Some services at low volumes are not profitable because the cost is too great. However, redesigning the approaches and methods of service delivery can often enable the hospital to deliver service volume at a profit contribution.

Once service delivery is restructured to become highly efficient and effective, resource levels must be established that match this new design. The result is “alignment” of resources and service volume, not cutting costs.

Conclusion

Many hospitals are unprofitable and don’t know why. Discussions with hospital executives and the literature indicate a series of “knee jerk” reactions over the last five to eight years. Our research indicates the presence of significant imbalances and misalignment among service lines, volume, medical staff size and mix, and service line costs.

The solution to all unprofitable hospitals, but especially SCHs, is to establish a scope of service for which each service line is profitable through a balance of volume, medical staff size and mix, and service delivery redesign. The process of balancing service types, volume, medical staff size and mix, service delivery design, and profit contribution requires several iterations. Optimizing is a balancing act and requires multiple iterations of this analysis process.

The greater emphasis here has been on development of the scope of services and not on service delivery efficiency (SDE). SDE is the subject of another article available at this site titled New Patient Care Models: New Results Through Innovation and Rightsizing.

You may have never thought much about the optimization of scope of service nor spent much time on the subject. You’re not alone. The size and scope of most services evolves at the mercy of physicians or chance. The result of this evolution is that you may not be successful and you may not know what to do or where to apply corrective action.

This analytical approach described herein is relatively easy but conceptually foreign. However, learning to perform this analysis and having the will to do so is a better option than going out of business.

Our experience has been that there are sufficient, and clinically appropriate, amounts of service in a service area population of as low as 18,000 to ensure adequate levels of profitability for long-term success and viability. However, the smaller the population base, less “cushion” exists and the risk becomes greater because there is smaller margin for error.

A SCH’s survival depends primarily on its response to two questions: (1) Is it willing to design an optimal scope of services based on analysis, and (2) is it willing to redesign service delivery in light of the inertia of the status quo.

The pressures are great. The rubber band has not broken but has stretched too far to go back. If you are unprofitable, you will change, someone else will take over and change, or you will close. It’s in your hands.

Hospital Strategies, inc. is a special service firm to the small community hospital. We manage and lease hospitals, manage departments or services within hospitals, and provide management consulting and advisory services.

By James H. Burnette, President and CEO, Hospital Strategies, inc.

Hospitals as an industry demonstrate behaviors that characterized other failing American industries over the last two decades. Each of these industries initially denied reality or ignored the bitter medicine of change. In time, however, each faced the music and began the transformation.

Inevitably, the universal performance indicator emerges. The profit margin for not-for-profits hospitals in the U. S significantly declined over the last decade. It occurred with the decline in reimbursement. The catalyst was managed care in the early 1990s and the Balanced Budget Act of 1997. The initial response was denial. Then cries went out for restoration of reimbursement and political lobbying efforts to dam the tide of decline.

Then initiatives followed that appeared to resemble strategies employed by other industries during their years of upheaval. Some of these include integrated delivery systems and other corporate structural changes, isolated cost reduction efforts, significant spikes in prices, and the much-touted avalanche of management technology and information systems. Most have not delivered, many with little positive impact, and some have been altogether abandoned.

Although some shifts occurred in patient volume that resulted in some hospitals seeing increases in revenue, most were modest, isolated, and not fundamental. The literature today contains the same message content and limited success stories that were penned 10 years ago. Could the conclusion be so obvious as the need for profitability? Some argue that hospitals can’t, or shouldn’t, be profitable. We believe that health care is a business, not an entitlement. Most of the initial responses did not occur within the belief system of hospitals as businesses. These initiatives would no doubt have had significantly different results otherwise.

The hospital industry as a business must adopt management strategies and tactics that all other industries have employed. Such strategies have transformed the “cottage” automotive industries of the early 1900s into mass production and again the inefficient and poor quality automotive industries of the 1980s into quality that competes effectively with the Japanese and Europeans. They transformed the inefficient dinosaur steel industry into successful “mini-mills” that produce the most cost-effective steel industry in the world. The regulated healthcare industry with its similar revenue model resembles the regulated airline industry of the 1980s. This industry has since come to produce the lowest fares the world has ever known. Before it is criticized for its poor quality, the market place of the airline industry has produced a quality v. price relationship that is acceptable to the public. Even the euphoric “dot com” “capital drains” of the 1990s are becoming successful businesses of convenience of the early 2000s.

In addition to really believing that hospitals are businesses, the most fundamental management concepts that hospitals must adopt relate to: (1) a new revenue philosophy, (2) the urgent need for efficiency, (3) a new concept of quality, and (4) new leadership and management expectations.

A New Revenue Philosophy

Population and demographics drive illness volumes. Therefore, the volume of every service within a particular service area is predictable. Population and demographics also translate into the size and mix of the requisite medical staff. This knowledge permits one to develop a scope of services that can be delivered at a profit.

When an imbalance or misalignment of the types of services, volume of services, and the specialty and number of physicians in relation to population and demographics occurs, there is dysfunction. For every service that does not produce a profit contribution, one or more other services must generate a profit contribution that offsets the deficit. This idea is addressed in another HSi article titled Be Successful With a Population of Only 18,000. Hospitals have notoriously added services without regard to the financial (bottom line) impact. Hospitals should develop sources of revenue that yield profit contributions.

Hospitals have come to operate under the assumptions that all service volume is equal, “more” is better, and that the service line components of “more” volume don’t matter as long as “more” produces “more” revenue. The phrase “all things to all people” rings a bell and illustrates these collective assumptions. Another way for hospitals to provide services that avoid a financial drain is to form alliances and affiliations with those who can provide the service at a profit.

Marketing hospitals is unheard of. Most of the “marketing” we see today is actually very soft and usually ineffective advertising. These ads say the obvious, and do not differentiate the hospital. Hospitals need to identify their true strengths and the distinctions that make them preferred and “sell” their story. Hospitals that have become market leaders in service level and/or customer satisfaction should promote theses attributes. Imagine the attraction of a hospital that guarantees that customers that are not admitted or transferred to another hospital will get out of the Emergency Department in less than one hour when the typical length of stay in the area is 4 hours. Imagine the interest in a hospital that promotes to its insurers and customers that it has the lowest prices at the highest quality level and delivers.

The Urgent Need for Efficiency

There is a fear that becoming efficient will result in a corresponding decline in services level and clinical quality. This fear is well grounded in failure. Most efficiency efforts have failed due to a lack of understanding of the business requirement to become concurrently efficient and effective. Most efforts have been “cost cutting” efforts. “Cost cutting” occurs when costs are cut without redesign or restructuring the underlying service delivery methods. It should not surprise us that a 10% decline in output of service delivery will occur with a 10% cut in costs if the underlying service delivery methods are not redesigned or restructured. These cost reduction efforts are failures and usually have had short lives because resources are usually restored quickly.

HSi developed a staff resource management system in which efficiency and effectiveness occur together. This methodology encompasses a wide range of nursing services including adult medicine, adult post-surgery care, pediatric med/surg, women’s’ services (labor/delivery/recovery, post partum care, post-operative gynecological surgery care), adult critical care (intensive and step-down), and emergency services. We achieved a 20% reduction in annual labor costs equivalent to a $1.2 million savings with a 70% improvement in staffing effectiveness. The 70% improvement in staffing effectiveness was a 70% increase in the number of hours that “actual” staff levels matched or exceeded “required” staff levels (based on standards).

Ineffective policy based on flawed analysis can lead to inefficiency. Most hospitals are obsessed with controlling pay rates. There is a universal belief that if the pay rates are tightly controlled, the payroll will be restrained. However, there is little control of the total number of hours for which staff works and is paid. Clinical Coordinators have a blank check. The ballooning payroll is related to total hours paid, not excessive rates of pay. If this principle is fully understood, hospitals can become the “premiere” employer and chose to not participate in the nursing shortage.

Hospital vendors have taken advantage of the industry’s supply chain ignorance for the past 10 years. Piggybacking on the supply chain techniques going back as far as “just in time” (JIT) inventory management, vendors have promoted “programs” that have exploited hospitals and cost them millions in the name of supply chain efficiency. For example, large supply vendors promoted the idea that hospitals could reduce their inventory costs by eliminating their internal inventories and by allowing the vendor’s truck at the hospital’s loading dock to be their inventory. The principle was to reduce the investment in inventory and the interest costs of carrying the inventory. The “bait and switch” was that the unit price of the supplies sitting on the vendor’s truck was increased. The net effect was that the total supply costs for the enterprise increased. In truth, the only cost of the internal inventory was the interest cost of carrying inventory. It is excessive only if not managed well. It is true that these programs permitted the hospital to redirect cash from inventory to other uses but at the end of the day, the income statement suffered.

Vendors also promoted reducing the cost of each supply item by standardizing on one vendor. The idea is that if you purchase all of your supplies from one vendor rather than many, you will reduce your supply costs. This is generally true. However, the principle used by other industries is to standardize only those supplies that are commodities and are not unique to a particular service line. For example, if a computer manufacturer requires 3 different electronic devices that permit it to produce 3 unique models of computers, he standardizes each of the 3 and purchases each of the 3 from the vendor with the best price for each of the 3 or from 3 separate vendors. He does not standardize on one of the 3 and purchase all devices from one vendor. This would mean he has to use one device for all 3 models and now he has lost the uniqueness of the three computers. They are now only one model.

A client embraced this myth and decided to purchase all laparoscopy supplies from one vendor. The result was to loose one surgeon who liked the other vendor’s product and the hospital lost $450,000 in annual net revenue against a total savings from this program of only $35,000. The preferred vendor won – the hospital lost.

A New Concept of Quality

We hear about quality incessantly. One hospital CEO remarked recently that he was tired of hearing about quality. He said we have all the quality we need. While this is not entirely true and he did not entirely mean it, his point illustrates the obsession we have with quality.

We need to broaden our view of quality. Consider the concept of “effectiveness.” Effectiveness here is defined as how well services are provided. Effectiveness is a measure of service level and quality. Service level attributes include such characteristics as waiting time, length of stay, and other examples of responsiveness. The customer expects quality. Improved service makes him happy. Quality includes clinical quality and service or process quality such as accuracy. Clinical quality includes such characteristics as frequency of medication errors and acquired infection rates. Service or process quality includes factors such as the accuracy of customer bills for services.

Most effectiveness improvement efforts are initiated for the right reasons but ignore the efficiency implications of the resulting changes. As noted in the previous section, when efficiency increases, effectiveness should increase also. Unfortunately, there is a notion that efficiency cannot coexist with effectiveness. Actually, efficiency and effectiveness go hand and glove. Well-designed performance improvement (PI) or continuous quality improvement (CQI) programs concurrently achieve both in an optimal solution.

A process improvement initiative by HSi can be used to illustrate this concept. Contemporary problems with the ED are described as a “crisis” and are characterized by terms such as overcrowding, uninsured, holding patients, inadequate capacity, EMTALA, low reimbursement, staffing shortages, and others. Actually, most of these are symptoms, and not problems nor causes of the problem.

The real underlying problem is a service level problem defined as excessive patient lengths of stay (LOS). Many solutions have been proposed including adding nursing and physician staff, adding more treatment rooms, bedside registration, and adding more ancillary services. All of these problem solution “attempts” add cost and seldom work.

We developed a process management system that reduced the average LOS by 30% to 50%. This benefit is serendipity. The shorter the LOS, the lower the labor cost. Typically, this 30% to 50% range of LOS yields a reduced labor cost of as much as 25%.

The solution consists of several simple protocols and decision rules that expedite patient care and transform the complexity of the patient care process into reduced LOS at lower costs and are within the direct control of the ED.

The solution is easy to learn, requires little training, and can be implemented within a couple of weeks without the requirement of additional information systems. Although the solution doesn’t “require” an information system, the solution can be augmented by the use of “process management” software

New Leadership and Management Expectations

To understand the current condition of hospital leadership and management, one must go back 20 years. In the late 1970s and early 1980s, commercial payers reimbursed hospitals whatever the hospital’s charged and government payments were based on “cost plus” formulas. If a hospital needed to improve its bottom line or generate surplus capital for new services and technology, it simply increased its charges and/or its costs. Effectively, it unilaterally dictated its revenue.

This did not fundamentally change until the early 1990s. Thus, many, if not most, people managing hospitals today are a product of that era. Most don’t understand management because they have never had to mange. (Note the irony of the title “Administrator.”) This does not mean these people are bad, they just don’t understand a fundamental requirement of success.

Even those who have come into the industry since the onset of managed care generally have no experience outside of hospitals, have no management experience, or have fallen under the spell of legacy leadership. Additionally, many, if not most, hospitals have been owned and operated by not-for-profit organizations that function as quasi-governmental entities. Governments don’t generate revenue. They collect taxes to deliver as much service as the public will allow.

These two conditions have lead to a vacuum in leadership and management. There are very few leaders and managers in the hospital industry today that understand what it means to be market-driven, to be a business, and what it means to be customer friendly. We should not be surprised that the public views the hospital industry with distain with managers who lack formal management training, lack experience in customer-friendly service businesses, or a combination of these. The future will very likely be lead and managed by people who are not even in the hospital industry today. Hospital leadership and management that do not transform themselves first, will be see their hospitals taken over by corporations.

Conclusion

Hospitals are in trouble. The hospital industry as a business must adopt management strategies and tactics that all other industries have employed. They must believe, embrace, and employ the most fundamental management concepts of: (1) a new revenue philosophy, (2) the urgent need for efficiency, (3) a new concept of quality, and (4) new leadership and management expectations.

We hear a lot about transformation. Transformation will occur fully only if hospitals change from within. This means from within the individuals that provide leadership and management. Once leadership and management changes, everything else will change.

The ideas in this article are not fully inclusive of everything it takes to be successful, nor do we pretend to have all the answers. Our perspective is from that of someone who has spent 20 years outside of healthcare before entering healthcare and the last 17 years in healthcare. Therefore, it does represent some balance of views and provides an overview of the ideas that must accompany the strategies for change.

Hospital Strategies, inc. is a special service firm to the small community hospital. We manage and lease hospitals, manage departments or services within hospitals, and provide management consulting and advisory services.