Government and Regulations

Bryn Nelson in the October issue of The Hospitalist (see “A Taxing Future for HM?,” p. 16) incorrectly states that Blue Cross Blue Shield of North Carolina’s refund to customers was a result of an overcharge. In point of fact, the refund is a result of a one-time opportunity due to the changes brought about by the health reform law. The new rating and grandfathering rules in the Patient Protection and Affordable Care Act create a one-time circumstance enabling these refunds.

The funds come from active life reserves, which are portions of the premium set aside in the early years of a policy to pay future claims and keep rates stable as customers’ medical expenses rise during the life of the policy. However, policies purchased or substantially modified after March 23, 2010, will end in 2014 under the new healthcare reform law, which is when the new products under health reform will be introduced. Therefore, the reserves held for these products will cover a much shorter period of time, allowing for these funds to be released.

Lew Borman,

media relations,

Blue Cross Blue Shield of North Carolina

Bryn Nelson in the October issue of The Hospitalist (see “A Taxing Future for HM?,” p. 16) incorrectly states that Blue Cross Blue Shield of North Carolina’s refund to customers was a result of an overcharge. In point of fact, the refund is a result of a one-time opportunity due to the changes brought about by the health reform law. The new rating and grandfathering rules in the Patient Protection and Affordable Care Act create a one-time circumstance enabling these refunds.

The funds come from active life reserves, which are portions of the premium set aside in the early years of a policy to pay future claims and keep rates stable as customers’ medical expenses rise during the life of the policy. However, policies purchased or substantially modified after March 23, 2010, will end in 2014 under the new healthcare reform law, which is when the new products under health reform will be introduced. Therefore, the reserves held for these products will cover a much shorter period of time, allowing for these funds to be released.

Lew Borman,

media relations,

Blue Cross Blue Shield of North Carolina

Bryn Nelson in the October issue of The Hospitalist (see “A Taxing Future for HM?,” p. 16) incorrectly states that Blue Cross Blue Shield of North Carolina’s refund to customers was a result of an overcharge. In point of fact, the refund is a result of a one-time opportunity due to the changes brought about by the health reform law. The new rating and grandfathering rules in the Patient Protection and Affordable Care Act create a one-time circumstance enabling these refunds.

The funds come from active life reserves, which are portions of the premium set aside in the early years of a policy to pay future claims and keep rates stable as customers’ medical expenses rise during the life of the policy. However, policies purchased or substantially modified after March 23, 2010, will end in 2014 under the new healthcare reform law, which is when the new products under health reform will be introduced. Therefore, the reserves held for these products will cover a much shorter period of time, allowing for these funds to be released.

Lew Borman,

media relations,

Blue Cross Blue Shield of North Carolina

In a single year, one health system saved itself more than $2 million on orthopedic, cardiology, and cardiovascular surgery procedures. Another hospital saved Medicare an estimated $750,000. Supply costs dropped, scores on quality metrics rose, and bonus payments were distributed to participating doctors.

A runaway success? Not so fast.

Encouraging, if early, results from Medicare’s Acute Care Episode (ACE) Demonstration might have strengthened the case for bundling payments around episodes of care as an effective way to rein in spiraling healthcare costs and transition from a volume-based to a value-based payment system. But broad skepticism persists over the wisdom of binding together the fates of hospitals and doctors, and critics are far from ready to drop their argument that bundling will be unworkable across wider, less-well-defined swaths of healthcare.

The current bundling and gain-sharing duo differs only superficially from the despised capitation model of the 1990s, argues Adam Singer, MD, CEO of North Hollywood, Calif.-based IPC: The Hospitalist Company. “It’s capitation in a different dress, except that instead of over a patient population, it’s done over an individual patient’s case,” he says.

Not so, says Lisa Kettering, MD, SFHM, vice president of medical affairs and CMO at Exempla St. Joseph Hospital in Denver.

“I’ve been around in medicine long enough to have been around when there was capitation,” she says. “I think the current bundling project is a vast improvement and I think it’s a very different animal from old capitation … and pivots absolutely critically on the physician involvement at the heart of quality, at the heart of decision-making. That’s never happened before.”

Amid the swirling expectations and apprehensions, what has the ACE demo taught us so far about bundling, and what does it mean for the future of hospital medicine? In essence, bundling lumps Medicare Part A and Part B reimbursements into a single payment aimed at encouraging hospitals and doctors to work together to improve efficiency, maintain high-quality care, and reduce overall expenses. Hospitals participating in the ACE Demonstration provide a roughly 5% discount to Medicare for a specific list of diagnosis-related groups (DRGs), and the Centers for Medicare & Medicaid Services (CMS) passes on half of the savings to beneficiaries who use participating hospitals for the covered procedures.

After submitting their claims, the hospitals receive a bundled Medicare payment, from which they pay doctors 100% of their Part B fees. As an incentive, some providers are eligible for bonus payments in the form of gain-sharing. CMS rules preclude any payments for referrals, cap all payments at 25% of the physician fee schedule, and mandate that any payment be based on reductions in patient care costs due to ACE activities. But participating hospitals are otherwise free to devise their own formulas and specific quality metrics that doctors must meet to gain the bonus.

SHM repeatedly has signaled its support for exploring bundling as a way to better align financial incentives among providers and reward them for quality and efficiency instead of quantity. The 10,000-member society strongly supports further testing of payment bundling methodologies prior to a national rollout, however, and has called for the integral involvement of hospitalists in developing and implementing bundling projects.

With its main focus on cardiologists, orthopedic surgeons, and cardiovascular surgeons, the ACE Demonstration has had little direct impact on hospitalists’ jobs or bank accounts—so far. That could change with an expanded pilot mandated by healthcare reform legislation. Slated to begin by Jan. 1, 2013, the project will redefine covered episodes of care to include all medical services administered three days before a hospital admission through 30 days after discharge.

CMS hasn’t yet decided which procedures will be covered, but officials say they’ve learned from past experience to begin with well-defined episodes of care. “Back in the ’90s, we did a bundled demonstration for bypass procedures and also for cataract procedures,” says Cynthia Mason, project manager with the CMS Medicare Demonstrations Group. “What we learned from that is obviously it’s easier both for Medicare, as well as for the providers, to predict utilization when you have a more standardized package of services. You also need a variety and large number of services in order to give you opportunities for looking at efficiencies and improvements in the system.”

Upfront Investment, Immediate Savings, Improved Quality

Early opinions have been mostly positive among the ACE participants. Hillcrest Medical Center in Tulsa, Okla., was first out of the gate in May 2009. Over the project’s first year, Hillcrest CEO Steve Dobbs estimates that the 490-bed hospital has saved CMS about $750,000; half of that sum has been passed along to patients. The hospital itself has spent about $550,000 in marketing, start-up costs, corporate support, and paying third-party claims. But recent investments have led to double-digit gains in patient volume (24% in cardiology and cardiovascular surgery, and a whopping 37% in orthopedics), margins in orthopedics are up, and direct negotiations between participating doctors and national vendors have netted additional savings. As a reward for help with cost-cutting, Hillcrest recently passed along two gain-sharing checks totaling $130,000 to be split among six independent orthopedists.

“What’s actually driving this program is the supply cost savings from all of our national partners,” Dobbs says. A big question is whether the negotiated savings—and hence the gain-sharing—could be maintained over a greatly expanded pilot project. “If this goes nationwide and everybody’s in it, do you get the same benefit? I don’t know the answer to that right now,” he says.

Dobbs is careful to point out that success is not measured by patient volume and supply costs alone. Hillcrest’s gain-sharing plan stipulates that physicians must reach the 90% threshold for a range of quality metrics. For one previously problematic category—stopping antibiotics 24 hours post-surgery—Dobbs says both the orthopedics and cardiovascular surgery departments have dramatically increased their compliance rates.

Baptist Health System in San Antonio, which began its own demonstration in June 2009, has reported savings of $2.2 million for its 1,275-bed, four-campus health system. So far, the roughly 20 hospitalists employed by IPC: The Hospitalist Company who work within the Baptist Health System have not directly participated in the project. But Felix Aguirre, MD, FHM, IPC’s vice president of medical affairs in San Antonio, says the demonstration has had a definite impact on efficiency.

Dr. Aguirre

“Since the demonstration project has come up, it seems like everybody is obeying the evidence-based guidelines now,” says Dr. Aguirre, a member of SHM’s Public Policy Committee and Team Hospitalist. “So it’s not keeping the hip replacement patient in for five days, it’s what the guidelines say: three days.”

Some kinks still need to be worked out. Baptist has had trouble with double payments and other claims-related issues, Dr. Aguirre says. Hillcrest’s Dobbs complains that he has heard virtually no feedback from CMS. Medicare’s Mason says officials have been “very pleased” with the project’s progress so far, but concedes that a delay in updating a claims processing system has pushed back the launch at two other demonstration sites until Nov. 1.

At one of those sites, 361-bed Exempla St. Joseph Hospital, the three-year demonstration will encompass only cardiology and cardiovascular surgery. Dr. Kettering, a former SHM board member who serves as executive sponsor and director of St. Joseph Hospital’s ACE demo, says the shared-savings program will be limited to cardiovascular surgery for the first year to ensure the system is running smoothly. In the second or third year, however, hospitalists who care for eligible patients could theoretically benefit from a similar gain-sharing agreement, if they meet certain agreed-upon, evidence-based metrics. In that circumstance, she says, hospitalists would begin to learn the ropes and become directly involved in quality outcomes. Extending the model beyond ACE, their primary role could expand dramatically to that of learning how to operate bundling across the continuum of care.

The eventual bundling experiences at all five demonstration sites will likely be positive, Dr. Aguirre says, given that they were carefully chosen to maximize the likelihood of success. “Where the rubber will hit the road is, how do you translate where you’re obviously going to be successful at five sites to implementing it across maybe a thousand sites and making it successful?” he asks.

I think the current bundling project is a vast improvement and I think it’s a very different animal from old capitation … and pivots absolutely critically on the physician involvement at the heart of quality, at the heart of decision-making. That’s never happened before.—Lisa Kettering, MD, vice president of medical affairs, CMO, Exempla St. Joseph Hospital, Denver, former SHM board member

All Eggs in One Basket?

One thing is certain: For bundling to expand, it will have to convince some fierce critics of its staying power. IPC’s Dr. Singer says so much emphasis has been placed on bundling that it has drowned out any discussion of other alternatives. “It seems like we as a society are hell-bent on putting this in as the method of payment, but I don’t really see all the elements that really would promote a higher-quality product that would reduce cost, which is what it should be about,” he says.

If not bundling, what? For some observers, payment-reform options follow a continuum arcing away from the fee-for-service system, though not everyone agrees on just how widely each might—or should—depart from the status quo. Some healthcare leaders, for example, contend that it would be easiest to simply devise new DRG categories for hospitalists or primary-care physicians (PCPs) to replace the existing fee-for-service CPT codes. “It’s a very simple way of aligning the doctor and the hospital without combining the doctor and the hospital into one entity, which is what bundling does,” Dr. Singer says.

Even some bundling advocates say the solution might ease some anxiety over who controls the purse strings, though such a system would need to account for critical-access hospitals, which currently don’t use the DRG system at all. Alternatively, some analysts see broadened gain-sharing rules as a good way to align incentives toward more efficient care, regardless of whether the incentive system accompanies bundling.

Although still in their formative stages, accountable-care organizations (ACOs) and patient-centered medical homes (PCMHs)—and the implicit bundling of medical services across patient populations—are being advanced as longer-term reforms. Even then, analysts argue over whether such models will be sufficiently free from a fee-for-service foundation. Despite the vigorous debate, most observers agree that Medicare officials are keen to offload more of the risk, whether onto physicians or onto hospitals. “They’re saying, ‘Here’s the dollar. You administer it. And if you end up in the negative, you do, but if it’s in the positive, you get a share of everything,’ ” Dr. Aguirre says.

HM: Front and Center

Hospitalists might be uniquely well positioned to bring more efficiency and value, as well as help hospitals manage that risk. With bundling, though, the big question is how they’ll be paid for their services amid the demands of multiple providers. “I’ve heard it described as a big potential food fight,” says Kirk Mathews, CEO of St. Louis-based Inpatient Management Inc. and a member of SHM’s Workforce Summit Committee.

In the scenario relayed to him by fearful hospitalists, a hospital administrator is seated at the table with pie in hand, with the various providers clamoring for a slice. “Everyone will be sitting there saying, ‘Here’s why we deserve this percent of the bundled payment,’” Mathews says. “Whether that’s an accurate portrayal or not, that’s the fear.”

Taken a step further, the scenario envisions hospitalists struggling to hold their own at the table against high-powered and higher-paid specialists. Some of the ACE Demonstration sites, however, have used physician-hospital organizations, or PHOs, to help decentralize the decision-making and ensure that stakeholders are represented. Similarly, if patient referrals to hospitalists from other providers drop—as they did for some of the ACE Demonstration bundles at Baptist and Hillcrest—could hospitalists lose their bargaining power through an erosion of recouped professional fees?

If bundling expands, Hillcrest’s CEO says hospitalists are instead likely to assume a more central role (see “Six Pieces of Bundling-Related Advice for Hospitalists,” right). “If we truly go to bundled payments on everything,” Dobbs says, “then I think everybody’s got to be at the table and contributing, and especially the hospitalist, because the medical DRGs, that’s going to be where the hospitalists drive the equation, and that’s going to be a huge part of this.”

As SHM’s CEO Larry Wellikson, MD, SFHM, wrote in The Hospitalist last year (see “Bundling Bedlam,” July 2009, p. 46), the bundling of Medicare Part A dollars that subsidize HM with Part B physicians’ payments might actually pave the way for a more professional discussion of the value that hospitalists deliver. With bundling, he wrote, “the need for subsidies or support could diminish or vanish.”

Guterman

But that doesn’t resolve the issue of how to fairly size each bundle. Stuart Guterman, vice president of the Washington, D.C.-based Common-wealth Fund’s Program on Payment and System Reform, says one lesson from the capitation scheme of the ’90s is that an overemphasis on cost savings can lead to payments that are frequently insufficient to cover the costs of appropriate care.

“So there’s got to be more collaboration on what an appropriate amount is, and that’s a very important feature,” Guterman says. “Clearly, if you don’t pay enough, it doesn’t bode well for the success of any kind of payment approach. If you pay too much, it means you’re wasting money.”

The size and complexity of healthcare networks will influence how those bundle-related payments are negotiated. And in this case, several analysts say bigger isn’t necessarily better. “My own view is that it’s easier for a handful of hospitalists and a few community doctors in the hospital to come to an agreement on how they’re going to work within a bundle,” says Robert Berenson, MD, a senior fellow in the Urban Institute’s Health Policy Center and vice chair of the Medicare Payment Advisory Commission (MedPAC).

Dr. Berenson

“My experience is that in rural communities, there’s a greater alliance of interests between the doctors and the hospitals, whereas in big urban areas they’re often competing with each other. So I don’t see that as the problem, frankly. I think this is probably better designed for smaller places where there’s already reasonably good relationships.”

L. Scott Sussman, MD, a hospitalist at Mt. Ascutney Hospital and Health Center in Windsor, Vt., agrees that bundling likely wouldn’t negatively affect the day-to-day operations of the 25-bed critical-access hospital. Almost all admitted patients have PCPs in the affiliated Mt. Ascutney Physicians Practice, aiding communication during hospitalizations and care transitions. Dr. Sussman thinks bundling fits well with the mission of hospitalists to provide quality care and help smooth their patients’ transition back to community providers. “From the reading that I’ve done on bundling, it does seem to me that if implemented properly, it really could achieve cost savings while maintaining quality care,” he says.

Nevertheless, he has plenty of questions and concerns. Bundling would be more complicated, he concedes, if most admissions were referred from private-practice physicians in the community. And because Mt. Ascutney is a critical-access hospital, patients who develop complications or require a higher level of care are transferred to a tertiary-care facility—in this case, a 22-mile drive over the state line to Dartmouth-Hitchcock Medical Center in Lebanon, N.H. “How would the payment be divided up at that point?” he asks.

To make bundling work, healthcare leaders will clearly need to blaze a trail through uncharted territory.

But if the goal is getting more from the trillions spent annually on healthcare, advocates like Guterman say it provides an important step toward a better-functioning system.

Among hospitalists, at least some observers are betting that bundling will ultimately find its way. “I think bundled payments are here to stay,” Dr. Aguirre says. “I think our goal now is to see how we can modify it or create it so it can have the best impact for us and we can have the best impact for it.” TH

Bryn Nelson is a freelance medical writer based in Seattle.

In a single year, one health system saved itself more than $2 million on orthopedic, cardiology, and cardiovascular surgery procedures. Another hospital saved Medicare an estimated $750,000. Supply costs dropped, scores on quality metrics rose, and bonus payments were distributed to participating doctors.

A runaway success? Not so fast.

Encouraging, if early, results from Medicare’s Acute Care Episode (ACE) Demonstration might have strengthened the case for bundling payments around episodes of care as an effective way to rein in spiraling healthcare costs and transition from a volume-based to a value-based payment system. But broad skepticism persists over the wisdom of binding together the fates of hospitals and doctors, and critics are far from ready to drop their argument that bundling will be unworkable across wider, less-well-defined swaths of healthcare.

The current bundling and gain-sharing duo differs only superficially from the despised capitation model of the 1990s, argues Adam Singer, MD, CEO of North Hollywood, Calif.-based IPC: The Hospitalist Company. “It’s capitation in a different dress, except that instead of over a patient population, it’s done over an individual patient’s case,” he says.

Not so, says Lisa Kettering, MD, SFHM, vice president of medical affairs and CMO at Exempla St. Joseph Hospital in Denver.

“I’ve been around in medicine long enough to have been around when there was capitation,” she says. “I think the current bundling project is a vast improvement and I think it’s a very different animal from old capitation … and pivots absolutely critically on the physician involvement at the heart of quality, at the heart of decision-making. That’s never happened before.”

Amid the swirling expectations and apprehensions, what has the ACE demo taught us so far about bundling, and what does it mean for the future of hospital medicine? In essence, bundling lumps Medicare Part A and Part B reimbursements into a single payment aimed at encouraging hospitals and doctors to work together to improve efficiency, maintain high-quality care, and reduce overall expenses. Hospitals participating in the ACE Demonstration provide a roughly 5% discount to Medicare for a specific list of diagnosis-related groups (DRGs), and the Centers for Medicare & Medicaid Services (CMS) passes on half of the savings to beneficiaries who use participating hospitals for the covered procedures.

After submitting their claims, the hospitals receive a bundled Medicare payment, from which they pay doctors 100% of their Part B fees. As an incentive, some providers are eligible for bonus payments in the form of gain-sharing. CMS rules preclude any payments for referrals, cap all payments at 25% of the physician fee schedule, and mandate that any payment be based on reductions in patient care costs due to ACE activities. But participating hospitals are otherwise free to devise their own formulas and specific quality metrics that doctors must meet to gain the bonus.

SHM repeatedly has signaled its support for exploring bundling as a way to better align financial incentives among providers and reward them for quality and efficiency instead of quantity. The 10,000-member society strongly supports further testing of payment bundling methodologies prior to a national rollout, however, and has called for the integral involvement of hospitalists in developing and implementing bundling projects.

With its main focus on cardiologists, orthopedic surgeons, and cardiovascular surgeons, the ACE Demonstration has had little direct impact on hospitalists’ jobs or bank accounts—so far. That could change with an expanded pilot mandated by healthcare reform legislation. Slated to begin by Jan. 1, 2013, the project will redefine covered episodes of care to include all medical services administered three days before a hospital admission through 30 days after discharge.

CMS hasn’t yet decided which procedures will be covered, but officials say they’ve learned from past experience to begin with well-defined episodes of care. “Back in the ’90s, we did a bundled demonstration for bypass procedures and also for cataract procedures,” says Cynthia Mason, project manager with the CMS Medicare Demonstrations Group. “What we learned from that is obviously it’s easier both for Medicare, as well as for the providers, to predict utilization when you have a more standardized package of services. You also need a variety and large number of services in order to give you opportunities for looking at efficiencies and improvements in the system.”

Upfront Investment, Immediate Savings, Improved Quality

Early opinions have been mostly positive among the ACE participants. Hillcrest Medical Center in Tulsa, Okla., was first out of the gate in May 2009. Over the project’s first year, Hillcrest CEO Steve Dobbs estimates that the 490-bed hospital has saved CMS about $750,000; half of that sum has been passed along to patients. The hospital itself has spent about $550,000 in marketing, start-up costs, corporate support, and paying third-party claims. But recent investments have led to double-digit gains in patient volume (24% in cardiology and cardiovascular surgery, and a whopping 37% in orthopedics), margins in orthopedics are up, and direct negotiations between participating doctors and national vendors have netted additional savings. As a reward for help with cost-cutting, Hillcrest recently passed along two gain-sharing checks totaling $130,000 to be split among six independent orthopedists.

“What’s actually driving this program is the supply cost savings from all of our national partners,” Dobbs says. A big question is whether the negotiated savings—and hence the gain-sharing—could be maintained over a greatly expanded pilot project. “If this goes nationwide and everybody’s in it, do you get the same benefit? I don’t know the answer to that right now,” he says.

Dobbs is careful to point out that success is not measured by patient volume and supply costs alone. Hillcrest’s gain-sharing plan stipulates that physicians must reach the 90% threshold for a range of quality metrics. For one previously problematic category—stopping antibiotics 24 hours post-surgery—Dobbs says both the orthopedics and cardiovascular surgery departments have dramatically increased their compliance rates.

Baptist Health System in San Antonio, which began its own demonstration in June 2009, has reported savings of $2.2 million for its 1,275-bed, four-campus health system. So far, the roughly 20 hospitalists employed by IPC: The Hospitalist Company who work within the Baptist Health System have not directly participated in the project. But Felix Aguirre, MD, FHM, IPC’s vice president of medical affairs in San Antonio, says the demonstration has had a definite impact on efficiency.

Dr. Aguirre

“Since the demonstration project has come up, it seems like everybody is obeying the evidence-based guidelines now,” says Dr. Aguirre, a member of SHM’s Public Policy Committee and Team Hospitalist. “So it’s not keeping the hip replacement patient in for five days, it’s what the guidelines say: three days.”

Some kinks still need to be worked out. Baptist has had trouble with double payments and other claims-related issues, Dr. Aguirre says. Hillcrest’s Dobbs complains that he has heard virtually no feedback from CMS. Medicare’s Mason says officials have been “very pleased” with the project’s progress so far, but concedes that a delay in updating a claims processing system has pushed back the launch at two other demonstration sites until Nov. 1.

At one of those sites, 361-bed Exempla St. Joseph Hospital, the three-year demonstration will encompass only cardiology and cardiovascular surgery. Dr. Kettering, a former SHM board member who serves as executive sponsor and director of St. Joseph Hospital’s ACE demo, says the shared-savings program will be limited to cardiovascular surgery for the first year to ensure the system is running smoothly. In the second or third year, however, hospitalists who care for eligible patients could theoretically benefit from a similar gain-sharing agreement, if they meet certain agreed-upon, evidence-based metrics. In that circumstance, she says, hospitalists would begin to learn the ropes and become directly involved in quality outcomes. Extending the model beyond ACE, their primary role could expand dramatically to that of learning how to operate bundling across the continuum of care.

The eventual bundling experiences at all five demonstration sites will likely be positive, Dr. Aguirre says, given that they were carefully chosen to maximize the likelihood of success. “Where the rubber will hit the road is, how do you translate where you’re obviously going to be successful at five sites to implementing it across maybe a thousand sites and making it successful?” he asks.

I think the current bundling project is a vast improvement and I think it’s a very different animal from old capitation … and pivots absolutely critically on the physician involvement at the heart of quality, at the heart of decision-making. That’s never happened before.—Lisa Kettering, MD, vice president of medical affairs, CMO, Exempla St. Joseph Hospital, Denver, former SHM board member

All Eggs in One Basket?

One thing is certain: For bundling to expand, it will have to convince some fierce critics of its staying power. IPC’s Dr. Singer says so much emphasis has been placed on bundling that it has drowned out any discussion of other alternatives. “It seems like we as a society are hell-bent on putting this in as the method of payment, but I don’t really see all the elements that really would promote a higher-quality product that would reduce cost, which is what it should be about,” he says.

If not bundling, what? For some observers, payment-reform options follow a continuum arcing away from the fee-for-service system, though not everyone agrees on just how widely each might—or should—depart from the status quo. Some healthcare leaders, for example, contend that it would be easiest to simply devise new DRG categories for hospitalists or primary-care physicians (PCPs) to replace the existing fee-for-service CPT codes. “It’s a very simple way of aligning the doctor and the hospital without combining the doctor and the hospital into one entity, which is what bundling does,” Dr. Singer says.

Even some bundling advocates say the solution might ease some anxiety over who controls the purse strings, though such a system would need to account for critical-access hospitals, which currently don’t use the DRG system at all. Alternatively, some analysts see broadened gain-sharing rules as a good way to align incentives toward more efficient care, regardless of whether the incentive system accompanies bundling.

Although still in their formative stages, accountable-care organizations (ACOs) and patient-centered medical homes (PCMHs)—and the implicit bundling of medical services across patient populations—are being advanced as longer-term reforms. Even then, analysts argue over whether such models will be sufficiently free from a fee-for-service foundation. Despite the vigorous debate, most observers agree that Medicare officials are keen to offload more of the risk, whether onto physicians or onto hospitals. “They’re saying, ‘Here’s the dollar. You administer it. And if you end up in the negative, you do, but if it’s in the positive, you get a share of everything,’ ” Dr. Aguirre says.

HM: Front and Center

Hospitalists might be uniquely well positioned to bring more efficiency and value, as well as help hospitals manage that risk. With bundling, though, the big question is how they’ll be paid for their services amid the demands of multiple providers. “I’ve heard it described as a big potential food fight,” says Kirk Mathews, CEO of St. Louis-based Inpatient Management Inc. and a member of SHM’s Workforce Summit Committee.

In the scenario relayed to him by fearful hospitalists, a hospital administrator is seated at the table with pie in hand, with the various providers clamoring for a slice. “Everyone will be sitting there saying, ‘Here’s why we deserve this percent of the bundled payment,’” Mathews says. “Whether that’s an accurate portrayal or not, that’s the fear.”

Taken a step further, the scenario envisions hospitalists struggling to hold their own at the table against high-powered and higher-paid specialists. Some of the ACE Demonstration sites, however, have used physician-hospital organizations, or PHOs, to help decentralize the decision-making and ensure that stakeholders are represented. Similarly, if patient referrals to hospitalists from other providers drop—as they did for some of the ACE Demonstration bundles at Baptist and Hillcrest—could hospitalists lose their bargaining power through an erosion of recouped professional fees?

If bundling expands, Hillcrest’s CEO says hospitalists are instead likely to assume a more central role (see “Six Pieces of Bundling-Related Advice for Hospitalists,” right). “If we truly go to bundled payments on everything,” Dobbs says, “then I think everybody’s got to be at the table and contributing, and especially the hospitalist, because the medical DRGs, that’s going to be where the hospitalists drive the equation, and that’s going to be a huge part of this.”

As SHM’s CEO Larry Wellikson, MD, SFHM, wrote in The Hospitalist last year (see “Bundling Bedlam,” July 2009, p. 46), the bundling of Medicare Part A dollars that subsidize HM with Part B physicians’ payments might actually pave the way for a more professional discussion of the value that hospitalists deliver. With bundling, he wrote, “the need for subsidies or support could diminish or vanish.”

Guterman

But that doesn’t resolve the issue of how to fairly size each bundle. Stuart Guterman, vice president of the Washington, D.C.-based Common-wealth Fund’s Program on Payment and System Reform, says one lesson from the capitation scheme of the ’90s is that an overemphasis on cost savings can lead to payments that are frequently insufficient to cover the costs of appropriate care.

“So there’s got to be more collaboration on what an appropriate amount is, and that’s a very important feature,” Guterman says. “Clearly, if you don’t pay enough, it doesn’t bode well for the success of any kind of payment approach. If you pay too much, it means you’re wasting money.”

The size and complexity of healthcare networks will influence how those bundle-related payments are negotiated. And in this case, several analysts say bigger isn’t necessarily better. “My own view is that it’s easier for a handful of hospitalists and a few community doctors in the hospital to come to an agreement on how they’re going to work within a bundle,” says Robert Berenson, MD, a senior fellow in the Urban Institute’s Health Policy Center and vice chair of the Medicare Payment Advisory Commission (MedPAC).

Dr. Berenson

“My experience is that in rural communities, there’s a greater alliance of interests between the doctors and the hospitals, whereas in big urban areas they’re often competing with each other. So I don’t see that as the problem, frankly. I think this is probably better designed for smaller places where there’s already reasonably good relationships.”

L. Scott Sussman, MD, a hospitalist at Mt. Ascutney Hospital and Health Center in Windsor, Vt., agrees that bundling likely wouldn’t negatively affect the day-to-day operations of the 25-bed critical-access hospital. Almost all admitted patients have PCPs in the affiliated Mt. Ascutney Physicians Practice, aiding communication during hospitalizations and care transitions. Dr. Sussman thinks bundling fits well with the mission of hospitalists to provide quality care and help smooth their patients’ transition back to community providers. “From the reading that I’ve done on bundling, it does seem to me that if implemented properly, it really could achieve cost savings while maintaining quality care,” he says.

Nevertheless, he has plenty of questions and concerns. Bundling would be more complicated, he concedes, if most admissions were referred from private-practice physicians in the community. And because Mt. Ascutney is a critical-access hospital, patients who develop complications or require a higher level of care are transferred to a tertiary-care facility—in this case, a 22-mile drive over the state line to Dartmouth-Hitchcock Medical Center in Lebanon, N.H. “How would the payment be divided up at that point?” he asks.

To make bundling work, healthcare leaders will clearly need to blaze a trail through uncharted territory.

But if the goal is getting more from the trillions spent annually on healthcare, advocates like Guterman say it provides an important step toward a better-functioning system.

Among hospitalists, at least some observers are betting that bundling will ultimately find its way. “I think bundled payments are here to stay,” Dr. Aguirre says. “I think our goal now is to see how we can modify it or create it so it can have the best impact for us and we can have the best impact for it.” TH

Bryn Nelson is a freelance medical writer based in Seattle.

In a single year, one health system saved itself more than $2 million on orthopedic, cardiology, and cardiovascular surgery procedures. Another hospital saved Medicare an estimated $750,000. Supply costs dropped, scores on quality metrics rose, and bonus payments were distributed to participating doctors.

A runaway success? Not so fast.

Encouraging, if early, results from Medicare’s Acute Care Episode (ACE) Demonstration might have strengthened the case for bundling payments around episodes of care as an effective way to rein in spiraling healthcare costs and transition from a volume-based to a value-based payment system. But broad skepticism persists over the wisdom of binding together the fates of hospitals and doctors, and critics are far from ready to drop their argument that bundling will be unworkable across wider, less-well-defined swaths of healthcare.

The current bundling and gain-sharing duo differs only superficially from the despised capitation model of the 1990s, argues Adam Singer, MD, CEO of North Hollywood, Calif.-based IPC: The Hospitalist Company. “It’s capitation in a different dress, except that instead of over a patient population, it’s done over an individual patient’s case,” he says.

Not so, says Lisa Kettering, MD, SFHM, vice president of medical affairs and CMO at Exempla St. Joseph Hospital in Denver.

“I’ve been around in medicine long enough to have been around when there was capitation,” she says. “I think the current bundling project is a vast improvement and I think it’s a very different animal from old capitation … and pivots absolutely critically on the physician involvement at the heart of quality, at the heart of decision-making. That’s never happened before.”

Amid the swirling expectations and apprehensions, what has the ACE demo taught us so far about bundling, and what does it mean for the future of hospital medicine? In essence, bundling lumps Medicare Part A and Part B reimbursements into a single payment aimed at encouraging hospitals and doctors to work together to improve efficiency, maintain high-quality care, and reduce overall expenses. Hospitals participating in the ACE Demonstration provide a roughly 5% discount to Medicare for a specific list of diagnosis-related groups (DRGs), and the Centers for Medicare & Medicaid Services (CMS) passes on half of the savings to beneficiaries who use participating hospitals for the covered procedures.

After submitting their claims, the hospitals receive a bundled Medicare payment, from which they pay doctors 100% of their Part B fees. As an incentive, some providers are eligible for bonus payments in the form of gain-sharing. CMS rules preclude any payments for referrals, cap all payments at 25% of the physician fee schedule, and mandate that any payment be based on reductions in patient care costs due to ACE activities. But participating hospitals are otherwise free to devise their own formulas and specific quality metrics that doctors must meet to gain the bonus.

SHM repeatedly has signaled its support for exploring bundling as a way to better align financial incentives among providers and reward them for quality and efficiency instead of quantity. The 10,000-member society strongly supports further testing of payment bundling methodologies prior to a national rollout, however, and has called for the integral involvement of hospitalists in developing and implementing bundling projects.

With its main focus on cardiologists, orthopedic surgeons, and cardiovascular surgeons, the ACE Demonstration has had little direct impact on hospitalists’ jobs or bank accounts—so far. That could change with an expanded pilot mandated by healthcare reform legislation. Slated to begin by Jan. 1, 2013, the project will redefine covered episodes of care to include all medical services administered three days before a hospital admission through 30 days after discharge.

CMS hasn’t yet decided which procedures will be covered, but officials say they’ve learned from past experience to begin with well-defined episodes of care. “Back in the ’90s, we did a bundled demonstration for bypass procedures and also for cataract procedures,” says Cynthia Mason, project manager with the CMS Medicare Demonstrations Group. “What we learned from that is obviously it’s easier both for Medicare, as well as for the providers, to predict utilization when you have a more standardized package of services. You also need a variety and large number of services in order to give you opportunities for looking at efficiencies and improvements in the system.”

Upfront Investment, Immediate Savings, Improved Quality

Early opinions have been mostly positive among the ACE participants. Hillcrest Medical Center in Tulsa, Okla., was first out of the gate in May 2009. Over the project’s first year, Hillcrest CEO Steve Dobbs estimates that the 490-bed hospital has saved CMS about $750,000; half of that sum has been passed along to patients. The hospital itself has spent about $550,000 in marketing, start-up costs, corporate support, and paying third-party claims. But recent investments have led to double-digit gains in patient volume (24% in cardiology and cardiovascular surgery, and a whopping 37% in orthopedics), margins in orthopedics are up, and direct negotiations between participating doctors and national vendors have netted additional savings. As a reward for help with cost-cutting, Hillcrest recently passed along two gain-sharing checks totaling $130,000 to be split among six independent orthopedists.

“What’s actually driving this program is the supply cost savings from all of our national partners,” Dobbs says. A big question is whether the negotiated savings—and hence the gain-sharing—could be maintained over a greatly expanded pilot project. “If this goes nationwide and everybody’s in it, do you get the same benefit? I don’t know the answer to that right now,” he says.

Dobbs is careful to point out that success is not measured by patient volume and supply costs alone. Hillcrest’s gain-sharing plan stipulates that physicians must reach the 90% threshold for a range of quality metrics. For one previously problematic category—stopping antibiotics 24 hours post-surgery—Dobbs says both the orthopedics and cardiovascular surgery departments have dramatically increased their compliance rates.

Baptist Health System in San Antonio, which began its own demonstration in June 2009, has reported savings of $2.2 million for its 1,275-bed, four-campus health system. So far, the roughly 20 hospitalists employed by IPC: The Hospitalist Company who work within the Baptist Health System have not directly participated in the project. But Felix Aguirre, MD, FHM, IPC’s vice president of medical affairs in San Antonio, says the demonstration has had a definite impact on efficiency.

Dr. Aguirre

“Since the demonstration project has come up, it seems like everybody is obeying the evidence-based guidelines now,” says Dr. Aguirre, a member of SHM’s Public Policy Committee and Team Hospitalist. “So it’s not keeping the hip replacement patient in for five days, it’s what the guidelines say: three days.”

Some kinks still need to be worked out. Baptist has had trouble with double payments and other claims-related issues, Dr. Aguirre says. Hillcrest’s Dobbs complains that he has heard virtually no feedback from CMS. Medicare’s Mason says officials have been “very pleased” with the project’s progress so far, but concedes that a delay in updating a claims processing system has pushed back the launch at two other demonstration sites until Nov. 1.

At one of those sites, 361-bed Exempla St. Joseph Hospital, the three-year demonstration will encompass only cardiology and cardiovascular surgery. Dr. Kettering, a former SHM board member who serves as executive sponsor and director of St. Joseph Hospital’s ACE demo, says the shared-savings program will be limited to cardiovascular surgery for the first year to ensure the system is running smoothly. In the second or third year, however, hospitalists who care for eligible patients could theoretically benefit from a similar gain-sharing agreement, if they meet certain agreed-upon, evidence-based metrics. In that circumstance, she says, hospitalists would begin to learn the ropes and become directly involved in quality outcomes. Extending the model beyond ACE, their primary role could expand dramatically to that of learning how to operate bundling across the continuum of care.

The eventual bundling experiences at all five demonstration sites will likely be positive, Dr. Aguirre says, given that they were carefully chosen to maximize the likelihood of success. “Where the rubber will hit the road is, how do you translate where you’re obviously going to be successful at five sites to implementing it across maybe a thousand sites and making it successful?” he asks.

I think the current bundling project is a vast improvement and I think it’s a very different animal from old capitation … and pivots absolutely critically on the physician involvement at the heart of quality, at the heart of decision-making. That’s never happened before.—Lisa Kettering, MD, vice president of medical affairs, CMO, Exempla St. Joseph Hospital, Denver, former SHM board member

All Eggs in One Basket?

One thing is certain: For bundling to expand, it will have to convince some fierce critics of its staying power. IPC’s Dr. Singer says so much emphasis has been placed on bundling that it has drowned out any discussion of other alternatives. “It seems like we as a society are hell-bent on putting this in as the method of payment, but I don’t really see all the elements that really would promote a higher-quality product that would reduce cost, which is what it should be about,” he says.

If not bundling, what? For some observers, payment-reform options follow a continuum arcing away from the fee-for-service system, though not everyone agrees on just how widely each might—or should—depart from the status quo. Some healthcare leaders, for example, contend that it would be easiest to simply devise new DRG categories for hospitalists or primary-care physicians (PCPs) to replace the existing fee-for-service CPT codes. “It’s a very simple way of aligning the doctor and the hospital without combining the doctor and the hospital into one entity, which is what bundling does,” Dr. Singer says.

Even some bundling advocates say the solution might ease some anxiety over who controls the purse strings, though such a system would need to account for critical-access hospitals, which currently don’t use the DRG system at all. Alternatively, some analysts see broadened gain-sharing rules as a good way to align incentives toward more efficient care, regardless of whether the incentive system accompanies bundling.

Although still in their formative stages, accountable-care organizations (ACOs) and patient-centered medical homes (PCMHs)—and the implicit bundling of medical services across patient populations—are being advanced as longer-term reforms. Even then, analysts argue over whether such models will be sufficiently free from a fee-for-service foundation. Despite the vigorous debate, most observers agree that Medicare officials are keen to offload more of the risk, whether onto physicians or onto hospitals. “They’re saying, ‘Here’s the dollar. You administer it. And if you end up in the negative, you do, but if it’s in the positive, you get a share of everything,’ ” Dr. Aguirre says.

HM: Front and Center

Hospitalists might be uniquely well positioned to bring more efficiency and value, as well as help hospitals manage that risk. With bundling, though, the big question is how they’ll be paid for their services amid the demands of multiple providers. “I’ve heard it described as a big potential food fight,” says Kirk Mathews, CEO of St. Louis-based Inpatient Management Inc. and a member of SHM’s Workforce Summit Committee.

In the scenario relayed to him by fearful hospitalists, a hospital administrator is seated at the table with pie in hand, with the various providers clamoring for a slice. “Everyone will be sitting there saying, ‘Here’s why we deserve this percent of the bundled payment,’” Mathews says. “Whether that’s an accurate portrayal or not, that’s the fear.”

Taken a step further, the scenario envisions hospitalists struggling to hold their own at the table against high-powered and higher-paid specialists. Some of the ACE Demonstration sites, however, have used physician-hospital organizations, or PHOs, to help decentralize the decision-making and ensure that stakeholders are represented. Similarly, if patient referrals to hospitalists from other providers drop—as they did for some of the ACE Demonstration bundles at Baptist and Hillcrest—could hospitalists lose their bargaining power through an erosion of recouped professional fees?

If bundling expands, Hillcrest’s CEO says hospitalists are instead likely to assume a more central role (see “Six Pieces of Bundling-Related Advice for Hospitalists,” right). “If we truly go to bundled payments on everything,” Dobbs says, “then I think everybody’s got to be at the table and contributing, and especially the hospitalist, because the medical DRGs, that’s going to be where the hospitalists drive the equation, and that’s going to be a huge part of this.”

As SHM’s CEO Larry Wellikson, MD, SFHM, wrote in The Hospitalist last year (see “Bundling Bedlam,” July 2009, p. 46), the bundling of Medicare Part A dollars that subsidize HM with Part B physicians’ payments might actually pave the way for a more professional discussion of the value that hospitalists deliver. With bundling, he wrote, “the need for subsidies or support could diminish or vanish.”

Guterman

But that doesn’t resolve the issue of how to fairly size each bundle. Stuart Guterman, vice president of the Washington, D.C.-based Common-wealth Fund’s Program on Payment and System Reform, says one lesson from the capitation scheme of the ’90s is that an overemphasis on cost savings can lead to payments that are frequently insufficient to cover the costs of appropriate care.

“So there’s got to be more collaboration on what an appropriate amount is, and that’s a very important feature,” Guterman says. “Clearly, if you don’t pay enough, it doesn’t bode well for the success of any kind of payment approach. If you pay too much, it means you’re wasting money.”

The size and complexity of healthcare networks will influence how those bundle-related payments are negotiated. And in this case, several analysts say bigger isn’t necessarily better. “My own view is that it’s easier for a handful of hospitalists and a few community doctors in the hospital to come to an agreement on how they’re going to work within a bundle,” says Robert Berenson, MD, a senior fellow in the Urban Institute’s Health Policy Center and vice chair of the Medicare Payment Advisory Commission (MedPAC).

Dr. Berenson

“My experience is that in rural communities, there’s a greater alliance of interests between the doctors and the hospitals, whereas in big urban areas they’re often competing with each other. So I don’t see that as the problem, frankly. I think this is probably better designed for smaller places where there’s already reasonably good relationships.”

L. Scott Sussman, MD, a hospitalist at Mt. Ascutney Hospital and Health Center in Windsor, Vt., agrees that bundling likely wouldn’t negatively affect the day-to-day operations of the 25-bed critical-access hospital. Almost all admitted patients have PCPs in the affiliated Mt. Ascutney Physicians Practice, aiding communication during hospitalizations and care transitions. Dr. Sussman thinks bundling fits well with the mission of hospitalists to provide quality care and help smooth their patients’ transition back to community providers. “From the reading that I’ve done on bundling, it does seem to me that if implemented properly, it really could achieve cost savings while maintaining quality care,” he says.

Nevertheless, he has plenty of questions and concerns. Bundling would be more complicated, he concedes, if most admissions were referred from private-practice physicians in the community. And because Mt. Ascutney is a critical-access hospital, patients who develop complications or require a higher level of care are transferred to a tertiary-care facility—in this case, a 22-mile drive over the state line to Dartmouth-Hitchcock Medical Center in Lebanon, N.H. “How would the payment be divided up at that point?” he asks.

To make bundling work, healthcare leaders will clearly need to blaze a trail through uncharted territory.

But if the goal is getting more from the trillions spent annually on healthcare, advocates like Guterman say it provides an important step toward a better-functioning system.

Among hospitalists, at least some observers are betting that bundling will ultimately find its way. “I think bundled payments are here to stay,” Dr. Aguirre says. “I think our goal now is to see how we can modify it or create it so it can have the best impact for us and we can have the best impact for it.” TH

Bryn Nelson is a freelance medical writer based in Seattle.

When Congress returns for a likely lame-duck session after the midterm elections, the biggest battle might be fought over whether to extend the 2001 and 2003 tax cuts to everyone or only to those earning less than $200,000 annually ($250,000 for families). And depending on the makeup of the 112th Congress, which will be seated in January, Republicans might try to make good on a campaign pledge to repeal all or most of the healthcare reform legislation.

The expected flashpoints are being teased endlessly with media sound bites featuring phrases that most of us love to hate: higher taxes, spiraling medical bills, soaring insurance premiums. Insurance companies already are blaming a spike in premiums on the healthcare legislation, claiming that new provisions and mandates are forcing them to further hike their rates.

Closer to home, the high-profile frays could put hospitalists in the awkward position of supporting political positions that sock them in the wallet. After all, doctors are workers and healthcare consumers, too. So what impact could higher taxes and higher insurance premiums really have? Let’s start with health insurance.

Insurance Cost Increases

Signed into law in March, the Affordable Care Act includes tax credits for small businesses to help defray the costs of health insurance coverage. But in 2013, it also raises the threshold for medical expense deductions for most taxpayers, to 10% from 7.5% of adjusted gross income. In other words, families can claim tax deductions only after having spent 10% or more of their adjusted gross income on medical bills. For families with hefty medical bills, that 2.5% difference could translate into a significant shortfall.

CMS was able to negotiate with insurers to achieve a slight drop in Medicare Advantage premiums, but many individual states have had less luck in preventing rate increases from private insurers who blame their higher premiums on new mandates. The Wall Street Journal has documented rate increases of 18% in states like Wisconsin and North Carolina—about 9% of which insurance company officials pinned on the new law.¹ Such increases are hardly inevitable, however. The Obama administration’s White House blog, for instance, has cited the example of North Carolina Blue Cross and Blue Shield, which announced Sept. 20 that it will provide $156 million in refunds to more than 215,000 customers after state regulators found an overcharge that should be reversed due to new rules in the reform law.² WellPoint will similarly refund $20 million to its health insurance customers in Colorado.²

The requested premium increases and identified overcharges have contributed to plenty of finger-pointing among insurers, state regulators, and the Obama administration, which has assailed insurers for using the law as a convenient excuse to raise rates. Highlighting the unease of many consumers, however, is the verdict that the proposed increases—if approved—would hit small businesses and individuals hardest.

According to the State of Hospital Medicine: 2010 Report Based on 2009 Data, released in September by SHM and the Medical Group Management Association, participating hospitalist groups have a median of 10 physician full-time equivalents. Roughly 25% of respondents are in physician-owned groups, while 14% are in a management services organization (MSO) or physician practice management company (PPMC). Smaller HM groups wouldn’t be alone in feeling the pinch, but they might need to consider some serious comparison-shopping to avoid costly premium increases.

Cherilyn Murer, president and CEO of Joliet, Ill.-based Murer Consultants Inc., has worked with healthcare systems and providers in 42 states, but even her company has not been immune to having to contend with rising premiums. “Our managing partner just renegotiated our health benefits [premiums] that were supposed to have gone up 30% by our previous carrier,” Murer says. “Through protracted negotiations and diligence, he was able to find a plan that did not increase our costs, and retained pretty much the same benefits.”

For at least the next three to five years, Murer says, niche firms will need to be diligent about shopping around and managing their expenses in a volatile insurance marketplace. Healthcare reform, she says, is certainly not a panacea for reining in costs, but “just the beginning.”

Concerns over healthcare costs, in fact, could be among the factors driving what Robert Zipper, MD, FHM, regional chief medical officer for Tacoma, Wash.-based Sound Physicians, sees as continuing consolidation among hospitalist groups. “By that, I mean that either groups are swallowed up by the hospital in which they work or they become part of a regional or national company,” he says. Sound Physicians, with about 400 hospitalists in seven states, offers health insurance policies that don’t vary by state, easing its negotiations.

Eyes on the Bottom Line

What about the dreaded “T” word? Dr. Zipper says he hasn’t heard that many concerns about the potential tax increase just yet. “I think it’s not an issue to hospitalists in a broad sense yet,” he says, “but if you look at the salary trajectory and where things have been over the past 10 years, it’s pretty easy to predict that it will be an issue for single-income [households] where the hospitalist is the sole breadwinner.”

The 2010 State of Hospital Medicine report, which surveyed 4,211 nonacademic hospitalists from 443 groups, found a median annual income of $215,000. Calculating trends from past income surveys is difficult due to very different respondent populations, but many hospitalists are clearly near or above the $200,000 threshold for individuals and near the $250,000 threshold for families already, even before considering spousal income. The survey, for example, found median salaries of about $235,700 in the 13 states that make up the Southern region.

Even if higher-earning hospitalists are subjected to a higher tax rate next year—if the current rates expire, a climb of 4.6 percentage points, to 39.6% from 35%—not all of them are necessarily opposed to it. Political polling on the issue isn’t broken down by specific professions, but a number of blogs have pointed to a Quinnipiac University poll conducted back in March that suggested nearly two-thirds of upper-income Americans were prepared to sacrifice some of their take-home pay to help reduce the deficit. In that poll (www.quinnipiac.edu/x1295.xml?ReleaseID=1438), some 64% of respondents earning more than $250,000 agreed that raising income taxes on themselves and other households making more than $250,000 should be a main part of any government approach to the deficit.

If taxes and insurance premiums are more immediate concerns, some HM observers are eyeing longer trends that could impact the pre-tax pay of the profession. Most hospitalists still earn far less than their specialist counterparts, of course, but increasing demand for hospitalist services has helped fuel a rise in median salaries. Last year, some observers predicted that after an impressive run, annual pay would plateau or even fall, given the current economic uncertainty, tightening profit margins, and assessment that many hospitals run HM programs at a loss.³ And in the current RVU-driven system, the “What have you done for me lately?” mentality can indeed make it difficult for hospitalists to demonstrate a solid return on the investment.

The State of Hospital Medicine report suggests that respondent HM groups have been subsidized by an average of $111,486 per physician FTE (median is $98,253), with the highest numbers in hospital-owned practices. But many experts see a window of a few years in which new healthcare delivery and payment experiments will be trotted out, whether modeled on a bundled system, accountable-care organization (ACO), or other vehicle. Under these models, payment incentives to physicians—and to hospitalists especially—could be fundamentally restructured to better reflect their true contributions as the emphasis on quality and efficiency increases.

Within the next three years, Murer says, hospitalists need to continue to infiltrate inpatient medical services, demonstrate their worth, and show the cost efficiencies that arise from their profession. “I think they’ve got a window of three years to really decide how much of that [inpatient physician] market they will retain,” she says.

Despite the current volatility, both Murer and Dr. Zipper agree that hospitalists are well positioned to take advantage of the coming changes in the healthcare delivery system. But to seize the opportunity, hospitalists must clearly demonstrate the necessity of their services in the emerging models of care and claim an early seat at the table where decisions will be made about how the pot of money is dispersed. Doing so could help resolve one of the most important financial considerations of all: job security. TH

Bryn Nelson is a freelance medical writer based in Seattle.

References

1. Adamy J. Health insurers plan hikes. Wall Street Journal website. Available at: http://online.wsj.com/article/SB10001424052748703720004575478200948908976.html. Accessed Sept. 21, 2010.
2. Cutter S. Look you in the eye. The White House website. Available at: www.whitehouse.gov/blog/2010/09/23/look-you-eye. Accessed Sept. 27, 2010.
3. How will the economy affect hospitalist salaries? MedPage Today website. Available at: www.kevinmd .com/blog/2009/03/how-will-economy-affect-hospitalist-2.html. Accessed Sept. 27, 2010.

When Congress returns for a likely lame-duck session after the midterm elections, the biggest battle might be fought over whether to extend the 2001 and 2003 tax cuts to everyone or only to those earning less than $200,000 annually ($250,000 for families). And depending on the makeup of the 112th Congress, which will be seated in January, Republicans might try to make good on a campaign pledge to repeal all or most of the healthcare reform legislation.

The expected flashpoints are being teased endlessly with media sound bites featuring phrases that most of us love to hate: higher taxes, spiraling medical bills, soaring insurance premiums. Insurance companies already are blaming a spike in premiums on the healthcare legislation, claiming that new provisions and mandates are forcing them to further hike their rates.

Closer to home, the high-profile frays could put hospitalists in the awkward position of supporting political positions that sock them in the wallet. After all, doctors are workers and healthcare consumers, too. So what impact could higher taxes and higher insurance premiums really have? Let’s start with health insurance.

Insurance Cost Increases

Signed into law in March, the Affordable Care Act includes tax credits for small businesses to help defray the costs of health insurance coverage. But in 2013, it also raises the threshold for medical expense deductions for most taxpayers, to 10% from 7.5% of adjusted gross income. In other words, families can claim tax deductions only after having spent 10% or more of their adjusted gross income on medical bills. For families with hefty medical bills, that 2.5% difference could translate into a significant shortfall.

CMS was able to negotiate with insurers to achieve a slight drop in Medicare Advantage premiums, but many individual states have had less luck in preventing rate increases from private insurers who blame their higher premiums on new mandates. The Wall Street Journal has documented rate increases of 18% in states like Wisconsin and North Carolina—about 9% of which insurance company officials pinned on the new law.¹ Such increases are hardly inevitable, however. The Obama administration’s White House blog, for instance, has cited the example of North Carolina Blue Cross and Blue Shield, which announced Sept. 20 that it will provide $156 million in refunds to more than 215,000 customers after state regulators found an overcharge that should be reversed due to new rules in the reform law.² WellPoint will similarly refund $20 million to its health insurance customers in Colorado.²

The requested premium increases and identified overcharges have contributed to plenty of finger-pointing among insurers, state regulators, and the Obama administration, which has assailed insurers for using the law as a convenient excuse to raise rates. Highlighting the unease of many consumers, however, is the verdict that the proposed increases—if approved—would hit small businesses and individuals hardest.

According to the State of Hospital Medicine: 2010 Report Based on 2009 Data, released in September by SHM and the Medical Group Management Association, participating hospitalist groups have a median of 10 physician full-time equivalents. Roughly 25% of respondents are in physician-owned groups, while 14% are in a management services organization (MSO) or physician practice management company (PPMC). Smaller HM groups wouldn’t be alone in feeling the pinch, but they might need to consider some serious comparison-shopping to avoid costly premium increases.

Cherilyn Murer, president and CEO of Joliet, Ill.-based Murer Consultants Inc., has worked with healthcare systems and providers in 42 states, but even her company has not been immune to having to contend with rising premiums. “Our managing partner just renegotiated our health benefits [premiums] that were supposed to have gone up 30% by our previous carrier,” Murer says. “Through protracted negotiations and diligence, he was able to find a plan that did not increase our costs, and retained pretty much the same benefits.”

For at least the next three to five years, Murer says, niche firms will need to be diligent about shopping around and managing their expenses in a volatile insurance marketplace. Healthcare reform, she says, is certainly not a panacea for reining in costs, but “just the beginning.”

Concerns over healthcare costs, in fact, could be among the factors driving what Robert Zipper, MD, FHM, regional chief medical officer for Tacoma, Wash.-based Sound Physicians, sees as continuing consolidation among hospitalist groups. “By that, I mean that either groups are swallowed up by the hospital in which they work or they become part of a regional or national company,” he says. Sound Physicians, with about 400 hospitalists in seven states, offers health insurance policies that don’t vary by state, easing its negotiations.

Eyes on the Bottom Line

What about the dreaded “T” word? Dr. Zipper says he hasn’t heard that many concerns about the potential tax increase just yet. “I think it’s not an issue to hospitalists in a broad sense yet,” he says, “but if you look at the salary trajectory and where things have been over the past 10 years, it’s pretty easy to predict that it will be an issue for single-income [households] where the hospitalist is the sole breadwinner.”

The 2010 State of Hospital Medicine report, which surveyed 4,211 nonacademic hospitalists from 443 groups, found a median annual income of $215,000. Calculating trends from past income surveys is difficult due to very different respondent populations, but many hospitalists are clearly near or above the $200,000 threshold for individuals and near the $250,000 threshold for families already, even before considering spousal income. The survey, for example, found median salaries of about $235,700 in the 13 states that make up the Southern region.

Even if higher-earning hospitalists are subjected to a higher tax rate next year—if the current rates expire, a climb of 4.6 percentage points, to 39.6% from 35%—not all of them are necessarily opposed to it. Political polling on the issue isn’t broken down by specific professions, but a number of blogs have pointed to a Quinnipiac University poll conducted back in March that suggested nearly two-thirds of upper-income Americans were prepared to sacrifice some of their take-home pay to help reduce the deficit. In that poll (www.quinnipiac.edu/x1295.xml?ReleaseID=1438), some 64% of respondents earning more than $250,000 agreed that raising income taxes on themselves and other households making more than $250,000 should be a main part of any government approach to the deficit.

If taxes and insurance premiums are more immediate concerns, some HM observers are eyeing longer trends that could impact the pre-tax pay of the profession. Most hospitalists still earn far less than their specialist counterparts, of course, but increasing demand for hospitalist services has helped fuel a rise in median salaries. Last year, some observers predicted that after an impressive run, annual pay would plateau or even fall, given the current economic uncertainty, tightening profit margins, and assessment that many hospitals run HM programs at a loss.³ And in the current RVU-driven system, the “What have you done for me lately?” mentality can indeed make it difficult for hospitalists to demonstrate a solid return on the investment.

The State of Hospital Medicine report suggests that respondent HM groups have been subsidized by an average of $111,486 per physician FTE (median is $98,253), with the highest numbers in hospital-owned practices. But many experts see a window of a few years in which new healthcare delivery and payment experiments will be trotted out, whether modeled on a bundled system, accountable-care organization (ACO), or other vehicle. Under these models, payment incentives to physicians—and to hospitalists especially—could be fundamentally restructured to better reflect their true contributions as the emphasis on quality and efficiency increases.

Within the next three years, Murer says, hospitalists need to continue to infiltrate inpatient medical services, demonstrate their worth, and show the cost efficiencies that arise from their profession. “I think they’ve got a window of three years to really decide how much of that [inpatient physician] market they will retain,” she says.

Despite the current volatility, both Murer and Dr. Zipper agree that hospitalists are well positioned to take advantage of the coming changes in the healthcare delivery system. But to seize the opportunity, hospitalists must clearly demonstrate the necessity of their services in the emerging models of care and claim an early seat at the table where decisions will be made about how the pot of money is dispersed. Doing so could help resolve one of the most important financial considerations of all: job security. TH

Bryn Nelson is a freelance medical writer based in Seattle.

References

1. Adamy J. Health insurers plan hikes. Wall Street Journal website. Available at: http://online.wsj.com/article/SB10001424052748703720004575478200948908976.html. Accessed Sept. 21, 2010.
2. Cutter S. Look you in the eye. The White House website. Available at: www.whitehouse.gov/blog/2010/09/23/look-you-eye. Accessed Sept. 27, 2010.
3. How will the economy affect hospitalist salaries? MedPage Today website. Available at: www.kevinmd .com/blog/2009/03/how-will-economy-affect-hospitalist-2.html. Accessed Sept. 27, 2010.

When Congress returns for a likely lame-duck session after the midterm elections, the biggest battle might be fought over whether to extend the 2001 and 2003 tax cuts to everyone or only to those earning less than $200,000 annually ($250,000 for families). And depending on the makeup of the 112th Congress, which will be seated in January, Republicans might try to make good on a campaign pledge to repeal all or most of the healthcare reform legislation.

The expected flashpoints are being teased endlessly with media sound bites featuring phrases that most of us love to hate: higher taxes, spiraling medical bills, soaring insurance premiums. Insurance companies already are blaming a spike in premiums on the healthcare legislation, claiming that new provisions and mandates are forcing them to further hike their rates.

Closer to home, the high-profile frays could put hospitalists in the awkward position of supporting political positions that sock them in the wallet. After all, doctors are workers and healthcare consumers, too. So what impact could higher taxes and higher insurance premiums really have? Let’s start with health insurance.

Insurance Cost Increases

Signed into law in March, the Affordable Care Act includes tax credits for small businesses to help defray the costs of health insurance coverage. But in 2013, it also raises the threshold for medical expense deductions for most taxpayers, to 10% from 7.5% of adjusted gross income. In other words, families can claim tax deductions only after having spent 10% or more of their adjusted gross income on medical bills. For families with hefty medical bills, that 2.5% difference could translate into a significant shortfall.

CMS was able to negotiate with insurers to achieve a slight drop in Medicare Advantage premiums, but many individual states have had less luck in preventing rate increases from private insurers who blame their higher premiums on new mandates. The Wall Street Journal has documented rate increases of 18% in states like Wisconsin and North Carolina—about 9% of which insurance company officials pinned on the new law.¹ Such increases are hardly inevitable, however. The Obama administration’s White House blog, for instance, has cited the example of North Carolina Blue Cross and Blue Shield, which announced Sept. 20 that it will provide $156 million in refunds to more than 215,000 customers after state regulators found an overcharge that should be reversed due to new rules in the reform law.² WellPoint will similarly refund $20 million to its health insurance customers in Colorado.²

The requested premium increases and identified overcharges have contributed to plenty of finger-pointing among insurers, state regulators, and the Obama administration, which has assailed insurers for using the law as a convenient excuse to raise rates. Highlighting the unease of many consumers, however, is the verdict that the proposed increases—if approved—would hit small businesses and individuals hardest.

According to the State of Hospital Medicine: 2010 Report Based on 2009 Data, released in September by SHM and the Medical Group Management Association, participating hospitalist groups have a median of 10 physician full-time equivalents. Roughly 25% of respondents are in physician-owned groups, while 14% are in a management services organization (MSO) or physician practice management company (PPMC). Smaller HM groups wouldn’t be alone in feeling the pinch, but they might need to consider some serious comparison-shopping to avoid costly premium increases.

Cherilyn Murer, president and CEO of Joliet, Ill.-based Murer Consultants Inc., has worked with healthcare systems and providers in 42 states, but even her company has not been immune to having to contend with rising premiums. “Our managing partner just renegotiated our health benefits [premiums] that were supposed to have gone up 30% by our previous carrier,” Murer says. “Through protracted negotiations and diligence, he was able to find a plan that did not increase our costs, and retained pretty much the same benefits.”

For at least the next three to five years, Murer says, niche firms will need to be diligent about shopping around and managing their expenses in a volatile insurance marketplace. Healthcare reform, she says, is certainly not a panacea for reining in costs, but “just the beginning.”

Concerns over healthcare costs, in fact, could be among the factors driving what Robert Zipper, MD, FHM, regional chief medical officer for Tacoma, Wash.-based Sound Physicians, sees as continuing consolidation among hospitalist groups. “By that, I mean that either groups are swallowed up by the hospital in which they work or they become part of a regional or national company,” he says. Sound Physicians, with about 400 hospitalists in seven states, offers health insurance policies that don’t vary by state, easing its negotiations.

Eyes on the Bottom Line

What about the dreaded “T” word? Dr. Zipper says he hasn’t heard that many concerns about the potential tax increase just yet. “I think it’s not an issue to hospitalists in a broad sense yet,” he says, “but if you look at the salary trajectory and where things have been over the past 10 years, it’s pretty easy to predict that it will be an issue for single-income [households] where the hospitalist is the sole breadwinner.”

The 2010 State of Hospital Medicine report, which surveyed 4,211 nonacademic hospitalists from 443 groups, found a median annual income of $215,000. Calculating trends from past income surveys is difficult due to very different respondent populations, but many hospitalists are clearly near or above the $200,000 threshold for individuals and near the $250,000 threshold for families already, even before considering spousal income. The survey, for example, found median salaries of about $235,700 in the 13 states that make up the Southern region.

Even if higher-earning hospitalists are subjected to a higher tax rate next year—if the current rates expire, a climb of 4.6 percentage points, to 39.6% from 35%—not all of them are necessarily opposed to it. Political polling on the issue isn’t broken down by specific professions, but a number of blogs have pointed to a Quinnipiac University poll conducted back in March that suggested nearly two-thirds of upper-income Americans were prepared to sacrifice some of their take-home pay to help reduce the deficit. In that poll (www.quinnipiac.edu/x1295.xml?ReleaseID=1438), some 64% of respondents earning more than $250,000 agreed that raising income taxes on themselves and other households making more than $250,000 should be a main part of any government approach to the deficit.

If taxes and insurance premiums are more immediate concerns, some HM observers are eyeing longer trends that could impact the pre-tax pay of the profession. Most hospitalists still earn far less than their specialist counterparts, of course, but increasing demand for hospitalist services has helped fuel a rise in median salaries. Last year, some observers predicted that after an impressive run, annual pay would plateau or even fall, given the current economic uncertainty, tightening profit margins, and assessment that many hospitals run HM programs at a loss.³ And in the current RVU-driven system, the “What have you done for me lately?” mentality can indeed make it difficult for hospitalists to demonstrate a solid return on the investment.

The State of Hospital Medicine report suggests that respondent HM groups have been subsidized by an average of $111,486 per physician FTE (median is $98,253), with the highest numbers in hospital-owned practices. But many experts see a window of a few years in which new healthcare delivery and payment experiments will be trotted out, whether modeled on a bundled system, accountable-care organization (ACO), or other vehicle. Under these models, payment incentives to physicians—and to hospitalists especially—could be fundamentally restructured to better reflect their true contributions as the emphasis on quality and efficiency increases.

Within the next three years, Murer says, hospitalists need to continue to infiltrate inpatient medical services, demonstrate their worth, and show the cost efficiencies that arise from their profession. “I think they’ve got a window of three years to really decide how much of that [inpatient physician] market they will retain,” she says.

Despite the current volatility, both Murer and Dr. Zipper agree that hospitalists are well positioned to take advantage of the coming changes in the healthcare delivery system. But to seize the opportunity, hospitalists must clearly demonstrate the necessity of their services in the emerging models of care and claim an early seat at the table where decisions will be made about how the pot of money is dispersed. Doing so could help resolve one of the most important financial considerations of all: job security. TH

Bryn Nelson is a freelance medical writer based in Seattle.

References

1. Adamy J. Health insurers plan hikes. Wall Street Journal website. Available at: http://online.wsj.com/article/SB10001424052748703720004575478200948908976.html. Accessed Sept. 21, 2010.
2. Cutter S. Look you in the eye. The White House website. Available at: www.whitehouse.gov/blog/2010/09/23/look-you-eye. Accessed Sept. 27, 2010.
3. How will the economy affect hospitalist salaries? MedPage Today website. Available at: www.kevinmd .com/blog/2009/03/how-will-economy-affect-hospitalist-2.html. Accessed Sept. 27, 2010.

Hillcrest Medical Center in Tulsa, Okla., went live with its ACE Demonstration on May 1, 2009. Over the next 15 months, scores on several quality metrics soared, supply costs plunged, patient volumes shot up, and the hospital saved Medicare $750,000 on 37 diagnosis-related groups (DRGs).

So what’s the problem?

For one thing, handling the bundled payment system required “massive” computer conversions, says Hillcrest CEO Steve Dobbs, and cash payments from CMS were significantly delayed, in part due to glitches over how discharges were handled. And then there was the confusion over processing supplemental Medicare plans.

Hillcrest’s first-year experience with bundled payments for orthopedics, cardiology, and cardiovascular surgery provides an illuminating window into what other hospitals might encounter as the concept of bundling expands beyond the first few pilot sites.

Because Hillcrest didn’t have a way to pay physician claims, it hired a third-party vendor, Texas-based Trailblazer, to manage them. Then Hillcrest set up two LLCs—one for orthopedics and one for cardiology—to receive the bundled payments. CMS required the hospital to establish a quality committee, finance committee, and board within each LLC, and report quarterly about the program. But Dobbs says the hospital has received no written feedback from CMS or any indications of how the ACE Demonstration has worked at two other sites that also started last year.

Through “trial by error,” the hospital has had to learn many of its lessons on its own, he says, explaining that “you just had to go make some mistakes and try something.” For example, the hospital began posting the Medicare rate for each of the demonstration’s 37 DRGs on its website after frequent updates to the rates led to widespread confusion among area physicians. Hillcrest also learned that it needed to set up a dedicated toll-free call center for people to get information about the program.

There have been triumphs, too. Scores on such metrics as antibiotics administered one hour prior to surgical start and antibiotics stopped 24 hours post-surgery have climbed significantly, perhaps by linking them to gainsharing incentives. When one heart valve vendor “wouldn’t play,” Dobbs says, the hospital switched to another, less expensive vendor. By involving its open-heart surgeons in scrutinizing supplies, the hospital saved 10% of the cost of sterile packs in the operating room.

Hillcrest’s orthopedic surgeons—an independent group—also combed through instruments and drugs to look for savings. For their efforts, the six orthopedists netted a combined $130,000 in incentive checks. For the hospital’s own cardiologists and cardiovascular surgeons, the bonus money went back into the practice.

Early in the demonstration project, Dobbs says, hospitalists saw a dip in the number of cases they were getting pulled in on. “Early on they called me and said, ‘What’s up, because we’re not getting as many referrals from orthopedics?’” Dobbs says. “I think it’s leveled out over time, and they really haven’t seen that big of a change.”

The hospital also is reaping the rewards of recent investments, including a new heart hospital, heavy investment in cardiology, and a three-year-old orthopedics unit. In the first year of its demonstration, the hospital saw a 24% gain in its cardiology and cardiovascular surgery volume, and a whopping 37% gain in orthopedics volume.

One facet of the project that has been less fruitful is the Medicare discount given to patients who have their orthopedic or cardiology procedure done at Hillcrest. “People are saying it’s nice to have, but that’s not why they chose the program, especially in cardiology,” Dobbs says. “You don’t have a heart attack and tell the ambulance driver, ‘Oh, by the way, I want to get my incentive check.’ ”

Hillcrest Medical Center in Tulsa, Okla., went live with its ACE Demonstration on May 1, 2009. Over the next 15 months, scores on several quality metrics soared, supply costs plunged, patient volumes shot up, and the hospital saved Medicare $750,000 on 37 diagnosis-related groups (DRGs).

So what’s the problem?

For one thing, handling the bundled payment system required “massive” computer conversions, says Hillcrest CEO Steve Dobbs, and cash payments from CMS were significantly delayed, in part due to glitches over how discharges were handled. And then there was the confusion over processing supplemental Medicare plans.

Hillcrest’s first-year experience with bundled payments for orthopedics, cardiology, and cardiovascular surgery provides an illuminating window into what other hospitals might encounter as the concept of bundling expands beyond the first few pilot sites.

Because Hillcrest didn’t have a way to pay physician claims, it hired a third-party vendor, Texas-based Trailblazer, to manage them. Then Hillcrest set up two LLCs—one for orthopedics and one for cardiology—to receive the bundled payments. CMS required the hospital to establish a quality committee, finance committee, and board within each LLC, and report quarterly about the program. But Dobbs says the hospital has received no written feedback from CMS or any indications of how the ACE Demonstration has worked at two other sites that also started last year.

Through “trial by error,” the hospital has had to learn many of its lessons on its own, he says, explaining that “you just had to go make some mistakes and try something.” For example, the hospital began posting the Medicare rate for each of the demonstration’s 37 DRGs on its website after frequent updates to the rates led to widespread confusion among area physicians. Hillcrest also learned that it needed to set up a dedicated toll-free call center for people to get information about the program.

There have been triumphs, too. Scores on such metrics as antibiotics administered one hour prior to surgical start and antibiotics stopped 24 hours post-surgery have climbed significantly, perhaps by linking them to gainsharing incentives. When one heart valve vendor “wouldn’t play,” Dobbs says, the hospital switched to another, less expensive vendor. By involving its open-heart surgeons in scrutinizing supplies, the hospital saved 10% of the cost of sterile packs in the operating room.

Hillcrest’s orthopedic surgeons—an independent group—also combed through instruments and drugs to look for savings. For their efforts, the six orthopedists netted a combined $130,000 in incentive checks. For the hospital’s own cardiologists and cardiovascular surgeons, the bonus money went back into the practice.

Early in the demonstration project, Dobbs says, hospitalists saw a dip in the number of cases they were getting pulled in on. “Early on they called me and said, ‘What’s up, because we’re not getting as many referrals from orthopedics?’” Dobbs says. “I think it’s leveled out over time, and they really haven’t seen that big of a change.”

The hospital also is reaping the rewards of recent investments, including a new heart hospital, heavy investment in cardiology, and a three-year-old orthopedics unit. In the first year of its demonstration, the hospital saw a 24% gain in its cardiology and cardiovascular surgery volume, and a whopping 37% gain in orthopedics volume.

One facet of the project that has been less fruitful is the Medicare discount given to patients who have their orthopedic or cardiology procedure done at Hillcrest. “People are saying it’s nice to have, but that’s not why they chose the program, especially in cardiology,” Dobbs says. “You don’t have a heart attack and tell the ambulance driver, ‘Oh, by the way, I want to get my incentive check.’ ”

Hillcrest Medical Center in Tulsa, Okla., went live with its ACE Demonstration on May 1, 2009. Over the next 15 months, scores on several quality metrics soared, supply costs plunged, patient volumes shot up, and the hospital saved Medicare $750,000 on 37 diagnosis-related groups (DRGs).

So what’s the problem?

For one thing, handling the bundled payment system required “massive” computer conversions, says Hillcrest CEO Steve Dobbs, and cash payments from CMS were significantly delayed, in part due to glitches over how discharges were handled. And then there was the confusion over processing supplemental Medicare plans.

Hillcrest’s first-year experience with bundled payments for orthopedics, cardiology, and cardiovascular surgery provides an illuminating window into what other hospitals might encounter as the concept of bundling expands beyond the first few pilot sites.

Because Hillcrest didn’t have a way to pay physician claims, it hired a third-party vendor, Texas-based Trailblazer, to manage them. Then Hillcrest set up two LLCs—one for orthopedics and one for cardiology—to receive the bundled payments. CMS required the hospital to establish a quality committee, finance committee, and board within each LLC, and report quarterly about the program. But Dobbs says the hospital has received no written feedback from CMS or any indications of how the ACE Demonstration has worked at two other sites that also started last year.

Through “trial by error,” the hospital has had to learn many of its lessons on its own, he says, explaining that “you just had to go make some mistakes and try something.” For example, the hospital began posting the Medicare rate for each of the demonstration’s 37 DRGs on its website after frequent updates to the rates led to widespread confusion among area physicians. Hillcrest also learned that it needed to set up a dedicated toll-free call center for people to get information about the program.

There have been triumphs, too. Scores on such metrics as antibiotics administered one hour prior to surgical start and antibiotics stopped 24 hours post-surgery have climbed significantly, perhaps by linking them to gainsharing incentives. When one heart valve vendor “wouldn’t play,” Dobbs says, the hospital switched to another, less expensive vendor. By involving its open-heart surgeons in scrutinizing supplies, the hospital saved 10% of the cost of sterile packs in the operating room.

Hillcrest’s orthopedic surgeons—an independent group—also combed through instruments and drugs to look for savings. For their efforts, the six orthopedists netted a combined $130,000 in incentive checks. For the hospital’s own cardiologists and cardiovascular surgeons, the bonus money went back into the practice.

Early in the demonstration project, Dobbs says, hospitalists saw a dip in the number of cases they were getting pulled in on. “Early on they called me and said, ‘What’s up, because we’re not getting as many referrals from orthopedics?’” Dobbs says. “I think it’s leveled out over time, and they really haven’t seen that big of a change.”

The hospital also is reaping the rewards of recent investments, including a new heart hospital, heavy investment in cardiology, and a three-year-old orthopedics unit. In the first year of its demonstration, the hospital saw a 24% gain in its cardiology and cardiovascular surgery volume, and a whopping 37% gain in orthopedics volume.

One facet of the project that has been less fruitful is the Medicare discount given to patients who have their orthopedic or cardiology procedure done at Hillcrest. “People are saying it’s nice to have, but that’s not why they chose the program, especially in cardiology,” Dobbs says. “You don’t have a heart attack and tell the ambulance driver, ‘Oh, by the way, I want to get my incentive check.’ ”