Are Hospitalists Recession Proof?


Hospitals aren’t the first businesses hurt when the economy sours, but they get hurt nonetheless, as an article in last week’s NY Times points out. But hospitalists have never lived through a massive downturn. What happens to them when the economy tanks?

Let’s start with hospitals. Unlike new cars and Starbucks drinks – “discretionary” purchases (though I really do need my morning mocha!) that tend to dematerialize when household budgets tighten, hospitals are likely to get busier in tough times. We’re already seeing people having to choose between their statin and their supper – some of them will end up in our Emergency Departments. Folks who lose their jobs may lose their health insurance, and with it their access to primary care and prevention. They too may ultimately pay the price in hospital admissions for out-of-control diabetes or hypertensive heart failure.

The bottom line is that people will keep getting sick, no matter where the Dow is. In fact, they may get sicker as the economy worsens, and when they do, they’ll end up on our doorsteps.

But volume and profitability don’t march hand-in-hand, and in difficult economic times they tend to march in opposite directions. The problem is captured by that old ironic lament: “We lose money on every case but make it up on volume.” As government budgets tighten, Medicaid and Medicare cuts are inevitable. Beth Israel Deaconess CEO Paul Levy estimates that Medicaid cuts in Massachusetts will cost his hospital 7 million dollars this year, cutting his operating margin nearly in half. These payment cuts, coupled with more patients with no insurance at all, mean that more beds will be filled with no- or poor-paying patients, hammering our hospitals’ bottom lines.

Hospitals live off sources of income other than clinical revenues, but these too will be squeezed. Philanthropic dollars – a crucial fuel source for hospital improvements – are drying up, as the “B” in billions in certain trust funds gets replaced with an “M”. Many hospitals are finding that the bonds they counted on to finance their new Cardiac Wing are no longer available or affordable (though here in California the voters thankfully passed significant hospital construction bond measures, including one to rebuild San Francisco General Hospital and another for statewide Children’s Hospital construction).

Finally, in academic hospitals, research dollars have nowhere to go but down, as NIH budgets are cut and the endowments of research foundations dwindle like your 401(k).

Overall, its not a pretty picture for the average hospital. But at least people are buying what we’re selling, even if they’re not paying us enough. If you’re in the hospital business and getting depressed, think about what it must feel like to be at GM.

Now let’s turn to hospitalists. Since hospitalists earn most of their pay (50-80%, on average) from clinical billings, these dollars will go down for all of the above reasons. But the key variable is the other 20-50%, which generally comes from support payments from hospitals. If you’re a hospitalist, you can bet that your hospital, pleading poverty, will try to cut this portion. And it won’t be an idle plea:  they have only so much money to go around and they can’t cut nursing salaries, already-pledged construction budgets, or any number of other fixed costs.

Sounds like hospitalists are in for a tough ride. But not so fast…

Managed care – which got de-fanged over the past decade when the public came to associate its cost-cutting with poor quality – is likely to get re-fanged, with increasing pressure to shorten LOS and decrease hospital costs. Many hospitals look to their hospitalists to help improve their throughput, and there is strong evidence that they are right to do so. Primary care physicians will be busier than ever in the office and even less likely to come to the hospital, creating further hospitalist demand. Surgeons will want to spend more of their time in the OR, increasing their desire for hospitalist co-management. The Institute of Medicine will soon release a report on housestaff duty hours, and Those-In-The-Know are predicting further ratcheting down, perhaps abolishing the still-legal 30-hour overnight shifts.

Meanwhile, the pressure to improve quality and safety continues to grow, with more public reporting, regulatory oversight, and pay-for-performance/no-pay for no-performance. The measures will also become more diverse and complex, making them harder to “game” and increasing the pressure to truly transform the care delivery process. Hospitalists are likely to be critical to the success of these efforts.

All in all, hospitalists remain in an enviable position to weather the budgetary storms. In many organizations (including mine), hospitalists now help care for over 50% of the inpatient census, and make up a wildly disproportionate fraction of leaders in quality, safety, IT, and medical education. The market for hospitalists remains uber-competitive – hospitals recognize that an unhappy hospitalist can leave work on Friday and have a new and desirable job across town on Monday… assuming that the competing hospital doesn’t need to fill a weekend shift! In other words, the negotiating position of hospitalists remains strong, even if they’re vying for a share of a shrinking pie.

My own feeling is that we should accept our share of any shared pain. If budgets are being cut across our institution, we should participate in reasonable belt tightening. But my usual admonition to hospitalists remains unchanged: We and our programs simply must be – and must be seen to be – indispensable. Hospitalist leaders need to argue that cuts that are too draconian are not only not in their own interest, they are not in the hospital’s interest. These arguments should be data driven and respectful – it is always a good idea to try to put oneself in the shoes of the person on the other side of the table to understand his or her predicament, and to search for win-win opportunities.

Finally, if hospitals believe that other organizational models might be successful in performing certain functions at an acceptable quality at lower cost (such as using NPs or PAs instead of hospitalists on certain services), I urge them to give it a try. A field like hospital medicine – whose raison d’être was “value improvement” over traditional models of inpatient care – can’t fight efforts to try other ways to achieve the same ends, at least not without a heavy helping of hypocrisy. In my experience, in institutions with strong hospitalist programs, senior leaders recognize the model’s value and will be highly reluctant to muck with it. But there is nothing wrong with a little experimentation, as long as the results are measured and acted upon.

It will be a rough patch for everybody, and hospitalists will be no exception. But if you run a hospitalist group, the pain your group experiences will be attenuated if you’ve made yourselves indispensable and have demonstrated that you are great stewards of resources, inveterate problem solvers, and model organizational citizens.

If you haven’t, yesterday was a good time to get started.

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  1. I would agree that hospitals could be busier–but I think the conventional wisdom might be moving in the other direction. With so many people having large deductibles and copayments, many may never get out of the gate, so to speak, when the policy year turns for so many on Jan 1. Add to that the hundreds of thousands laid off, most of whom will not be able to pay COBRA rates, and hospitals may be looking decidedly unrecession-proof, if that is a word. Add to this that many states are ratcheting down both Medicaid rates and eligibility, and the stage may be set for a big healthcare downturn. We all know there are too many hospitals and other healthcare purveyors in most states, especially the “competitive” ones, so maybe this will be a chance for a shake-out. The final nail would be major Medicare reform, but that does not seem likely.