Bob Redling

Want to avoid an expensive misstep when shopping for an EHR? Look for unbiased advice and go with your gut, says Deanna Attai. The Burbank, Calif., breast surgeon says she didn’t know that the EHR vendor she selected had paid for its glowing references. Worse, she didn’t follow her instincts. She has spent an additional $30,000 so far replacing that feature-rich system that never panned out.

Attai has a different system today but also more wisdom. “I should have listened more to my gut and not been distracted by the bells and whistles they promised but didn’t deliver,” she says.

With the government now offering cash incentives for implementing an EHR, many physicians who’d long held out have had their interest piqued, even as others remain skeptical, according to the 2010 

More than half (57 percent) of the 597 respondents to our survey told us that the Medicare and Medicaid-based incentive programs set to launch in 2011 make them more likely to buy an EHR. Getting cash from the federal government to defray the cost of an expensive purchase sounds appetizing. But like most lunches, this one really isn’t free; Uncle Sam isn’t offering to take you EHR shopping. Only after practices front the money to buy a “certified” system and follow the just-finalized rules for demonstrating that they are meaningfully using it can they seek federal stimulus dollars. And these facts have most physicians still puzzling over how the whole program will work.

We’ll help sort that out as we take a closer look at this year’s technology survey results.

The EHR incentive program was created by the Health Information Technology for Economic and Clinical Health Act (HITECH Act), part of the federal stimulus package signed by President Obama in 2009. The legislation provides incentives to each physician (and certain other providers) who meet HITECH’s requirements. You can participate in the Medicare or the Medicaid incentive program, but not both. Switching between incentive programs after you start is allowed, but only once.

The legislation sets four objectives for physicians to get the stimulus money. You must:

• Use a system that electronically exchanges health information to improve the quality of care; and

• Submit information about clinical quality and other measures.

To meet that first bullet, the Centers for Medicare and Medicaid Services (CMS) sets 15 mandatory requirements for eligible providers (and 14 for hospitals) to meet in 2011 and 2012. Eligible providers and hospitals also must meet at least five additional measures of their choosing from a menu of 10 requirements. CMS plans to raise the bar by adding more criteria in subsequent years of the bonus program.

About 40 percent of office-based physicians are already using fully integrated EHR systems, according to our survey. A 2009 survey conducted by the Centers for Disease Control and Prevention found similar numbers, although other estimates put the number of EHR adopters lower. One problem is that EHR adoption seems to have stalled: our first Technology Survey in 2005, for example, found the same 40 percent rate. The bonus payments to physicians and hospitals are seen as necessary to jumpstart EHR systems, which in turn is seen as crucial to moving Americans into a system of care that’s comprehensive and, eventually, cheaper.


Medicare offers physicians a bonus of up to $44,000 paid over a five-year period starting in 2011 (a separate program for hospitals begins Oct. 1, 2010). The payments are tied to 75 percent of your annual allowed Medicare Part B charges that year. If you start in 2011 or 2012, you can capture the maximum $18,000 bonus in your first year of participation by billing at least $24,000 in Medicare allowed charges. Participation in the bonus program ends in 2015, so waiting until 2013 to begin drops your cumulative take to $39,000 and to $24,000 if you start in 2014.

The Medicaid bonuses are geared to patient volume and there’s no penalty for not participating. At least 30 percent or more of your patient volume must be Medicaid beneficiaries (but only 20 percent for pediatricians) measured over any continuous 90-day period in the program’s first calendar year. Eligible professionals for Medicaid bonuses include nurse practitioners, certified nurse-midwives and some physician assistants such as those working in rural health clinics or provider shortage areas.

For both programs, CMS will make bonus payments to each eligible professional in your practice. In other words, a group of three internists could receive $132,000 in total if each successfully participates in the Medicare program. But can they get there in time?

To earn the bonuses, you’ll first need to meet the criteria set by CMS - from maintaining medication and allergy medication lists electronically for the majority of your patients (from all payers, not just Medicare and Medicaid) to providing patients with electronic copies of their health records upon request. Find the full criteria and other rules on the 

. Blumenthal, the ONC director, compiled a helpful, user-friendly chart for the New England Journal of Medicine that contains the 

The rule calls for attesting in writing to using your EHR to those capabilities for at least a 90-day period if you start during 2011 and for a full year if you start in 2012 or later. Plus you’ll

 need to submit quality data electronically. Seems reasonable. Or is it? If you aren’t close to purchasing your EHR now, consider this: 40 percent of our survey’s respondents said they spent four months to a full year shopping for the right EHR - and one in four spent more than a year. And that’s just getting to the purchase decision. More than half (56 percent) of you said it took six months to a year to complete implementation, while one in 10 needed up to 18 months.

Do the math from today and it could be a challenge to hit all of the required CMS targets for meaningful use by the end of 2011.

“The problem with setting these across-the-board thresholds is that the government is requiring the eligible provider to rely on the cooperation of a third party,” says Robert Tennant, senior policy adviser for the Medical Group Management Association. For example, the proposed rules would have required that 75 percent of physicians’ prescriptions be generated and transmitted electronically. Tennant complained that such a high hurdle “could be a problem when practices deal with small pharmacies that haven’t set up e-prescribing, or with patients who want paper scripts because they don’t have a “regular pharmacy.” Other physicians’ advocates voiced similar complaints. The final rule, released in mid-July, lowers the e-prescribing threshold to 40 percent.

Many observers have recalled the CMS’ pay-for-performance program, called the Physician Quality Reporting Initiative (PQRI), as an example of how a well-intentioned program can ensnare physicians in unfair rules that prevent doctors who participated in good faith from receiving the promised bonus in a timely fashion. The PQRI program promised bonus money to doctors who reported certain quality data correctly, but CMS did not deliver first-year results to many participating physicians until well into the next reporting year, too late for them to adjust their reporting and qualify for the incentives. Many failed to receive the promised bonuses while payments to others were delayed.

“Yes, the financial incentives are significant,” says Tennant, “but there are a lot of hoops to jump through and, remember, this is spread out across five years with the requirements steadily increasing.”

Indeed, two-thirds of you told us in the survey that the proposed EHR reporting criteria are confusing and you don’t expect to get the money.

Instead of a big haul, consider funds from the government’s reimbursement incentive a sweetener for making a transition you will probably have to do sooner or later, Tennant says.
“If the bonus is the only reason you are moving to an EHR, you’re probably going to fail. Think about the extra value of EHR in transforming your practice, both on the clinical side and on the administrative side to reduce costs and increase revenue.”

To qualify for the Medicare and Medicaid bonuses, your EHR system must to be certified. In June, David Blumenthal, MD, director of the Office of the National Coordinator for Health Information Technology (ONC), which is handling the certification process, announced its plan for one or more organizations to certify EHRs, or individual EHR modules, such as e-prescribing software, under the HITECH Act.

Certification is a critical element both to new EHR purchasers and current system owners. While the legislation permits you to obtain stimulus funds for any certified system you use, even if you purchased, implemented, and paid for it years ago, your software must be certified under the new meaningful use criteria. ONC will post on its Web site all certified software products that qualify their users for the incentives.


Vendors are moving fast: In order to meet the Jan. 1, 2011, program starting date, they must reconfigure their systems to conform with the meaningful use criteria, achieve certification, and install or upgrade the systems at customers’ offices by the end of 2010.

Even those who purchased advanced systems from solid companies are finding out that, sometimes, well, stuff happens. Just ask Boca Raton, Fla., internist Steven Reznick. Five years ago, Reznick and his practice partner picked the most advanced EHR they could afford from the most solid company they could locate. They forked over some $60,000 to buy software, hardware, and pay for training and maintenance packages. A few years later, surprise: the company was purchased by a larger firm that will discontinue support for Reznick’s software at the end of 2011. The cost of migrating to the new system will be about $10,000.

“I’m 60 years old. I have a small practice and hope to practice another 10 years, but if I didn’t already have an electronic health record, would I want to invest a large amount of money … today?” he said. “Probably not.”

Nearly two-thirds of you (64 percent) said you expect a return on investme

nt from your EHR purchase, or already have received one. Reznick and Attai are confident they are seeing the benefits in their practices, even with the vendor problems they’ve experienced.

Measuring the return won’t be easy, says Paul Solverson, management consultant partner with Affiliated Computer Services, Inc., a Xerox Company. “At the end of the day, physicians are going to have spent at least as much as they are going to get from these reimbursement incentives,” Solverson says. “The ones who get the most out of an EHR will be the ones who embrace this as a positive change, not something they have to do to avoid a penalty.”

Solverson says that when measuring the ROI, the biggest wild card is figuring the costs and benefits of changing work flow necessary for a successful implementation.
 

“It’s difficult to pinpoint a single, best-practice, work flow change that happens with EHR but it’s safe to say that the more you can implement the technology for real-time use, the better the outcome,” he explains.
 

A whopping 71 percent of our survey respondents said they expected work flow improvements as a result of implementing an EHR.

Gina Tucker, administrator of Hampshire OB-GYN in Northampton, Mass., says she has proof of those improvements. As an early adopter of EHR back in 2004, the practice of five physicians, five NPs, and a nurse-midwife now achieves every aspect of the clinical and administrative activity needed to complete a patient visit - even a coding review and CPT-to-ICD matching - by the time the patient leaves the office.

That level of integration wasn’t entirely due to the Hampshire EHR’s smooth interface with a practice management system, though that helps. What it took was a willingness to re-examine protocols for every activity, from documenting phone calls to sending laboratory orders.

“It is a big upheaval in one sense but we looked at it as a way to improve the practice and improve patient safety,” Tucker says. “You need people who are willing to accept that the way they’ve done things is going to change.”


Solverson recommends getting an office administrator and a key clinician, such as a nursing supervisor, to work with the physicians to analyze how the EHR will change work flow. Practice leaders must also take the lead in designing an implementation plan that could include, sometimes, breaking down walls between office functions that traditionally stand separate, such as the billing office and the front desk.

So what’s a physician to do? Steven Lazarus, president and founder of the Boundary Information Group of consultants in Denver, suggests accelerating your education about EHR.

“Don’t waste time getting started if you know it is something you want to do,” Lazarus says. “You will run out of time to qualify for bonuses and finding outside help will be harder if everyone else is asking at the same time.”

• Read up. Books, magazines, white papers, and reports from government, nonprofit organizations, and private sector companies are out there to help novices and experts alike.

• Get educated. The HITECH Act funds 60 federally designated Healthcare Information Technology Regional Extension Centers (RECs) across the nation. These centers will provide no-cost and low-cost seminars, summits, online education, and technical advice to help physicians quickly implement and become adept users of EHR. See a list of all 60 centers online.


• Examine vendors. Lazarus suggests looking for vendors with good track records on customer surveys and adequate capacity to handle a big influx of new customers.

• Look for help soon. Hiring qualified technical help, whether it’s a new staff member or a consultant, will be harder if thousands of other medical practices are doing the same thing at the same time as you.

• Give incentives and seek penalties. With good help in short supply, and a likely sellers’ market for EHR, Lazarus suggests writing financial incentives into contracts with vendors: promise them a small bonus for a successful implementation, but also seek a similar-sized penalty if they let you down.

• Be aware and beware. Get a knowledgeable technology attorney to review any agreements with a vendor. Your general legal counsel may not have the expertise needed to review software licensing clauses, limitations, and other unique aspects of an EHR agreement, Lazarus says.

Worried about the Medicare or Medicaid reimbursement penalty you’ll suffer if you don’t hit the government’s EHR targets? Sit down and figure out what a maximum 3 percent penalty on your Medicare income comes out to in dollars. Then run the numbers at 5 percent, which is what HITECH allows the government to remove from Medicare reimbursement starting in 2019. Maybe there’s no need to panic.

In the long run, practices still using old-fashioned paper will become the analog outsider and experience a significant competitive disadvantage in the world of digital medical communications. So it’s time to get moving on your EHR transition, if you haven’t already.

You should not rush. But you should hurry.


is a freelance writer based in Tacoma, Wash. He has been practice management editor for Physicians Practice, Web content editor and senior writer for the Medical Group Management Association, and a speechwriter for the American Academy of Family Physicians. He can be reached via 

More than half of respondents to the 2010 Physicians Practice Technology Survey told us that the federal government’s Medicare and Medicaid EHR incentives have them shopping for a system. If that’s you, or you already have an EHR, here’s what’s needed to get the promised reimbursement bonuses:

• Use an EHR that meets standards and certification criteria set by the Office of the National Coordinator for Health Information Technology (ONC).

• Meet CMS’s 15 mandatory requirements (14 for hospitals) for meaningful use during 2011 and 2012 (and 2010 if starting early).

• Select at least five additional measures from the 10 provided by CMS.

• Prepare for criteria to expand in 2013 and subsequent years of the program.

• Stick with the program for the full five years (Medicare) or six years (Medicaid) to earn the full reimbursement bonuses.

Start now looking into systems, vendors, and sources of expert help because thousands of other physicians may also be EHR shopping.

Need more information about EHR adoption and the rules of the government’s EHR stimulus program? Check out these additional sources:

, and the “menu” of 10 criteria from which physicians must select five:

 on ONC’s standards and certification criteria final rule

This article originally appeared in the September 2010 issue of 

Articles

If you’re confused about the federal incentives to buy an EHR and what meaningful use means, you're not alone.  We have the answers in our 2010 Technology Survey.

Technology Survey 2010: Uncle Sam's EHR Incentives


Are you hearing footsteps behind you? It might be staff salaries and benefits creeping up on your practice’s profits. 

The Medical Group Management Association (MGMA) culled cost figures for multispecialty groups over the past five years and found that staffing expenses had risen by nearly 12 percent, from $177,000 per physician in 2002 to almost $198,000 per physician in 2006. 

Even though many physicians increased clinical production during that time period - seeing more patients and doing more procedures - staffing costs still consume more than 30 percent of medical revenue on average. And that’s after payers have taken their contracted discounts. 

What’s a physician to do? Cut staff to save money? Freeze wages? 

None of the above, suggests Donald Skinner, a Carroll, Iowa, family physician. Skinner, whose practice is part of the large physician-owned multispecialty McFarland Clinic PC, warns that getting lean and mean with staffing just makes it harder to produce revenue. 

“We’ve taken the tack in our office that we will try to maintain our staffing levels in order to maintain maximum efficiency for our providers, which is what drives the revenue stream,” Skinner says. 

His office, one of the McFarland clinics’ 21 practice sites across central Iowa, houses 11 physicians who are supported by 45 clinical and administrative staff. Many of the group’s business functions are handled by a central office; otherwise, its employee head count would be even higher, he says. 

“Our ability to raise prices is near zero, but even in central Iowa we feel pressure from other medical groups and local hospitals to be competitive in the marketplace for staff,” Skinner says. 

Physicians at Skinner’s office recently implemented a triage system to improve patient flow and physician productivity. The plan puts more registered nurses on telephones to handle patients’ questions and prescription refills or assigns them to take on higher level tasks like patient education. Meanwhile, medical assistants and LPNs room patients and help physicians with paperwork and other patient care tasks. 

Elsewhere, physicians are keeping a lid on staffing costs by creating salary grids, taking steps to reduce staff turnover and rethinking work assignments. Some physicians are investing in new information technology. Some even hire more staff to help them see more patients or run a more adept billing and collections operation. 

Even as medical reimbursements remain flat, physicians spend more time pushing more paper and handling a myriad of other administrative tasks that don’t bring in revenue. To do so, they must hire more staff. 

John Deane, chief executive officer of the consulting firm Southwind Health Partners LLC, says physicians are caught in a vicious cycle: They need more help but can’t afford to pay for it. 

“Today’s healthcare payment environment undervalues physicians so they don’t have enough revenue to attract and retain the quality staff that they need to be more productive,” Deane says. 

Deane suggests shifting more staff to work on the professional fee revenue cycle: collecting copayments; verifying insurance coverage, deductibles, and allowables before patients are seen; and gathering information needed for effective billing and collections. 

“Eighty percent of the opportunity for more revenue we see when assessing practices is in the front end of their revenue cycle - at the front desk,” Deane says. “Physicians tend to under invest in things like billing, patient registration, scheduling, coding, charge capture, and cash receivable management functions.” 


Don Michaels, PhD, a principal and vice president of Hayes Management Consulting, says hiring extra staff can pay dividends. More staff might help you collect on more claims, collect money faster, or help you and your patients move more efficiently through each clinical session, he says. 


“The best-run practices singled out in MGMA cost and performance reports are almost without exception those that are more heavily staffed,” he says. “The reason it works is that it’s really hard to control expenses. You’re better off trying to find ways to maximize revenue.”


Michaels also teaches a class in healthcare information technology to physicians at Harvard and advocates electronic health records (EHR). He says EHR and other technologies help lower staff cost as well as improve medical and financial outcomes. The problem for Michaels is proving it. 

“Every semester I teach the class, ROI (return on investment) is the first thing the physicians ask about,” Michaels says. 

The difficulty of proving how much EHR can save in terms of staff cost is that many medical practices do not use all of the functions of their new systems, he says. That means staff continue to do many tasks manually or not at all. Another roadblock to computing ROI is that smaller organizations don’t have enough administrative and financial staff to find all the niches where an EHR produces savings. 

Practices that implement an EHR and really put it to work will see returns in the form of reduced staff costs for medical transcription and for handling paper charts, he says. 

When Cynthia Dunn, a senior consultant for MGMA Health Care Consulting Group, visits medical practices she often hears employees grouse about pay. The real problem is usually a mismanaged or neglected salary structure, not low wages. 

“The complaint that ‘I’ve been here 10 years but the person just hired makes almost as much as I do,’ is often legitimate,” Dunn says. “It’s because you either don’t have a salary grid or you don’t keep the one you have up-to-date.” 

A salary grid based on years of experience in a job class or profession, not necessarily at the practice, can help employees live with salary differentials, she says. 

Dunn says a formal grid (see Sample Salary Grid below) allows you to set the minimum and maximum pay for each position. Keep the plan manageable by restricting the number of steps to a half dozen or fewer and by setting 10 percent to12 percent intervals between pay steps. You’ll still have the flexibility to start the more experienced new hires above the bottom step. 

Establishing a maximum salary for each position also helps keep a lid on staffing costs. Workers who hit the maximum step for their position might still get raises when the grid is adjusted to reflect the cost of living. 

Dunn adds that it’s important to compare your grid annually to local salary surveys to stay competitive in your area’s hiring market. Making small adjustments based on changes in the cost of living also helps soothe the feelings of those who have topped out in their salary range. 

Another route to keeping long-term employees happy without breaking the bank is to offer them a chance to earn annual bonuses. Tie any bonuses to the worker’s performance and whether the practice had a financially successful year, Dunn suggests. 

Bonus payments can be in the form of lump sums equal to a percentage, perhaps 1 percent, of the worker’s annual salary. Employees always appreciate bonuses, but employers do as well because one-time payments do not boost the underlying cost of the salary grid. 

Another way to help staff learn to live within your salary grid is to let them know what their benefits cost you. Dunn recommends sending employees a personal letter each year listing what you’ve paid in the previous 12 months for their:

Pension, 401k, and other retirement contributions 

Even the smallest practice will have an accountant who can quickly pull this information together, Dunn says. 

Paying attention to employee retention is another effective way to save on staff costs. How? A rule of thumb among human resource experts is that the first-year cost of bringing in a new employee is 30 percent to 50 percent of that person’s annual salary. The money is not so much spent as it is lost while the new employee gets up to speed. 


Steven Fiore, chief executive officer of Orthopedic Specialty Group in Fairfield, Conn., says small rewards can go a long way to build the loyalty of valued employees. That’s especially important because his practice, like others, is hamstrung by many rules and requirements that divert staff time into activities that don’t produce revenue. 

“I have three FTEs (full-time equivalents) just to handle workers’ compensation and another full-time person just to precertify MRI exams,” he says. “We’re absorbing a lot of work we don’t get paid for so we want to be careful about how much we spend on staff.” 

Fiore says the group tries to keep total payroll for its 140 nonphysician staff within a range of 21 percent to 24 percent of gross annual medical revenue. The group of 16 physicians has shifted more tasks to medical assistants and eliminated most of its RN positions but also has nine physician assistants on staff. 

Fiore says the practice looks for creative ways to compete for staff loyalty on something other than wages. One tactic has been offering small monetary and nonmonetary rewards and incentives. For example, the group’s human resources manager leads an employee committee that hosts in-house contests for best Halloween costumes or holiday decorating with paid time off as a prize. 

“People always welcome more time off,” he says. “We try to compete for staff in this market by having a generous vacation package, offering four-day work weeks, and other benefits, not just on salary.” 

Dunn says small gifts and gestures can go a long way when they acknowledge worker’s needs and concerns. 

“If you’re a small practice and can’t afford the salary and benefit packages others have, then maybe invest more in training or give them opportunities to advance in your organization,” she says. “Let them know that they aren’t just a number in your practice like they might be at a bigger organization.” 

How do you know what your employees really value? Try conducting a simple but anonymous survey. Use the popular Web tool 

, which allows you to create surveys and fetch results online for a small fee. Employees can respond without revealing their identities. 

Ask simple yes/no questions or multiple-choice questions, such as:

Are my contributions to the practice valued? 

Is everyone here held accountable to the same standards and for following practice policies and procedures? 

Does your immediate supervisor help you with work issues? 

“I’ve had a 90 percent response rate from these online surveys,” Dunn says. 

Doing the survey is only step one, she says. Plan to share the results with staff and announce some action steps you will take based on the survey results. 

The long-range solution to the problem of staff salaries and other overhead costs may be finding more ways for physicians to get paid for what they actually do for their patients, says Jim King, a Selmer, Tenn., family physician and the 2008 president of the American Academy of Family Physicians (AAFP). 


King says that even a six-physician practice in rural Tennessee, like his practice, must pay close attention to wages and benefits to compete for employees. 

“The problem is that we aren’t getting paid for what we do,” King says. “Forty percent of what we do and what our staff helps us do for patients is management - talking on the phone, sending letters, making sure referrals are done properly - that we don’t get paid for.” 

King hopes that the “medical home” concept advocated by the AAFP and other primary-care physician organizations will catch on with payers and patients. In addition to giving patients a home base for comprehensive personal care, the concept’s backers hope it will lead payers to recognize - and pay for - the many nonreimbursable tasks physicians do to help patients, such as returning e-mails and telephone calls. 

Adds Skinner, “Business trends come and go, so we’re trying to be deliberate as we move forward, knowing we’re going to be responsible for more, not less, of patient healthcare.” 

And that will mean gearing up to find more ways to afford the staff you will need to help you deliver more care, whether or however it is paid for. 

has written on practice management topics for more than 10 years. He has been practice management editor for

Web content editor and senior writer for the Medical Group Management Association, and a speechwriter for the American Academy of Family Physicians. He can be reached via 

This article originally appeared in the October 2008 issue of Physicians Practice. 


You’d like to reward good employees with above-cost-of-living raises every year, but you can’t. Here’s our advice on how to keep loyal staff on board without overpaying.

In Practice: Don’t Let Staff Costs Stifle Profits


You won’t find a bigger fan of hospitalists than Peter Anderson. The Newport News, Va., family physician did rounds for 10 years before he signed up to refer his patients to physicians who handle only hospital patients.

“It’s been like night and day,” says Anderson, who works with two other physicians at Hilton Family Practice, one of 80 clinics owned by Riverside Medical Group. “I don’t have to do rounds or admit my emergency patients; I can even leave town on weekends when I’m on call,” he says.

Anderson says he had to mull the idea over for a few years before signing up with a hospitalist service. After calculating that using a hospitalist could eliminate 70 percent to 80 percent of his night calls, Anderson gave it a try in the late 1990s. Today, he’s a convert.

“The office is my domain, so my comfort level is much higher there than at the hospital,” Anderson says. “To top it off, I’m making more money because I can start 45 minutes earlier at the office and see three or four patients in that time as opposed to just one or two on rounds.”

If you aren’t using one of these specialists yet, you may be soon. Anderson and thousands of other physicians - primary-care physicians and specialists alike - find that using a hospitalist allows them to spend more time in the office producing outpatient revenue. And for some, just the promise of taking their weekends and evenings back is enough.

As Anderson and other physicians across the nation jump on the hospitalist bandwagon, the field grows by leaps and bounds. Today, some 20,000 hospitalists are working for hospitals, hospitalist groups, academic medical centers, large multispecialty groups, and integrated healthcare delivery organizations. That’s a far cry from the fewer than 1,000 estimated in 1996 by internist Robert M. Wachter, who coined the term in a New England Journal of Medicine article that year.

More growth is ahead, says Patrick J. Cawley, an internist who is president of the board of directors of the Society of Hospital Medicine. The hospitalist professional society, which has about 7,000 members, projects that the hospitalist workforce will top 30,000 within a few years.

As the profession grows, so does the competition to recruit new hospitalists. Surveys by the Society of Hospital Medicine peg hospitalist pay at an average total compensation of $193,000 nationally.

“The types of compensation are all over the place but increasingly more get a base salary plus a productivity incentive,” Cawley says. “It’s just like any other specialty in that those with incentives tend to be more productive than those on a salary.”

Hospitalists are credited with helping hospitals reduce the average length of stay while making modest improvements in revenue. A few studies indicate that hospitalists may help reduce mortality rates for hospitalized patients. But Cawley, who also is a chief medical officer at the Medical University of South Carolina Medical Center, says there are other factors behind this new specialty’s rapid growth.

 “The biggest driver of the hospitalist movement is the primary-care physician,” Cawley says. “Primary-care physicians are leaving the hospitals and they are not looking back.” “It’s to the point where if a hospital doesn’t have a hospitalist program, or get one soon, it’s going to have trouble attracting referrals,” he says.

Most primary-care physicians have just one or two patients in the hospital at a time. A shortage of primary-care physicians means they face greater demand for office visits. Whatever revenue is gained from seeing those one or two patients at the hospital is often less than what the physician could make by staying in the office and seeing several more patients there. These cost and time pressures also affect specialists, Cawley says.

“The economics of practice and the shortages in many specialties are pushing specialists to either be in the office doing consults or to be performing procedures,” he says. 

But it’s not just money and a shortage of physicians fueling the rise of the hospitalist. “Frankly, patients and their families don’t want to wait until the next day anymore to talk to a physician,” Cawley says. “These days, they want their physicians there by the bedside and they want them there now.”

Besides helping physicians establish more controllable work hours, hospitalists give hospitals new tools to improve quality measures, patient satisfaction, and other goals.

“If you tell four hospitalists about a new quality target then you affect 48 hospital patients right away,” says Haiwen Ma, an internist who directs the hospitalist program at South Nassau Communities Hospital in Oceanside, N.Y. “You’d have to tell 25, maybe 48, primary-care physicians in the community those same things to affect the same number of patients.”

Ma, who supervises a small-but-growing hospitalist department for the Long Island hospital, says hospitalists can add value to the institution’s mission. An effective hospitalist service doesn’t just do rounds and record charges; it helps other staff with programs that improve quality, safety, and patient satisfaction, she says.

“Joint Commission standards are being updated and other programs are always changing but since hospital work is not where the office physician’s expertise is, it is hard for them to remember all of the details as these new standards come along,” she says.

Ma says the biggest indicator of a hospitalist program’s success is what primary-care physicians hear from patients.

“Believe me, if there’s anything the patient feels wasn’t good service in the hospital, it will get back to the primary-care physician, which means it will get back to the hospitalist, and it happens very quickly,” she says.

Indeed, the service quality of hospitalists impressed one recent patient of Dr. Ma’s: a 62-year-old Long Island woman who spent a few days at South Nassau after getting a new cardiac stent inserted.

“I had no complaints about it because I saw the surgeon afterwards and then Dr. Ma and her staff were coming by to see me several times and talk to my family at the hospital,” she says. “It was good to know the doctor wasn’t very far away.”

Hospitalists typically provide 24-hour coverage. While some services use an on-call schedule to handle late nights and weekends, most provide round-the-clock coverage so a hospitalist is always in the house.

Is the inpatient revenue you might give up along with your hospital practice greater or less than the outpatient evaluation and management revenue you gain by staying at the office? Do an analysis, suggests Donna K. Knapp, administrator of Sierra Hospitalists, LLC, a 17-physician service owned by a group of specialists in Reno, Nev.

“Figure in your own time, of course, but also think about the extra revenue you could get by staying in the office to supervise ancillary diagnostic testing or a midlevel provider who can bill incident-to your services,” Knapp says. “You’ll take a 15 percent hit from payers like Medicare on anything the midlevel does while you’re doing rounds; she may not be able to do some things at all when you’re out of the office.”

For example, Medicare reimbursement rules require a physician on site when performing pulmonary function testing to evaluate patients who receive a bronchodilator. The service could be reimbursed as a CPT 94060, Bronchospasm responsiveness evaluation. If the internist is out on rounds, that means forgoing the $60 Medicare reimbursement paid on average for that service in 2008. More time in the office could help support hiring a midlevel provider or offering a profitable ancillary service, Knapp says.

In addition to figuring the hypothetical lost revenue for leaving the office, make a guestimate of your hourly rate. It can help you judge whether you break even on your hospital time. One method is to divide your annual compensation by 2000 hours. You can get to that figure by tallying up the medical revenue produced by your office services and dividing by the number of hours you spend in the office each year. Then multiply that hourly amount by the hours you spent doing rounds, plus getting to and from the hospital, standing around waiting for a radiology report to be delivered at the hospital, and so on.

Or try using national averages to get a general figure, such as the $177,059 median annual compensation for internal medicine physicians reported in a 2007 Medical Group Management Association (MGMA) survey. Using the MGMA numbers as an example, each hour on the hospital floor costs you $88.53, assuming you work 2,000 hours a year. 

Let’s say the hospital is across the street and you spend just 30 minutes a day on hospital rounds. No big deal? Assuming you earned the MGMA salary, you’re still looking at more than $10,000 worth of time (based on a 48-week work year) to make those rounds. That doesn’t include the time you spent answering the nighttime and weekend calls about those patients. And if you drive, don’t forget to charge yourself $1.48 for every minute you spent in traffic getting back and forth to the hospital, plus fuel costs.

A look at your annual hospital census will tell you what your inpatient revenues are but don’t forget to also look at what it costs you to bill and collect those charges. If hospital patients are 10 percent of your practice, then subtract 10 percent of your overall billing and collection costs from that revenue stream.


The result may be what the hospital-owned multispecialty Marshfield (Wisc.) Clinic discovered after it started using hospitalists.

“The production on the outpatient side improved because people were there and they also were not taking comp days after a night call shift and you weren’t having to block time out of their schedules for morning and evening rounds,” says Roderick Koehler, an internist who leads the clinic’s 24 hospitalists at St. Joseph’s Hospital in Marshfield.

The biggest fear that primary-care physicians had when hospitalists were first introduced is the same one present today: losing track of patients. Communication is king when it comes to running a successful hospitalist service, says Koehler.

At Marshfield, expectations for communications are built into the hospitalists’ compensation structure. They include:

Submitting complete audit discharge summaries within 24 hours of discharge

Ensuring the primary-care physician has been contacted when a patient is admitted

Getting favorable results on patient satisfaction surveys

Making sure that the majority of discharged patients are called afterwards

Hitting length-of-stay goals and quality indicators

South Nassau’s Ma says it’s important that the hospital service call the primary-care physician within 24 hours of the patient’s admission to the hospital. “The primary-care physician can tell us about the patient’s background and what’s taken place in the past,” she says.

Ma says it is also is a standard for her hospitalists to contact primary-care physicians whenever a patient has a major change in health status, undergoes a major procedure or test, or is discharged. Her staff also must send a complete written discharge summary within 24 hours.

But don’t make assumptions about communication before signing up with a hospitalist service, Cawley says. He recommends meeting with the director of the service, asking about each of its physician’s backgrounds and experience, and getting all expectations about communications in writing. 

“Look at what you receive and when you receive it,” Cawley says. “A discharge summary that is very brief or has a lot of missing information in it would give me the sense that hospitalist didn’t pay a lot of attention to detail.”

Always let the director of the hospitalist program know when you are unhappy with the communications between the hospitalist and your practice, he recommends.

Communication works both ways, says Koehler. You’ll want to respond promptly when the hospitalist calls with questions, he says.

“Maybe you can help them understand a family dynamic or something else where you have the information because you know the patient,” he says.

Anderson says he and the other two physicians in his Newport News practice make sure to never send a patient to the hospital who doesn’t need to go to the hospital. Nothing will erode the relationship faster than the impression of dumping on the hospitalists, he says. 

He also recommends reading written discharge summaries carefully because they will often contain more information than the hospitalist was able to convey in the post-discharge phone call.

Anderson says the system works if doctors - hospitalists and office-based physicians - make it work.

“There’s been no downside for me in using a hospitalist,” Anderson says. “I tell my patients who are skeptical about it that these guys are better because they do hospital care all the time, full-time, and the patient is going to get better care because of it.”

Bob Redling, MS, has written on practice management topics for more than 10 years. He has been practice management editor for Physicians Practice, Web content editor and senior writer for the Medical Group Management Association, and a speechwriter for the American Academy of Family Physicians. He can be reached at 

This article originally appeared in the September 2008 issue of Physicians Practice.

Some primary-care physicians love hospitalists; some won’t touch ’em with a 10-foot pole. Here’s what you need to know about the hottest new specialty in medicine.

In Practice: Your Hospitalist and You

How much is your practice worth? Often, it depends on who wants to know and why.

Practice valuation professionals - often CPAs with specialized training - follow different tacks depending on whether a practice will be sold to another physician, valued for a divorce proceeding, or if practice partners just want to go their separate ways.

The traditional building blocks of practice value are:

 - equipment, facilities, supplies, patient records (the cost of the files themselves, not the information in them), etc.;

 - what’s left after expenses, including physician compensation;

 - money due for professional services; and

 - anything paid above the value of hard assets, cash, and A/R.

Appraisal professionals can follow several pathways to put a value on these four items. The market value approach - what other practices in the area sold for recently - is dandy for houses. But it can be an exercise in uncertainty to compare medical practices in different parts of the country.

Another approach is to try and project future cashflow, the component most important to business investors. While it works well for many types of businesses, cashflow valuation is of little help to the typical medical practice owner. Most have little cash left after paying for overhead expenses and physician compensation, explains Jim Sacher, a CPA with the accounting and consulting firm Skoda Minotti.

“Partners tend to take whatever’s left after expenses as their compensation,” he says. “If physician compensation is set at a fair market level for the same area but there’s never any cash left at the end of the year, then what’s it worth to an investor?”

Sacher explains that unless a physician earns substantially more than the fair market rate for his or her specialty and the area, that money is physician compensation, not profit. That’s why figuring in goodwill - the ability to make profits - historically was a major component in determining practice value.

Reed Tinsley, a Houston-based CPA, says goodwill isn’t that useful anymore as an indicator of what a practice will sell for. It’s losing ground because hospitals are moving back into practice-purchasing mode. They are setting the standard.

“Goodwill is tied to the performance of the practice,” Tinsley says. “The hospitals are now saying, ‘Why should I pay for that performance upfront when I can get you on the payroll for a small amount, see how your practice goes and pay you through compensation with performance incentives?’”

There’s another reason that hospitals won’t offer any goodwill for your practice: the Feds. Thanks to the Stark and anti-kickback laws, this intangible form of measuring the new owner’s profit opportunity just sounds too much like paying for future referrals. And that’s strictly forbidden.

Unfortunately, the practice values that physicians assumed would still apply when they were ready to sell were built on the concept of goodwill. Without it, the value of a medical practice is primarily found in its tangible assets: equipment, supplies, facilities, furnishings, etc. And those values depreciate during the valuation process, often by using a 10-year scale that leaves just a fraction of the original value after a decade of use.

Wait, you may be saying, ‘I have lots of patient records and very nice accounts receivable (A/R) to pass on to the new owners.’ Sorry. You’ll probably need to collect that A/R yourself - most buyers aren’t interested in handling your collections. Besides, you may need it for payables, like existing leases, if the purchaser doesn’t want them either.

As for medical records, don’t expect a windfall. Sacher says the Internal Revenue Service’s guidelines for setting medical record values between $12 and $22 is fairly accurate and widely followed. That’s about what it would cost in staff time and materials to rebuild the paper file. So, a family physician with 3,000 active (no more than three years old) patient records might hope to get $66,000 from a very generous buyer. Other specialists may be able to get credit for records as old as five years. All the same, buyers know that in most communities patients can choose other physicians and that insurance plan changes may steer them to find other providers anyway. Besides, in a legal sense you don’t really “own” your patients’ medical records, they do.

With goodwill off the table and cashflow equations usually of little help in establishing value, physicians must carefully scrutinize any valuations made of their practices. As they do, it helps to seek expert advice to be sure that every credible shred of value is accounted for.



It was easy for Pittsburgh-area family physician Fran Meyers, DO, and his partners at Chestnut Ridge Primary Care to confirm the value a prospective buyer placed on their 19-physician, multi-site practice. After all, Meyers and his partners still had the valuation report from several years earlier when they had sold the practice to another hospital. That deal didn’t pan out so the group was anxious to try it again, but on its own terms.

Neither Meyers nor officials from Excela Health, the hospital system that bought the practice last March (2008), will disclose the purchase price. However, John Sphon, vice president of Excela Health Physician Practice Group - Chestnut Ridge’s new owners - confirms that goodwill was not part of the deal.

“We didn’t buy any goodwill, just tangible assets,” says Sphon. “Those days of paying for goodwill are gone. Physicians have to understand that this is a fair market value system for practice purchases now.”

Finding a rock solid comparison for fair market value is tricky when it comes to a medical practice. Instead of dwelling on the selling price, Meyers and his colleagues kept their focus on what life would be like at Chestnut Ridge after the sale.

“It was really more a matter of (asking) do we want to sell to that entity because then we can do things together, and are there synergies we can both work with and make the future brighter for both of us,” Meyers says.

Have you ever wondered what price tag a valuation professional would put on your practice? The answer often depends on who’s asking - and why.

Author | Bob Redling

Articles