Hospitals, physicians must collaborate to address challenges of caring for patients

In this virtual round table, a panel of hospital CEOs address concerns about supplies, ER call and compensation.

Over the years my colleague and friend, Dr. Stuart Hirsch, and I have had an ongoing interest in the practice and care delivery of orthopedic surgeons. We have served on committees and boards together and separately dealing with different aspects of these issues. As the result of one of our recent discussions, we decided to ask the CEOs of three successful and innovative health care systems some specific questions of interest to practicing orthopedic surgeons. Their responses should give you additional insight into their part of the equation.

While more of orthopedics is in the outpatient environment, we are still dependent on the hospital team and services for our more complex patient needs. The CEOs set the tone and direction for the team (nurses, therapists, technicians, management, etc.) and individuals we work with in these settings. These CEOs are, also, accountable for carrying out the mission of their respective institutions and keeping them fiscally viable. Dr. Hirsch and I have always appreciated the importance of their role in supporting the orthopedic delivery team and carelines. Direct communication is necessary to better understand the possibilities and limitations on our desired hospital patient care and related services. We are pleased to present their responses to current relevant issues affecting our practices. They were chosen representing professionals we have worked with and that are tuned into the needs and desires of the physicians working within their systems.

Douglas W. Jackson, MD
Stuart Hirsch, MD
Moderators

Moderators: Douglas W. Jackson, MD Long Beach, California, Chief Medical Editor, Orthopedics Today Stuart Hirsch, MD Bridgewater, New Jersey, Editor, Health Policy, Patient and Practice Issues, Orthopedics Today Editorial Board. Participants: Barry Arbuckle, PhD, CEO of Memorial Care, Huntington Beach, Calif. John R. Reynolds President and CEO, Hospital for Special Surgery, New York Chris Van Gorder President and CEO, Scripps Health, San Diego, Calif.

Orthopedics Today: What do you think is a reasonable way to obtain orthopedic coverage of a busy emergency room and/or trauma center, assuming that some of your orthopedic staff do not wish to cover trauma?

John R. Reynolds: The Hospital for Special Surgery (HSS) does not have an emergency room. However, through HSS Orthopedic Surgeons, the institution provides full coverage of these services to the level III trauma center at our affiliated hospital, New York Presbyterian Hospital/Weill Cornell Medical Center Campus. We are physically connected to this facility by a bridge over 70th Street on the Upper East Side of Manhattan and provide not only ER and trauma orthopedic coverage but also other services for the mutual benefit of both our institutions.

As an academic center, HSS attending orthopedic surgeons head the Trauma and Fracture Services, and we rotate our residents through this trauma center to support their training. However, coverage for emergency rooms by orthopedic surgeons, especially those generating a high volume of elective care in their private practice, is always difficult to arrange consistently over long periods. I do feel that this is best managed by developing an arrangement with a group of orthopedic surgeons to spread out the effort (especially in nonacademic hospitals where residents or fellows cannot complete certain activities).

Whether it is obtained by an individual surgeon or by a group of surgeons, the time spent providing this coverage costs them valuable time, in many cases interrupting development of their elective, private practice for which an economic loss is incurred. In these cases, in addition to receiving the fees for the services provided, the surgeon must also be provided with a salary for the coverage sufficient to not only make up for the lost wages but also for the very substantial personal effort in being available and on call.

Chris Van Gorder: This is an issue that really has to be worked out in a collaborative way with each hospital’s medical staff and administration, based on the capabilities of the hospital, physician qualifications and availability, and the patient payer mix.

Market conditions will dictate what a hospital can do, but there are a variety of arrangements that can be used. What Scripps has done through collaboration with our elected physician leaders is to work through our Physician Leadership Cabinet to find a solution that ensures coverage. The elected chiefs of staff at each Scripps campus are represented on the cabinet and are able to take the cabinet’s recommendations back to their medical staffs.

OT: What is the role of medical centers in outpatient care for the future? Will they compete with their staff physicians (ie, surgicenters, physical therapy units, MRI centers, etc.)?

“There will continue to be competition with medical centers for the provision of services to patients that are appropriate in an outpatient setting.” — John R. Reynolds

Reynolds: I believe there will continue to be competition with medical centers for the provision of services to patients that are appropriate in an outpatient setting. Certainly, advances in technology and technique will support this occurrence.

I do feel quite strongly that a proliferation of services not directly associated with a hospital center, whether it be in a community or in an urban environment, could in may cases put the full level of patient care quality initiatives in jeopardy. We at HSS and others throughout the United States and abroad recognize that a collaborative and driven quest to improve patient care on all levels is most successful when the resources of physicians, surgeons and hospitals are combined to discover innovative ways to improve a patient’s overall mobility and thus their desired lifestyle, which is the broader definition of a quality outcome. We use the FOCUS-PDCA (Focus-Organize-Clarify-Understand-Select-Plan-Do-Check-Act) method for process improvement extensively, with all HSS constituencies (including the medical staff) having fully accepted this method and support its use.

Van Gorder: For hospitals to be financially viable, they will have to offer both inpatient and outpatient services. This is especially true as technology advances drive services that were historically handled by hospitals in the inpatient setting into outpatient settings.

“For hospitals to be financially viable, they will have to offer both inpatient and outpatient services.” — Chris Van Gorder

At Scripps, we have partnered with our physicians in joint ventures but only in those instances where it makes economic and business sense for both parties, and then only in legal and ethical structures. Physicians and hospitals must realize that we need each other, and the only way we are both going to survive and maybe even thrive is to ensure both are financially stable.

OT: Orthopedic procedures account for a growing percentage of the cases done in some hospital operating rooms. With the costs of implants and new technology increasing, how does management keep their orthopedic departments profitable?

Reynolds: Since HSS is a hospital that exclusively treats musculoskeletal disease, the vast majority of revenues and expenses are driven by orthopedic surgery — the only type of surgery performed in our 19 operating rooms. Therefore, our survival is totally dependent on the profitability of all orthopedic surgery.

There are only two major categories of profitability/success in any business: increasing revenues or reducing expenses. In the long-term, I believe that the expansion of revenues — through additional throughput or through a greater payment per each surgery or activity — is the only practical solution. HSS has been very successful in both areas, increasing volume by 6% to 8% per year and, through a very effective PHO, securing reasonable rates of payment from insurance companies. However, as we know, all volume and revenue efforts can be completely offset if the expenses associated with these efforts are not maintained at levels that provide a profit margin.

The main contribution toward achieving profitable margins is the efficient and effective management of the hospital as a whole. All inefficiencies trickle down to the orthopedic service line whether you are in a full-service hospital or in a specialty hospital such as HSS. Having said this, however, the direct expense of implants and new technology continuously challenges the bottom line even in well-managed hospitals and must be dealt with aggressively and in full partnership and cooperation with the orthopedic surgical leadership and staff.

Mutual cooperation and support can achieve significant expense reduction not only in the cost of implants but also in the cost of the entire surgical case and hospital stay. The main focus in profit improvement — in addition to implant devices pricing — should be efficient use of O.R. time, decrease in length of stay and, of course, increased volume throughput of orthopedic surgery.

Van Gorder: It begins and really ends with quality patient care. Of course, it does not hurt to have physician and community support with a strong history of philanthropy to help with those program areas that are under-reimbursed or for charity care.

Recently, operating margins or losses in orthopedics and cardiology are increasingly driven by device and implant costs, utilization and standardization, where possible. Negotiating the best purchase price with suppliers is more likely to be successful when physicians and hospitals collaborate on the effort. At Scripps, we want to be certain that our physicians have access to the products they need for our patients. Scripps’ strategy is to set our price and let any manufacturer participate. As a result, we have been able to achieve savings without eliminating vendors.

“In fact, most hospital orthopedic departments struggle with the bottom line specifically due to the cost of implants and new technology.” — Barry Arbuckle

Barry Arbuckle, PhD: In fact, most hospital orthopedic departments struggle with the bottom line specifically due to the cost of implants and new technology.

At MemorialCare, we work to establish effectiveness in this area by sharing with physicians the true performance of the product line (i.e., total cost margin developed using true cost accounting systems). In addition to sharing this data with our physicians, we regularly provide them with reports on cost trends so they can better participate in the process.

For example, many of our physicians were alarmed by the fact that between 1991 and 2003, implant costs increased 114% while hospital reimbursement for DRG 209 increased only 14%. Statistics such as the fact that implant costs comprise 50% to 60% of the total DRG payment (leaving the balance to cover four to five days of impatient care) help us all to see the big picture.

If an orthopedic department of a hospital is to be profitable and effective, a few things have to happen. First, the hospital must proactively strive to partner with the physicians using physician-developed, best-practice protocols. These protocols can be utilized not only to standardize and streamline intraoperative and postoperative care, but they can also ensure appropriate utilization of implants and devices. Utilization must be driven by clinical evidence, not just physician preferences.

Then, the hospital needs to institute cap pricing contracts for vendors with physician support, rather than attempting to standardize around one product for all physicians/patients. Also, physicians need to be provided with incentives for participating in new technology committees at the hospital that rely strictly upon third party, evidence-based research. That gets everyone the same page.

Ultimately, a structure can be achieved whereby documented improvements can lead to greater investments in the product line.

OT: Joint ventures with physicians and hospitals have not always been successful over time. What considerations and suggestions would you give in considering a physician-hospital joint venture?

Reynolds: I would base a joint venture on the following:

1. Have independent advisors conclude objectively whether or not the business basis of the joint venture is sound and that financial forecasts, including volume assumptions, are accurate and conservative.
2. Develop a detailed plan to set expectations for business issues/patient care quality expectations. Include a statement of mission, vision and values for the services within the venture. Also include a methodology for dispute resolution.
3. Develop a governing board to focus on the strategic issues of the venture. Membership should include members of the Hospital Board of Trustees, the hospital CEO or COO and an equal number of physicians or their representatives.
4. Align the economic incentives based on effort and brand contribution.
5. Market the services aggressively to ensure that the volume of patients and economic rewards substantially exceeds what existed before the joint venture and is in accordance with the business plan.
6. Reinforce in the beginning of the discussions that all constituencies must think outside of their historical paradigm.
7. All parties must agree on who will be the day-to-day leader. Once that leader is appointed, support that person thoroughly and hold him or her fully accountable for achievement of goals and objectives.

Arbuckle: At MemorialCare, while we’ve done relatively few joint venures in recent years, we have had great success partnering with our physicians in various creative ways. I am aware, however, that many other physician/hospital joint ventures around the country have not produced the anticipated financial returns for one or both parties. In fact, many have resulted in acrimonious relationships among participants.

It should be noted, however, that federal statutes introduced since 1995 may actually reduce the acrimony and at least help to bring balance to the financial returns. I’m referring to the Stark I and II regulations, which have established a framework for balanced investment/return structures, thereby making it less likely that one party to the transaction will feel unfairly treated.

To begin, an assessment by the hospital — shared with the physicians — of the total cost margin of the product line under consideration is essential to getting a joint venture on the right track. If the hospital does not go into the venture knowing the true total cost margin of each procedure comprising the product line[s] under consideration, it cannot possibly make an informed decision about its current business or how it will function with a joint venture next door. Plus, without being informed by precise projections from multiple perspectives, the physicians aren’t given the opportunity to appreciate the hospital’s position.

For example, a recent article published in an American Medical Association publication compared hospital earnings across various specialties. Interestingly, orthopedic surgery was listed as generating the most revenue.

What this article failed to point out, however, is that top-line revenue is not necessarily correlated with net income. It’s important to remember the hospital payer mix (even for those facilities with limited indigent care) and the use of costly implants – which may or may not be adequately reimbursed — can cause a major top-line, revenue-generating product line to be a net income detractor.

To put an exclamation mark on this point, for one of our MemorialCare hospitals, orthopedic surgery is indeed one of the top revenue producers, but is the absolute poorest net income performer of all product lines.

Beyond performing and sharing analyses with the physicians, there are a number of other questions that should be asked and taken into consideration for a joint venture to truly thrive over the long term. For example:

1. Will the joint venture continue to further the common focus on quality and patient outcomes?
2. What would the hospital backfill the operating rooms with and how would that impact hospital performance?
3. Can/will the hospital provide the ancillary services in a manner that is cost effective to the partnership?
4. Do the physicians/groups who are interested in joint venturing represent 80% of your volume or 20%?
5. Is this consideration consistent with the hospital’s strategic plan and is it defensive or offensive in nature? Don’t forget that unless a case can be made that the pie will be bigger when all is said and done, the reaction from credit rating agencies will likely be, “Congratulations on your successful joint venture. You’ve just given up half of your revenue.”
6. As in any joint venture, what does each party bring to the table and how will partnership departures be handled?

OT: The increasing popularity of outpatient services such as surgicenters, MRI centers and physical therapy units often results in hospitals and their orthopedists providing both services. Can the competing services benefit patients and be done in “win-win” relationship?

Reynolds: I believe that both objectives can be accomplished. In orthopedics, surgeries drive profits for hospitals. Therefore, if services can be established in disciplines (such as MRI and other imaging, physical therapy and pain management) that increase market reach and patient retention, they will immediately and over time gather additional surgical candidates for surgeons and hospitals where the economic drivers for both parties are aligned.

The surgeon’s highest and best use of his/her time is performing surgery. Any activity that can serve to both add new patients to a surgeon’s private practice and reduce the number of office visits per surgical candidate will result in a clear “win-win” for the surgeons and their hospital.

Nonsurgical, first visits performed by other physicians with clear referral lines to surgeons can result in significantly improved efficiency. In addition, it is to everyone’s short- and long-term advantage to provide comprehensive care and easy access to all individuals requiring musculoskeletal services from an expanded market area. This strategy accomplishes both.

Arbuckle: Certainly, cherry-picking patients predicated upon reimbursement source or supply/device cost is a non-starter. Full-service community hospitals simply can’t function if the highest margin, lowest acuity patients are siphoned off.

That being said, physician reimbursement declines are leading many physicians to consider supplemental revenue lines. Additionally, the customer service features that these surgery or imaging centers can offer are attractive.

The answer, I think, is for hospitals and physicians to work together at finding ways to create mutually beneficial business relationships. For example, an agreement that the standardized supply/device menu that characterizes surgicenters can also be implemented in the hospital.

OT: What are your thoughts about physician-hospital relations as you look ahead?

Van Gorder: Success for both physicians and hospitals requires collaboration. Physicians have legitimate concerns about supplies, ER call and compensation and hospitals have legitimate concerns as well. Hospitals and physicians can both succeed and still serve the community if they collaborate with each other to meet these difficult challenges.

At Scripps, we have tried to create a collaborative atmosphere and to date we’ve been successful. There are always going to be external pressures that will try to divide us. However, we must recognize that our survival depends on one another – and frankly, our patients expect us to work together for them. When you begin any discussion recognizing that reality, we can always find common ground.