How Much Money Brings A Surgeon To The Hospital

Ann Surg. 2005 Oct; 242(4): 530–539.

Surgeon Contribution to Infirmary Lesser Line

Not All Are Created Equal

Andrew S. Resnick

From the *Department of Surgery, Academy of Pennsylvania, Philadelphia, Pennsylvania; and the †Hospital of the Academy of Pennsylvania, Philadelphia, Pennsylvania.

Diane Corrigan

From the *Department of Surgery, University of Pennsylvania, Philadelphia, Pennsylvania; and the †Hospital of the Academy of Pennsylvania, Philadelphia, Pennsylvania.

James L. Mullen

From the *Department of Surgery, University of Pennsylvania, Philadelphia, Pennsylvania; and the †Hospital of the Academy of Pennsylvania, Philadelphia, Pennsylvania.

Larry R. Kaiser

From the *Department of Surgery, Academy of Pennsylvania, Philadelphia, Pennsylvania; and the †Hospital of the University of Pennsylvania, Philadelphia, Pennsylvania.

Abstract

Objective:

We hypothesized that surgeon productivity is straight related to hospital operating margin, but meaning variation in margin contribution exists betwixt specialties.

Summary Groundwork Data:

As the contained practitioner becomes an endangered species, it is disquisitional to amend understand the surgeon's importance to a hospital'south bottom line. An appreciation of surgeon contribution to hospital profitability may prove useful in negotiations relating to full-time employment or other models.

Methods:

Surgeon total relative value units (RVUs), a mensurate of productivity, were nerveless from operating room (OR) logs. Annual infirmary margin per specialty was provided past hospital finance. Hospital margin data were normalized by dividing by a constant such that the highest relative hospital margin (RHM) in fiscal year 2004 expressed as margin units (mu) was 1 million mu. For each specialty, data analyzed included RHM/OR 60 minutes, RHM/example, and RHM/RVU.

Results:

Thoracic (34.55 mu/RVU) and transplant (25.13 mu/RVU) were the biggest contributors to hospital margin. Plastics (−0.57 mu/RVU), maxillofacial (1.41 mu/RVU), and gynecology (1.66 mu/RVU) contributed least to hospital margin. Relative hospital margin per OR HR for transplant slightly exceeded thoracic (275.74 mu vs 233.94 mu) at the acme and plastics and maxillofacial contributed the to the lowest degree (−three.83 mu/OR Hour vs 9.36 mu/OR HR).

Conclusions:

Surgeons contribute significantly to infirmary margin with certain specialties being more assisting than others. Payer mix, the penetration of managed intendance, and negotiated contracts as well as a number of other factors all accept an affect on an individual hospital's margin. Surgeons should exist fully cognizant of their significant influence in the market.

Cardinal Words: hospital margin, relative value units, operating room productivity, infirmary financial data, surgeon productivity, surgeon contribution to hospital margin

The traditional mission of an academic medical center is a three-tiered goal to appoint in tertiary clinical intendance, teaching, and inquiry. However, the decline of the fee-for-service reimbursement organisation, the encroachment of managed care, the cost-containment strategies of payers, and the malpractice crunch accept all contributed to the increasing difficulty of sustaining and fulfilling this mission. In addition, in the past 2 years, both academic medical centers and physician practices have had to cope with the imposition of resident work hour limitations, forcing many hospitals and practices to hire plush nurse practitioners and medico assistants to perform the work lost considering of the duty hour restrictions.¹ The cost to employ these healthcare providers is significantly greater than that expended for a resident, and it effectively takes iv of these individuals to compensate for the loss of a single resident from a clinical service, often mandated by the shifts required in resident allocation to compensate for the lost work hours. These nonphysician providers work simply ane-one-half the number of hours as a resident and usually see but one-half every bit many patients.

Both hospitals and physician practices are suffering as reimbursement continues to fall, costs continue to climb, and the malpractice crisis looms large. Many academic medical centers are struggling financially equally a outcome of the current surroundings, and if financial conditions do not improve, the traditional academic mission may be forced to change.ⁱⁱ From a financial standpoint, options include farther reductions in costs or even elimination of certain service lines found to be unprofitable. Although possible on a small scale, widespread adoption of this kind of policy would truly jeopardize the mission of academic medical centers across the country.

The resource-based relative value organization (RBRVS) was instituted in the belatedly 1980s as Medicare set out to comprise increasing costs in the healthcare arrangement. However, several bookish institutions take demonstrated that the system reimburses too petty such that hospitals and practices may be losing money by performing sure types of procedures. The RBRVS system was instituted with the goal of containing costs, but the calibration was not intended to reimburse below costs. One obvious caption for this discrepancy is that physician try has been underestimated and thus underpaid. In improver, because academic medical centers usually are in the position that they accept all patients every bit part of their mission and thus tend to have more complex, more than highly variable, and more plush cases than community hospitals, they have higher financial take chances that is inadequately compensated by the RBRVS.ⁱⁱⁱ

Costs continue to increase and reimbursement remains inadequate. Although many academic medical centers continue to focus on cost containment at a macro level, there has been inadequate investigation into the relationship between hospital margin and the clinical practices. An unfortunate explanation for this is that nigh hospitals do not have adequate cost-accounting systems, and the information that is shared between medical centers and clinical practices is insufficient. Taheri and colleagues rigorously examined a trauma service line margin, finding that although losses were rare on fee-for-service patients, they were common on fixed-fee patients.⁴ This grouping proposed that payers potentially could game the system by moving patients to hospitals in which they had more than favorable contracts, using as an instance their own medical center where a fixed-fee trauma patient, on average, would upshot in a $500 loss for the infirmary and trauma service. Academic medical centers are vulnerable to this kind of strategy by payers because of their obligation to accept all patients.

Medical centers and practices across the country are putting considerable endeavour into toll containment, only every bit a result of the complexity of clinical care and the separation of hospital and practice operational data, little is known about what instance mixes are profitable for practices, medical centers, or both. Because most hospitals and surgical services have just crude cost-accounting systems, neither hospitals nor practices have enough information to make appropriate and advantageous strategic decisions, giving payers a clear information advantage. As the financial state of affairs becomes more precarious for both practices and medical centers, this information becomes increasingly important. Standard operational management from other industries demonstrates that optimizing a value chain in its entirety is always the all-time fiscal strategy for a whole system. Increasing the transparency and accuracy of the cost-bookkeeping systems for both practices and hospitals, in addition to sharing more information, should lead us closer to this goal.

The question remains which specialties produce high margins on the professional person fee side and which produce loftier margins on the hospital side. Although few bookish medical centers probable would consider managing risk by dropping entire surgical service lines, this information would let hospitals and practices to see where better-negotiated reimbursement contracts need to be created, where further cost cutting might be nigh helpful, and where resources should exist allocated. At a minimum, those service lines with loftier margins for both the hospital and the practise should be strongly supported, whereas those with negative margins for both should exist more closely monitored. In certain situations, depending on the employment model, this creates a need for transfer of dollars between the institution and individual practices. This becomes particularly important for those services providing a high margin to the hospital where the professional fees generated practise not adequately support the individual practitioners. Unfortunately, this situation is becoming all too common amid surgical specialties where hospital reimbursement has remained strong and the Medicare payment to the practitioner has connected to be cut on a yearly basis. It is well known that other tertiary party payers tend to follow Medicare's lead when information technology comes to doctor reimbursement, thus creating the crisis on the professional fee side that the bulk of surgeons now face up. It is a deplorable commentary when the costs to a cardiac surgical practice exceed the payment received for performing a coronary avenue featherbed, a situation that currently exists in a number of regions in this country. Cardiac surgery, also equally a number of other surgical specialties, has provided a particularly vulnerable target to professional fee reductions despite the best efforts of the specialty societies to resist these changes. The dichotomy that exists betwixt infirmary reimbursement and professional fees has to be addressed, in many situations, past a funds period model, and surgeons should be aware of their leverage when entering into negotiations regarding these types of models.

METHODS

All operative cases performed at the Hospital of the University of Pennsylvania in fiscal year 2004 (FY04) were recorded in the operating room instance log database. Data were bachelor for surgical specialties, including neurosurgery, cardiac surgery, gynecologic surgery, otorhinolaryngology, endocrine and oncologic surgery, transplant surgery, urologic surgery, vascular surgery, plastic surgery, thoracic surgery, orthopedic surgery, trauma surgery/surgical critical care, oral maxillofacial surgery, gastrointestinal surgery, and colorectal surgery. Pediatric surgery and ophthalmology cases are performed outside of the Infirmary of the Academy of Pennsylvania and thus are non included. Urology clinic procedures were included in the study, because they use the operating room case log database. However, plastic surgery and oral and maxillofacial surgery clinic procedures, performed outside of the operating room, are non included in this study. These cases represent a small minority of cases for those specialties, however.

Operative case length (patient in room to patient out of room) and scheduled Current Procedural Terminology (CPT) codes were obtained from the example log database for each case performed in FY04. Using the April 2004 Revision file (www.cms.hss.gov/providers/pufdownload/rvudown.asp), the resource-based relative value calibration (RBRVS) calibration was used to translate each scheduled CPT into full relative value units (RVU).^five Operative statistics were bachelor on cases in the operative log, but not from the hospital billing arrangement. To verify that the scheduled case RVU and billed RVUs were correlated, total RVUs calculated from scheduled CPT versus billed CPT for all cases in FY04 were compared by linear regression, with Rⁱⁱ = 0.70 and P = 0.0000, so scheduled CPTs were used in all further calculations. Therefore, neither postprocedure coding optimization nor secondary procedure codes were captured. However, considering the RVUs corresponding to billed CPT codes correlated closely with those corresponding to the scheduled primary procedure CPT codes, this method is not only valid, but provides advantages, including the power to link RVUs to operating room data, the fact that no differences in postprocedure optimization strategies by specialties interfere with the analysis, and the fact that many payers put much or all weight on the primary procedure for reimbursement.

Total operating room (OR) time was calculated for each specialty by summing the OR case length for every procedure performed in FY04. Annual cumulative RVU was calculated for each specialty by calculation the total RVUs performed by each surgeon. RVU/OR HR was calculated for each specialty by dividing the total cumulative RVUs by the total OR fourth dimension used past each individual surgeon and specialty.

The hospital finance department calculated hospital margin for fiscal years FY03 and FY04 for each clinical sectionalization and department based on primary doctor specialty. Margin, as used hither, is defined as what remains after subtracting both directly and indirect costs from the operating acquirement collected by specialty. Revenue used in calculations included all payments nerveless for each patient, including payments for preadmission testing, operative services, and postoperative care. No attempt was made to divide the hospital diagnosis-related group (DRG) payment between services, but instead the entire DRG payment and the unabridged cost of the patient stay in the hospital was allocated to the primary service. Costs are assigned to each patient using standard costing methods for healthcare organizations. Nursing costs are assigned using the average cost per day and the length of stay of each patient on each specialty specific patient flooring. Operating room costs are allocated to patients based on the individual case fourth dimension multiplied by the average price per OR infinitesimal. High-price devices and implantables are not included in the OR time-based averages, only instead specifically assigned to each patient. Ancillary testing is allocated using hospital section-specific costs per RVU multiplied past the actual RVUs each department provided. All of these costs are summed to come with direct patient care costs. Indirect costs are assigned to patients using standard stepdown method of cost bookkeeping used for Medicare toll reporting to the Center for Medicare and Medicaid Services (CMS). Indirect costs include, near significantly, overhead of operations and administration, interns and residents, building and equipment depreciation, housekeeping, dietary, and other space-related costs.

In FY04, neurosurgery was the most profitable specialty overall for the infirmary. To maintain some level of confidentiality for the University of Pennsylvania Health Organization that kindly provided the blazon of financial data rarely provided to physician practices, we devised a relative hospital margin (RHM) that is calculated by dividing truthful hospital margin by a constant to normalize all specialty infirmary margins such that the margin for neurosurgery was one million margin units (mu). We have chosen not to use the dollar sign because we are referring to a relative margin, and non dollars of margin and thus apply the term margin unit. The comparison between specialties and the magnitudes of each value remain valid, although nosotros are non referring directly to dollars of hospital margin. Relative hospital margin per RVU was calculated by dividing total annual relative margin by total almanac RVU for each specialty. Relative infirmary margin per case was calculated by dividing total annual relative margin by total number of cases performed by each clinical service in FY04. Relative hospital margin per OR HR was calculated by dividing total annual relative margin by the sum of all cases performed by each specialty in FY04. JMP software (JMP IN 4; SAS Found, Cary, NC) was used to perform linear regressions for RHM and annual divisional RVU, boilerplate RVU per example, and average RVU per OR HR.

For all calculations, average institutional quantities reflect mean values with all private specialties weighted as. For all figures containing quadrants, boundary lines correspond hateful values for both axes.

RESULTS

Fifteen surgical services at our institution performed 21,050 cases in FY04. The boilerplate number of cases per service was 1403 (standard deviation [SD] = 772) with a range from 509 (oral maxillofacial surgery) to 3161 (urology). As shown in Tabular array 1, the total almanac RVUs for all operative cases was 461,671 with a mean 30,778 per clinical service (SD = sixteen,263). Cumulative annual RVUs per service ranged from 9849 (oral maxillofacial surgery) to 67,220 (neurosurgery). The mean number of RVUs per instance for the institution was 24.49 (SD = 12.88) with a range of 9.04 (urology) to 57.12 (transplant).

TABLE 1. Relative Value Units (RVUs) Were Determined From Scheduled Current Procedural Terminology Codes for Every Operative Example During Financial Year 2004

The full cumulative operating room time (time in room to time out of room) used in FY04 was 64,905 hours. The OR time used by each clinical service ranged from 1489 hours (oral maxillofacial surgery) to 7451 hours (cardiac surgery) with a mean of 4327 hours (SD = 2054). Average case length (total cumulative operating room time divided by total number of cases) ranged from 1.71 hours (urology) to 6.15 hours (cardiac surgery) with a mean of 3.32 hours (SD = 1.fourteen). The mean number of RVUs per OR HR for the institution was 7.10 (SD = 1.56) and ranged from v.23 (otorhinolaryngology) to 10.97 (transplant).

Relative infirmary margin (RHM) expressed as margin units (mu) in FY04 ranged from a loss of thirteen,772 mu (plastic surgery) to a gain of 1,000,000 mu (neurosurgery) with overall institutional RHM of 5,718,569 mu. The mean RHM per service was 381,238 mu (SD = 325,270). As shown in Table 2, the mean RHM per RVU for the entire institution was 12.64 mu (SD = 9.76), with services ranging from a loss of 0.57 mu per RVU (plastic surgery) to a proceeds of 34.55 mu per RVU (thoracic surgery). The mean RHM per OR Hour was 94.54 mu/h (SD = 81.56) with a range of (3.83) mu/h (plastic surgery) to a gain of 275.74 mu/h (transplant surgery) (parentheses around a number indicates a loss). On a per-case basis, the mean institutional RHM per case was 361.82 mu (SD = 388.42) ranging from (10.50 mu) per case (plastic surgery) to a proceeds of 1435.18 mu per instance (transplant surgery).

TABLE 2. Relative Value Units (RVU) Were Determined From Scheduled Current Procedural Terminology Codes for Every Operative Example During Fiscal Twelvemonth 2004

Hospital margin includes revenue only from cash really received and finalized fiscal data lags behind operative information past at least several months, and mayhap upwardly to 6 months. Thus, when we initially looked at the operative data for FY04, the FY03 hospital finance data were used rather than the FY04 data now available. It was proposed at that time that in that location should be strong correlation betwixt relative infirmary margin per service on a yr-to-year ongoing basis. This is demonstrated in Figure ane, which shows an R² of 0.88 and P < 0.001.

Effigy 1. Relative infirmary margin (RHM) in margin units (mu) for FY03 and FY04 were calculated by the hospital finance department and reflect all actual collected revenue less all direct and indirect costs, normalized past the same constant for both years. The relative hospital margins for these 2 years were closely correlated with R² = 0.88 (P < 0.001).

As shown in Figure ii, relative hospital margin and annual RVUs per specialty are correlated with R² = 0.44, P < 0.007, demonstrating that although at that place is a positive correlation betwixt full hospital margin and annual departmental RVUs, this correlation explains less than half of the total variability. Some specialties such as neurosurgery are articulate winners for both the hospital and generate pregnant RVU production. Other services such as oral and maxillofacial surgery add piffling to the hospital margin and effect in relatively few annual RVUs. However, there were some services that add substantial infirmary margin but generated fewer RVUs (thoracic surgery) and others that produced in a higher place-average RVUs simply contribute niggling to overall infirmary margin (gynecologic surgery).

FIGURE 2. In that location is a pregnant positive correlation between relative hospital margin (RHM) (mu) and annual cumulative RVU for each surgical service, with R^two = 0.44 and P < 0.007. Quadrant boundaries reverberate hateful RHM and annual RVU for the clinical services, with hateful RHM 381.238 mu and mean annual RVU 30,778. GIS, gastrointestinal surgery; TXP, liver, kidney, and pancreas transplant surgery; CRS, colorectal surgery; EOS, endocrine and oncologic surgery; ORL, otorhinolaryngology; TraumSCC, trauma and surgical critical care; GYN, gynecologic surgery; Ortho, orthopedic surgery department; OMFS, oral maxillofacial surgery section.

Part of the variation in Figure 2 can be explained by the fact that some services provide greater hospital margin per RVU than others. As shown in Figure 3, relative hospital margin per RVU varies greatly. For the institution, the hateful RHM per RVU was 12.64 mu (SD = 9.76) with a range of (0.57) mu/RVU (plastic surgery) to 34.55 mu/RVU (thoracic surgery).

FIGURE 3. Relative hospital margin (RHM0 per RVU varies greatly past service. Mean RHM per RVU was 12.64 mu (standard departure = 9.76 mu) with range from a loss of 0.57 mu per RVU (plastic surgery) to a gain of 34.55 mu per RVU (thoracic surgery). GIS, gastrointestinal surgery; TXP, liver, kidney, and pancreas transplant; CRS, colorectal surgery partition; EOS, endocrine and oncologic surgery; ORL, otorhinolaryngology; TraumSC, trauma and surgical disquisitional care; GYN, gynecologic surgery; Ortho, orthopedic surgery; OMFS, oral maxillofacial surgery.

Some of the variation tin as well exist explained by the fact that not all cases generate the aforementioned number of RVUs per unit time, this being a role of both case complexity and the subjectivity in how the cases are valued by the relative value system. The mean number of RVUs per case by clinical service was 24.49 (SD = 12.88) with a range of 9.04 (urology) to 57.12 (transplant surgery). On a per-case basis, relative infirmary margin per case ranged from a loss of 10.fifty mu/case (plastic surgery) to a gain of 1435.18 mu/case (transplant surgery) with a mean of 361.82 mu/case (SD = 388.42). Every bit shown in Figure 4, relative infirmary margin per instance was highly correlated with RVU per case, with R² = 0.76 (P < 0.0001).

FIGURE 4. Relative infirmary margin per case is strongly correlated with relative value units per case with R^two = 0.76 and P < 0.0001. The hateful RVU per case by clinical service was 24.49 (standard deviation = 12.88) with a range from nine.04 (urology) to 57.12 (transplant surgery). The mean relative hospital margin per case was 361.82 mu (standard deviation = 388.42 mu) with a range from a loss of 10.l mu/case (plastic surgery) to a gain of 1435.eighteen mu/example (transplant surgery). GIS, gastrointestinal surgery; TXP, liver, kidney, and pancreas transplant; CRS, colorectal surgery sectionalization; EOS, endocrine and oncologic surgery; ORL, otorhinolaryngology; TraumSC, trauma and surgical critical care; GYN, gynecologic surgery; Ortho, orthopedic surgery; OMFS, oral maxillofacial surgery.

In addition, not all cases that produce a similar margin for the hospital or generate the same number of RVUs require the same amount of time in the operating room (Fig. five). The mean RVU/OR 60 minutes for all services was 7.x (SD = 1.56), with a range of 5.23 RVUs per OR Hr (otorhinolaryngology) to ten.97 RVUs per OR HR (transplant surgery). Hateful relative hospital margin per OR HR was 94.54 mu/OR 60 minutes (SD = 81.56) with a range of (3.83) mu/OR Hour (plastic surgery) to 275.74 mu/OR 60 minutes (transplant surgery). Some services exercise equally well on an hourly basis for both hospital margin and RVUs (transplant surgery), whereas some contribute fiddling to either (otorhinolaryngology, urology). Of note, those services far from the regression line in the upper left and lower right quadrants contribute relatively more to the hospital margin (thoracic surgery) or generate more OR RVUs (gynecology) on a per-hr basis.

FIGURE 5. Relative hospital margin per OR Hr is correlated with RVU per OR Hr, but less and then on a per-case basis, with R² = 0.39 and P = 0.013. Mean RVU/OR Hr was vii.10 (standard deviation = 1.56) with a range from 5.23/hour (otorhinolaryngology) to x.97/hour (transplant surgery). Mean RHM/OR HR was 94.54 mu/hr (standard deviation = 81.56) with a range from a loss of 3.83 mu/hr (plastic surgery) to a gain of 275.74 mu/hr (transplant surgery). GIS, gastrointestinal surgery; TXP, liver, kidney, and pancreas transplant; CRS, colorectal surgery sectionalization; EOS, endocrine and oncologic surgery; ORL, otorhinolaryngology; TraumSC, trauma and surgical critical intendance; GYN, gynecologic surgery; Ortho, orthopedic surgery; OMFS, oral maxillofacial surgery.

DISCUSSION

We embarked on this study because it became clear to the states that OR activity drives the margin of any hospital, and we felt that surgeons needed to exist made aware of this, although we assumed that many surgeons already take some idea that this is the example. However, when one looks at the literature, in that location are few if whatever studies dealing with surgical contribution to hospital margin, and it soon becomes clear why this is the case. Most hospital administrators either are unwilling or unable, because of inadequate cost-accounting systems, to provide price data, not to mention margin data. Accuse information usually is easier to come by but has significantly less meaning. Nosotros are fortunate in having a hospital administration that not only is willing to provide margin data by specialty, merely besides by individual surgeon and physician. Many hospitals resist providing such information because of the possibility that too much data is a bad thing; the thought of having surgeons use these information every bit leverage in any type of negotiation scares many administrators away from providing this information. Recognizing that in the current healthcare environment the private practitioner of surgery is an endangered species and sensing that probable we volition encounter more full-time employment models between hospitals and surgeons, we thought it timely and of import for surgeons to realize the role they play in generating the hospital bottom line. Although sure specialists may call up that the lucrative nature of their practice must mean that the hospital is "making a fortune" off of them, the data often show otherwise. The busiest surgeon in the hospital may not be anywhere near the biggest generator of margin for the infirmary and thus may non realize that his leverage in a negotiation, whatever the effect, may not be as great equally presumed.

What differentiates the current study from others^2,4 is our apply of actual payments nerveless, not presumed collections or costs that obviate the demand to look at payer mix or individual contracts and summate likely collections. Nosotros have chosen to use what nosotros term relative infirmary margin as measured in margin units (mu) derived from neurosurgery, the specialty responsible for the largest margin for the hospital in FY04, generated by dividing by a constant that pegs the margin at one 1000000 margin units. Margin for all specialties are reported in margin units, and this allows for comparing among specialties without violating the confidentiality of hospital margin data and inviting third party payers to try to reduce payment for specialties that might be idea to be "too lucrative." Others have commented on the potential negative impact if payers recognize the high margin generated by certain procedures and use this data against a hospital in subsequent negotiations.^iv Thus, at that place is some sensitivity to reporting margin data. It must be kept in mind, however, that hospital margin is dependent on a number of variables intrinsic to each hospital and includes direct costs and efforts at controlling costs, allotment of indirect costs, controlling length of stays, efficiency and effectiveness of the acquirement cycle, operating room throughput, and a number of other factors in addition to revenue generated.

It has become increasingly articulate to us and others that a meaning dichotomy exists betwixt what payers, including the federal government, pay in professional fees and what they pay to the hospital.² In our ain environment, the difference is quite pregnant with the hospital reimbursement being significantly greater on a relative basis than professional person fees, making every clinical section somewhat dependent on funds transferred from the health system to the practice for the exercise to remain feasible. This is possible because of the system of our wellness arrangement, in which the practice is a concern unit of measurement of the health organization but is within the system itself and does not exist as either a unique for profit or not-for-profit corporation. The practice entity has a joint reporting human relationship both to the chief executive officer of the health system and to the dean of the schoolhouse of medicine, only it sits separate from both entities. Thus, dollars menstruation to the practice for purchased services, program support, back up for teaching, and support for a percent of nonfunded time spent on inquiry. These dollars increasingly are tied to productivity and vary significantly amidst departments. The section of surgery and the related surgical disciplines in any academic medical center, besides as in community hospitals, are responsible for the bulk of any margin generated by the hospital. Depending on the overall financial performance of the hospital, which takes into business relationship problems such as payer mix, location, costs associated with care of the uninsured, and general overhead, this margin may exist severely eroded and may corporeality to little if whatever surplus at fiscal twelvemonth's end.

The relationship between hospital margin and professional fees generated for RVUs performed is not straightforward. Considering each clinical specialty requires a different amount of OR time, generates different numbers of RVUs per instance, and performs different numbers of cases each yr, information technology is the interaction of all of these relationships that determines how strongly a clinical service contributes to the overall hospital margin. As shown in Effigy 6, the total number of cases performed in and of itself does not correlate with the overall relative hospital margin (P < 0.05), and the annual OR hours used past each service also has no significant relationship to relative hospital margin (P < 0.05) (Fig. 7). It becomes credible that there are some services that use a lot of OR time and contribute substantially to hospital margin (neurosurgery, cardiac surgery, and gastrointestinal surgery) and a scattering of services that neither take up a lot of OR time nor contribute much to overall hospital margin (oral maxillofacial surgery, trauma/surgical critical care, colorectal surgery, orthopedic surgery). However, there are services that utilize relatively piffling OR time but contribute greatly to overall hospital margin (thoracic surgery, transplant surgery) and others that occupy the OR a substantial corporeality of time but contribute little to hospital margin (otorhinolaryngology, urology, gynecologic surgery, urology, endocrine and oncologic surgery).

FIGURE 6. Relative hospital margin has no correlation with total number of cases performed per year by each service (P < 0.05). Neurosurg, neurosurgery section; TXP, liver, kidney, and pancreas transplant; CRS, colorectal surgery division; EOS, endocrine and oncologic surgery; ORL, otorhinolaryngology; TraumSC, trauma and surgical critical care; GYN, gynecologic surgery; Ortho, orthopedic surgery; OMFS, oral maxillofacial surgery.

FIGURE 7. Relative hospital margin has no significant correlation with total annual OR hours used by each service (P < 0.05). Neurosurg, neurosurgery department; Cardiac, cardiac surgery division; GIS, gastrointestinal surgery division; TXP, liver, kidney, and pancreas transplant; CRS, colorectal surgery division; Thoracic, thoracic surgery division; Vascular, vascular surgery partition; EOS, endocrine trauma and surgical critical care sectionalisation; ORL, otorhinolaryngology; TraumSC, trauma and surgical disquisitional intendance; GYN, gynecologic surgery; Urology, urology segmentation; Plastics, plastic surgery division; Ortho, orthopedic surgery; OMFS, oral maxillofacial surgery department.

The question arises as to how generalizable these data are to other institutions and there are no like shooting fish in a barrel answers. It is probably prophylactic to say that surgeons, and OR activity, are the biggest contributors to hospital bottom line in any hospital setting, but numerous variables come into play at each institution. Manifestly, the payer mix and efficient resources utilization are key to generating margin, but how contracts are negotiated besides plays a major role. In many markets, surgeons are losing on the professional fee side, whereas hospitals are benefiting enormously from the RVUs generated in the OR.

Limitations of the written report include the fact that outpatient procedures performed in the clinic, that do not employ the operating room example log database, are non included in the operative data. Nonetheless, at that place are very few cases that autumn into this category. Another limitation is that only 1 chief procedure per case is logged into the OR case log. Therefore, cases that involve multiple CPT codes do not get credit for the RVUs corresponding to the secondary codes. However, the RVUs respective to the OR instance log CPTs were highly correlated to the RVUs corresponding to the CPT codes for all procedures ultimately billed by the departments. Furthermore, this tin as well be seen as an advantage of the study, considering differences in the ability of specialties to optimize coding strategies are excluded in the analysis. As well, the main billing process carries most weight with many payers, and then the exclusion of secondary procedures seems to be valid when looking at ultimate reimbursement.

CONCLUSIONS

These data very conspicuously signal out that at that place are advantages for hospitals to provide support for selected specialties and, in certain instances, fifty-fifty await toward a full-fourth dimension employment model. This has been done in many hospitals with, among other specialties, cardiac surgery, in which the surgeons are hired past the hospital and get full-time employees, thus insuring the cardiac surgery volume and its contribution to the margin, and allowing the surgeons to benefit from some of the margin that they generate. Information technology is certainly true that in full general, whether in an employment model, a joint venture, or by working more than closely in a traditional model, increased sharing of financial data between hospitals and physicians volition allow both to more than rationally develop overall strategies for the kind of care provided and thus optimize the overall value chain more effectively. Surgeons should recognize the pregnant and, depending on the specialty, sometimes minimal leverage they bring to the table when negotiating novel practice arrangements. Certain specialties generate substantial RVUs in the OR that contribute greatly to the hospital bottom line, whereas others may utilize significant OR time and contribute little in the way of margin. It remains the mission of the academic medical center to provide the full range of services, and we continue to back up this mission, regardless of margin. Some services that are necessary for the function of the hospital'south other service lines such equally transplant medicine or medical intensive care may have negative margins when viewed in isolation. It is important to view these kinds of services equally necessary costs to create positive margin elsewhere in the hospital. The utilize of readily available data may assistance to maximize some services while continuing to provide other services that may not contribute every bit much to the margin. Surgeons and hospitals akin will practise well to await closely at toll and reimbursement data and budget accordingly in a cooperative fashion so as to maximize margins.

Discussions

Dr. Hiram C. Polk, Jr. (Louisville, Kentucky): Let me ask you just to clarify. Did you not include in your evaluation something I referred to yesterday, the enormous value of lab and 10-rays ordered by your doctors? Is that correct?

Dr. Larry R. Kaiser (Philadelphia, Pennsylvania): That is correct. No downstream revenues were included. This was strictly from the OR. Those are by and large used, yes.

Dr. Hiram C. Polk, Jr. (Louisville, Kentucky): They are a very large component of what nosotros do. The second matter I desire to say only from our experience beyond our state is that you tin can quickly turn a profitable operation into an unprofitable 1 by some simple surgeon choices in the OR. You take a standard general surgery procedure and put a harmonic scalpel in the set and y'all have abolished the profitability of the instance. So this is an extraordinarily complicated field and Dr. Kaiser has done us a great service by getting us into this arena. Nosotros need to be here and nosotros need to understand surgeon choices as being very important in the costs of many of these things.

Dr. Lazar J. Greenfield (Ann Arbor, Michigan): I would similar to congratulate Dr. Kaiser on his presentation and the splendid manuscript. The codependent human relationship between surgeon and hospital has always been assumed to exist assisting to both, but quantitation of the hospital component has been shrouded in many creative ways. Breaking through the barriers to examine the actual figures requires time and persistence, and since in that location are no consistent standards for hospital accounting, each institution is unique. My colleague Paul Taheri had sufficient interest in this area to acquire an MBI, and his thoughts on this are included with mine.

Since the authors are comparing margins amongst the surgical specialties, the start question is whether all procedural billing was captured by reviewing the OR database. Did this include all outpatient and clinic procedures done by specialties such as plastic surgery, urology, and oral surgery? Similarly, since billing and coding have become an art form with frequent changes, are metrics in place for each specialty to clinch that all cases are optimally coded?

On the hospital side, the first claiming is to make up one's mind how revenue is really allocated among such diverse services as radiology, pathology, and the ER when the single DRG payment is received. Hospitals may or may non classify the revenue as a percent of expense submitted.

Some other of import issue is how y'all ascertain a service. For case, Transplant has a medical side that usually loses money, but is obviously essential. Therefore that service line requires a subsidy that has a major impact on profitability. From the hospital perspective, the apparent OR margin of a specialty service may well be consumed past supplements provided to other related specialties. But hospitals also benefit from end-of-year adjusted benefits from the Blues and other payers, and were these adjustments included?

The issue of costs is e'er a problem. You mention you included "direct clinical provider" costs for each service. Just how did you determine the provider costs for each procedure? And given the profitability of residents under the hospital'due south imputed costs, how were they factored in?

The bottom line is that surgery has ever been the engine that drives the hospital, and if your assumption that hospitals volition select services and surgeons to support based on margin is correct, then academic health centers will accept abdicated their fundamental responsibleness to pedagogy and research. That temptation is the reason that hospital administrators report to a college say-so. The practical limitation in clinical practice is the hospital's capacity and its success usually depends on its ability to limit the number of unprofitable admissions. Simply I dubiousness that a University hospital will push to eliminate or reduce ane surgical service in favor of another.

Y'all accept done an admirable job of analyzing real dollar income in your establishment, but I don't think the answer to failing reimbursement is to become a closer employee of the infirmary. Instead, I believe that joint venturing with the hospital into new clinical areas, getting paid for management services provided, and working with the institution to reduce costs will ultimately be more worthwhile, particularly since gainsharing of money saved has now been approved by MEDPAC.

Thanks very much, and congratulations once again on this important subject.

Dr. Larry R. Kaiser (Philadelphia, Pennsylvania): Thank you for your comments, Dr. Greenfield. And every bit you point out, yous and Dr. Taheri certainly contributed to this surface area in the literature.

Your outset question dealt with CPT codes and billing. And at that place is no question that the billing information is a little bit more difficult to get to than the CPT codes. We did await at billing information. There was a potent correlation between the billing information and the CPT codes, adequately consequent between services. It was much easier to use the CPT codes equally the surrogate here and we think that that is fairly authentic.

In terms of terminate-of-twelvemonth adjustments, those have been included in the overall information.

You also mentioned outpatient and clinic procedures. Nosotros don't accept a complimentary-standing outpatient surgical center, those cases are done in our so-called outpatient or day surgery ORs, then all of that is included. Procedures that are washed in the clinic are not included; they would not exist role of the operating room logs.

In terms of how provider costs are allocated, this is done consistently beyond the services. Information technology is based on our toll-accounting system. And there are costs allocated for people in the operating room, et cetera, but it is consistent across the services.

You mentioned some of the medical components of some of these services. Conspicuously that is non what we are talking about today. This was strictly looking at margin information based on OR productivity.

Dr. Richard J. Shemin (Boston, Massachusetts): This is a very interesting study and a unique data fix. Two specific questions:

In regards to variability of contractual adjustments among the various services, did cardiac surgery have more contractual adjustments compared to whatever other service?

The second question relates to using these data in a different way. Very ofttimes we look at the clinical volume of cardiac surgery in a infirmary every bit a threshold for quality. Can we also wait at these data to search for a threshold of profitability? Very often nosotros see new customs hospitals starting cardiac surgery programs, and these programs are highly subsidized by the hospital just to have the cardiac surgical service present.

Dr. Larry R. Kaiser (Philadelphia, Pennsylvania): I think there are a couple things. And as I mentioned, at that place are all sorts of assumptions and all sorts of variables congenital into whatever of these information.

Just the Philadelphia market place is somewhat unusual in that 80% of the people who we treat have ane of 2 providers providing their health insurance. There is only Aetna and the independence Blue Cross entity. And then lxxx% are covered by 1 of these 2 entities. So our contracts are fairly stringently negotiated.

We exercise have, for instance at the Hospital of the University of Pennsylvania, some more favorable rates than some of the other institutions in town, only there are negotiations that go on every few years. Then in that location is no particular variability of contractual adjustments between services, with few exceptions. But we negotiate as an unabridged practice, the clinical practices at the University of Pennsylvania.

Dr. Carlos A. Pellegrini (Seattle, Washington): I am happy to see that y'all did not include downstream revenue calculated into this. And I would encourage if yous are going to await into this to keep it but to the services. Because if we do that, and then nosotros open the door for those who claim that we, surgeons, are downstream – and and so the support for medical specialties comes in.

My question is: Exercise yous have an idea how in your hospital the margin that you merely showed generated by surgical specialties compares to that of medical specialties, in particular oncology and others that are coming upwards every bit important factors in infirmary margins?

Dr. Larry R. Kaiser (Philadelphia, Pennsylvania): Over 75% of the hospital margin is generated by the surgical services at our place, and then that leaves 25% for everybody else. How that is distributed, I couldn't tell you exactly. Simply over 75% of the margin is generated by the surgical services.

Dr. Gregorio A. Sicard (St. Louis, Missouri): Vascular surgical procedures are being performed by different specialties or subspecialties inside or across departments. Accept you looked at the economics of similar procedures performed by cardiologists, vascular surgeons and radiologists? If y'all take washed so, how does that empower you in negotiations with hospital administrators if the results of a procedure done by surgeons provide a bigger margin to the hospital?

Dr. Larry R. Kaiser (Philadelphia, Pennsylvania): That is a very good question. And it would apply to Bruce Gewertz also, who is standing over there. I actually just had occasion the other twenty-four hour period to look at some of those data. And as Dr. Sicard points out, interventional radiologists, cardiologists, and vascular surgeons are doing endovascular procedures. And it is very interesting to look at the margin among those diverse services as well as the costs.

I would tell you looking at aneurysms, peripheral vascular work and carotid work that it turns out, for example, with peripheral vascular piece of work, if yous expect at what vascular surgery generates in terms of the margin versus what the interventional radiologists generate, they lose money at our identify where the vascular surgeons are making money on each case. So there is just ane case. In every example nosotros looked at their costs were lower and the margin on the practise was significantly greater when vascular surgeons were doing these procedures than when either interventional radiologists or cardiologists were doing the procedure.

Dr. Bruce L. Gewertz (Chicago, Illinois): I desire to cheers for bringing me back to reality. I hadn't thought well-nigh this for about 12 hours.

At the University of Chicago, we have looked at this data quite carefully every bit well. We see a slightly different design which is more of a skewing of profitability. That is, nosotros have many more of our services that are close to a break-even sort of situation and few services that generate very high margins. In dissimilarity, iv years ago we saw all of surgical services make a 1 to 4 million dollar financial contribution very similar to the distribution seen at Penn. We found that one of the factors that fundamentally drives this is the use of prosthetic devices. Any surgical service that uses a prosthetic device is going to be challenged financially relative to a hospital margin, in contradistinction to general surgery and most cancer surgery that tends to be extirpative and highly compensated.

The second issue I would ask you to annotate on is the wide variability professional person fee income which is strongly payor specific every bit yous briefly alluded to in the introduction. We, similar you, have a number of dr. services in which the AAMC-mandated compensation level and expenses are greater than their professional fee reimbursement. This consequence is very adverse for the section.

To follow upward on Dr. Greenfield's point, this data shows how critical economic credentialing is going to be to the development of academic surgery departments. This will be evident in terms of programmatic development where we are need investors to assistance seed our program development. Information technology will also have very potent implications on how to incentivize activeness that is not RVU accountable, whether it is educational or enquiry activeness. I think this is really a challenge for all of us.

Dr. Larry R. Kaiser (Philadelphia, Pennsylvania): Dr. Gerwertz, give thanks yous for your comments. You raised a number of interesting points, particularly equally you just ended.

Let me just say that the use of devices, of grade, does effigy into any margin data, and those services that don't tend to utilise devices will have significantly less in the way of toll. On the other hand, some of those device costs can exist reduced by having some consistency in the operating room. And we have tremendous inventory management in our operating room, and consistency. For case, in orthopedics, if every orthopedic surgeon is using a different human knee implant – non even getting into some of the inspector general questions that have been raised with some of the manufacturers as to which knee implant or whatever they chose to use – if in that location is some consistency, i tin can drive down the costs of some of those by negotiating better contracts if y'all utilise lots of those devices. And that goes for cardiac valves every bit well.

In terms of professional fees, I didn't deal with the professional person fee issues here. Professional fees, of course, differ amid markets around the land. The Philadelphia market has amidst the lowest professional fee reimbursement in the land merely much more favorable rates of reimbursement to the hospital. And so this upshot that you raise about funds flow between the hospital and the practice for our institution works very well because we are all ane. The practice programme does not sit split from the institution itself, so there can be funds period between the entities. And that is a particularly important consideration. But we did not deal with professional person fee revenue hither.

As you mention, dealing with activities that don't generate RVUs is likewise particularly important. It gets into the event of funds flow between the entity. How do you back up pedagogy? How practice you back up medical student educational activity? How practise yous support unfunded research, for that matter? Not all enquiry can be funded for every percentage of everyone's time.

Dr. Eric Munoz (Newark, New Jersey): This is just ane of many, many economic aspects. I was happy to hear that one of your residents is going to the great Wharton School, because when I got an MBA years back people thought I was nuts, but twenty years afterward it is much more than relevant.

May I remind the Association that $1.7 trillion this year is being spent on health costs. The great belatedly Francis D. Moore published an article and showed about one-tertiary of all that money is related to surgery. So we every bit surgeons and leaders in this field accept to say to ourselves we can't turn our back on that. There are many aspects of this – doing enquiry on hospital costs.

Dr. Larry R. Kaiser (Philadelphia, Pennsylvania): Dr. Munoz, give thanks you. And I would just mention that not just has Dr. Resnick gone to the Wharton School only he is at the top of his class at the Wharton School, and he graduates next month.

Footnotes

Reprints: Larry R. Kaiser, Medico, John Rhea Barton Professor and Chairman of Surgery, 3400 Spruce Street, 4 Silverstein Pavilion, Philadelphia, PA 19104. Electronic mail: ude.nnepu.shpu@resiak.yrral.

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Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1402352/

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