The Utilization of Hospitalists Associated With Compensation: Insourcing Instead of Outsourcing Health Care

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The Utilization of Hospitalists

Associated with Compensation:


Insourcing Instead of Outsourcing
Health Care
Doohee Lee and Andrew Sikula, Sr.

Objectives: The utilization of hospitalist is reversing an industrial and health care business model where
outsourcing work has been the trend for the past several decades. This empirical analysis seeks to under-
stand a link between hospitalist utilization and physician compensation affected by quality of care.
Methods: We analyzed the secondary data from the 2004–2005 CTS Physician Survey (n = 6,628).
A multivariate regression analysis was performed to estimate a link between compensation and the
hospitalist model.
Results: Of respondents, 66 percent reported the use of hospitalists one year prior to the survey. After
controlling for other covariates, hospitalist users were those physicians concerned with patient satisfac-
tion and quality of care associated with compensation, but were less concerned about compensation
affecting personal financial performance. Consistent with prior research, we found that hospitalist users
were affiliated with managed care and capitation.
Discussion: Future research is needed to understand factors improving physician compensation af-
fected by productivity and financial performance of practice.
Keywords: insourcing health care, hospitalist, hospital medicine, compensation, quality care, man-
aged care, capitation.

W
e are now seeing a new trend and Goldman,1 is a physician who specializes
within health care where out- in seeing and treating other physicians’
sourcing is beginning to be re- hospitalized patients in order to minimize
placed by insourcing. For decades, medical the number of hospital visits by the patients’
communities have attempted to lower costs regular physicians. Such insourcing appears
by reducing the length of hospital stays. Out- efficient and effective as evidenced by the
patient clinics first, emergency care facilities literature.2 Managed care is a system of pro-
later, and then day surgery centers recently viding health care (usually by an HMO or a
have been part of this outsourcing of health PPO) that is designed to control costs through
care movement. Hospices now routinely managed programs in which the physician
handle health care outsourcing for near- accepts constraints on the amount charged
death patients. However, there are signs that
outsourcing health care services has run its Doohee Lee, PhD, is an Associate Professor in the
course and trends may be reversing. Many Graduate School of Management, the Elizabeth
health care organizations now find it desir- McDowell Lewis College of Business, Marshall Uni-
able and economical to have a physician as versity, Charleston, West Virginia.
part of staff to reduce work time away from Andrew Sikula, Sr., PhD, is Associate Dean of the
the office or place of employment. Elizabeth McDowell Lewis College of Business at
The development of hospitalists, managed Marshall University. He is also Director of the Marshall
University Graduate School of Management.
care, and capitation have made insourcing
health care more plausible and perhaps even J Health Care Finance 2010;36(4):17–27
mandatory. A hospitalist, coined by Wachter © 2010 Aspen Publishers

17
18 JOURNAL OF HEALTH CARE FINANCE/Summer 2010

for medical care and the patient is limited in to provide inpatient care. This same report
the choice of a physician. Reducing choice indicates over half of US hospitals now have
and variation are health care insourcing cost hospital medicine programs. The hospital-
reduction tactics and strategy. Capitation also ist model has been widely touted to reduce
encourages health care insourcing since it is health care costs and to improve quality of
a fixed per capita payment made periodically care.4 Specifically, these benefits include
to a medical service provider (such as a phy- resource saving, reduced length of stay
sician) by a managed care group (such as an (LOS), patient satisfaction, and medical
HMO) in return for medical care provided to training and education.5 A recent study by
enrolled individuals. Pham et al.6 revealed two primary motiva-
There are other indicators and measures tors for hospitalist growth:
of increased health care insourcing and less
physical treatment outsourcing going on in 1. Reduction of LOS and per admission
the economy and within society. Increasingly, costs; and
terminally ill patients are being cared for at 2. Reimbursement pressures on primary
home by family members and friends for care physicians (PCPs) so that they
their last surviving months and weeks. Hos- can avoid traveling time and focus on
pice personnel may visit home care providers outpatient services.
and recipients, but patients staying full-time
at hospices today is normally now a practice Notwithstanding the benefits and interests
reserved for just the last few days of life. of hospitalists, little attention has focused
What affects there will be on hospitalist on whether physician compensation is
utilization and the health care insourcing associated with the utilization of hospital-
movement because of the impending US ists. Understanding the association between
federal health care system are indetermi- physician compensation and the hospitalist
nable at this time. A prediction is that the model is an important research question for
more a government option and one payer at least one reason: The hospitalist model is
system results, the greater the expansions of relatively new and hospitals and practicing
hospitalists usage and health care insourc- hospitalists must find ways to be competitive
ing mandates. What is certain is that there in the market in order to continue expanding
will be a dollar trail. “Follow the money” hospital medicine and further market their
is always a predictor of past, present, and unique quality services of inpatient care. A
future behavior. Health care must make both recent survey of physicians7 shows the larg-
physical sense and fiscal cents. As indicated est increases in compensation (7.32 percent)
later in this article, physician compensation among hospitalists in the year 2007, sug-
is related to hospitalist utilization and the gesting that demand for hospitalists exceeds
implementation of both insourcing and out- supply in the current marketplace. The
sourcing medical diagnoses, disease treat- compensation increase does not seem to be
ment, and health care delivery alternatives. related to service quantity or productivity
According to a recent survey,3 there are of hospitalists. Several recent studies report
about 23,000 hospitalists currently practicing financial difficulties among hospitals utiliz-
in US hospital settings as active physicians ing hospitalists.8 A study by Hoff et al.9 also
The Utilization of Hospitalists: Insourcing Instead of Outsourcing Health Care 19

revealed most hospitalists (75 percent) in sponsored by the Robert Wood Johnson
their study having received no compensation Foundation (RWJF) has been conducting a
linked to financial incentives. It is unclear physician survey since 1996. The first CTS
whether the increase in compensation is physician survey was conducted in 1996,
related to the hospitalist model. followed by a second round in 1998–1999,
There are other factors that may affect the and a third effort in 2000–2001.
utilization of hospitalists. Quality of care A total of 6,628 physicians in the United
may be associated with the use of hospital- States participated in this telephone survey,
ists.10 Also, under the current managed care using computer-assisted telephone interview-
market system, capitation or the prospective ing technology. The study reports a response
payment system is a primary reimbursement rate of 52.4 percent, and all participating
method for medical providers and has been physicians received $25 for their time. A list
popular for the past two decades. Managed of physicians was provided by the American
care may be linked to the hospitalist model Medical Association (AMA) and the Ameri-
as Coffman and Rundall11 concluded indicat- can Osteopathic Association (AOA), and the
ing that hospitalists under managed care per- survey was conducted between June 2004
form better and generate positive outcomes. and July 2005.
Understanding the development of how The study participants included American
physician compensation is associated with physicians providing direct patient care for
the use of hospitalists has largely gone unex- at least 20 hours a week. Certain physicians
plained under the current managed health care excluded from the survey include federal
delivery system. Therefore, the present empir- employees, specialists who do not provide
ical research seeks to explore, using a nation- direct patient care, foreign medical graduates
ally representative data of 6,628 practicing with temporary licenses, residents, interns,
physicians, determinants of the use of hospi- fellows, and physicians whose names could
talists in relation to physician compensation. not be disclosed to outsiders. The strati-
The goal of this analysis is twofold: fied random sampling technique was used
to study survey participants. More detailed
1. To estimate the prevalence rate of hos- information on the data collection and meth-
pitalist utilization among physicians at odology are described elsewhere.13
the national level; and
2. To understand a link between hospi- Measurement
talist utilization and physician com-
pensation. Dependent Variable
Hospitalist utilization has been increasing
Methods in the past decade and understanding what is
determining the use of hospitalists remains
Data important. This study uses the extent to
We analyzed secondary data from a 2004– which hospitalists were utilized in practice
2005 Community Tracking Study (CTS) as the dependent variable. The survey specif-
Physician Survey in the United States.12 The ically asks participants, “What percentage of
Center for Studying Health System Change your patients who were hospitalized last year
20 JOURNAL OF HEALTH CARE FINANCE/Summer 2010

had a hospitalist involved in their inpatient 3 = $100,000–$149,999;


care?” The response was in the range of zero 4 = $150,000–199,999;
to 100 percent. 5 = $200,000–249,999;
6 = $250,000–299,999; and
Covariate Variables 7 = > $300,000.
Untangling the association between com-
pensation and hospitalist utilization is an Control variables in the analysis in-
important research question unexplored in cluded:
previous studies. Respondents were asked • Age:
whether physician compensation is affected
1 = 1940 or earlier;
by:
2 = 1941–1945;
1. Own productivity; 3 = 1946–1950;
2. Satisfaction surveys completed by the 4 = 1951–1955;
physician’s own patients; 5 = 1956–1960;
3. Specific measures of quality care; 6 = 1961–1965;
4. Practice profiling; and 7 = 1966–1970; and
5. Overall financial performance of one’s 8 = 1971 or later;
practice. • Gender (male = 1, female = 2); and
• Race (other = 1, white = 2).
The response was categorical (no = 0,
yes = 1). Given most hospitalists come from inter-
The survey measured practice revenue by nal medicine, it is important to control spe-
asking each respondent about the percent of cialty to detect interdependent relationships
patient care practice revenue coming from: among variables:

1. Medicare; 1 = Internal medicine;


2. Medicaid; 2 = Family/general practice;
3. Capitation (prepaid basis); and 3 = Pediatrics;
4. All managed care. 4 = Medical specialties;
5 = Surgical specialties;
The response was in the range of zero to 6 = Psychiatry; and
100 percent. 7 = OB/GYN.
Annual income was assessed by the ques-
tion: “During 2003, what was your own net Specialties thereby were controlled in the
income from the practice of medicine to the analysis.
nearest $1,000, after expenses but before
Analysis
taxes?” The response was in the range
of 1–7: The statistical software package STATA
10.114 was used for all data analyses.
1 = $0–$49,999; Descriptive analyses were performed to gen-
2 = $50,000–$99,999; erate mean values and standard deviations
The Utilization of Hospitalists: Insourcing Instead of Outsourcing Health Care 21

for all variables included in the analysis. A were positively linked to hospitalist usage.
multivariate linear regression analysis was Finally, no other variables controlled in the
conducted to identify determining factors of study were found significant, except for
hospitalist utilization. Several possible con- medical specialty, which was negatively
founding factors (age, gender, race, and spe- associated with the use of hospitalists (β =
cialty) were included and controlled in the -3.83, p < .001), suggesting that internal
regression analysis. Using variance inflation medicine specialists are more likely to
factors (VIFs) statement command available approve the hospitalist model.
in STATA, we tested for multicollinearity.
No variable had a tolerance value lower than Discussion
0.1., suggesting that all variables analyzed
in the regression model are stable. All of the To our knowledge, this analysis is the first
data analyses were fully adjusted, using the empirical effort, using a nationally repre-
weight variables given in the data, in order to sentative survey data of 6,628 physicians, to
represent a national sample. identify determining factors of the utilization
of hospitalists in relation to compensation.
Results We found an association between compen-
sation and the use of hospitalists. Hospitalist
Most respondents were male (72.07 per- users were concerned about compensation
cent) and white (77.25 percent). About 34 affected by patient satisfaction and quality
percent of the sample reported that they of care. Surprisingly, no prior study has tried
did not utilize hospitalists one year prior to particularly to understand the effect of qual-
the survey (not shown in figures). Figure 1 ity care on hospitalist compensation. Our
presents descriptive statistics of the sample. study finding may be comparable to prior
Figure 2 highlights results of a multivariate research15 that organizations may benefit
linear regression analysis, indicating deter- from utilizing hospitalists to improve qual-
minants of the utilization of hospitalists in ity of care, which can be directly associated
relation to compensation. Compensation with how physicians get reimbursed.
affected by productivity and practice profil- Some studies validate the importance of
ing was not significantly linked to the use of quality care and satisfaction linked to the
hospitalists after controlling for other vari- utilization of hospitalists. In a recent study,
ables (patient care revenues, annual income, Lopez et al.16 found hospitals with hospi-
gender, race, and specialty). talists better performing on quality indica-
Compensation affected by patient satisfac- tors for acute myocardial infarction (AMI),
tion survey (β = 5.74, p < .001) and quality of pneumonia, disease treatments and diag-
care (β = 6.90, p <. 001) were positively asso- noses, counseling, and prevention. Compar-
ciated with hospitalist utilization, whereas ing process and outcomes in relation to the
compensation affected by financial perform- inpatient care of 182 pediatric patients, Wells
ance was negatively associated with the usage et al.17 found that patients were more satis-
of hospitalists (β = -2.92, p <. 020). Patient fied with care rendered by hospitalists. Halp-
care revenues from capitation (β = .118, ert and colleagues18 also reported the similar
p < .001) and managed care (β = .062, p < .006) finding of higher satisfaction among PCPs
22 JOURNAL OF HEALTH CARE FINANCE/Summer 2010

Figure 1. Descriptive Statistics of the Sample (n = 6,107)

Variables Number Mean Scores (SD) Minimum Maximum

Use of hospitalists 6,107 29.95 (37.71) 0 100


Compensation affected by productivity 5,046 .70 (.45) 0 1
Compensation affected by satisfaction 5,030 .24 (.43) 0 1
Compensation affected by quality care 5,034 .20 (.40) 0 1
Compensation affected by practice profiling 5,009 .13 (.34) 0 1
Compensation affected by financial 5,030 .68 (.46) 0 1
performance
Patient care revenue from Medicare 6,628 31.62 (22.55) 0 100
Patient care revenue from Medicaid 6,628 16.67 (18.26) 0 100
Patient care revenue from capitation 6,628 13.46 (23.78) 0 100
Annual income* 6,622 4.18 (1.79) 1 7
Patient care revenue from all managed care 6,628 40.56 (28.08) 0 100
Age** 6,628 4.45 (1.92) 1 8
Gender 6,628 1.25 (.43) 1 2
Race/ethnicity 6,535 1.78 (.41) 1 2
Specialty 6,628 3.75 (1.68) 1 7

* A 7-point scale: (1) < $49,999; (2) $50,000–99,999; (3) $100,000–149,999; (4) $150,000–199,999;
(5) $200,000–249,999; (6) $250,000–299,999; and (7) > $300,000.
** An 8-point scale: (1) 1940 or earlier; (2) 1941–1945; (3) 1946–1950; (4) 1951–1955; (5) 1956–1960;
(6) 1961–1965; (7) 1966–1970; and (8) 1971 or later.

and improved quality of care provided to while productivity remained the same.19
patients. Researchers of SHM suggested the shortage
In our study, hospitalist users were less of hospitalists as a possible explanation of
likely to be concerned about compensation rising hospitalist compensation. However, a
affected by overall financial performance review of the literature reflects discrepancy
of their practice, which is in line with eco- in understanding whether the hospitalist
nomic theory of supply and demand in the model is linked to a favorable personal finan-
current marketplace where labor demand for cial performance. Several studies report that
hospitalists exceeds supply. As an example, many hospitals utilizing hospitalists experi-
hospitalist salary has increased by 13 percent ence financial difficulties. Landrigan et al.20
during the past two years (2007–2008). found efficiency of the hospitalist model
The 2007 Society of Hospital Medicine (e.g., cost reduction, reduced LOS), but effi-
(SHM) survey reports that hospitalist sala- ciency gains failed to generate revenues for
ries increased significantly in recent years the hospitalist programs and most hospitalist
The Utilization of Hospitalists: Insourcing Instead of Outsourcing Health Care 23

Figure 2. Results of a Multivariate Regression Analysis on the Utilization of Hospitalists

B SE t P 95% CI
Intercept 38.35 4.51 8.50 <.001 (29.50, 47.20)
Compensation affected by productivity -1.822 1.27 -1.43 .152 (-4.31, 0.67)
Compensation affected by satisfaction 5.74 1.65 3.48 <.001 (2.50, 8.97)
Compensation affected by quality care 6.90 1.90 3.62 <.001 (3.16, 10.63)
Compensation affected by practice profiling 2.84 1.96 1.44 .149 (-1.01, 6.69)
Compensation affected by financial performance -2.92 1.26 -2.32 .020 (-5.40, -0.45)
Patient care revenue from Medicare -0.006 .026 -0.23 .817 (-0.05, 0.04)
Patient care revenue from Medicaid .006 .031 .20 .844 (-0.05, 0.06)
Patient care revenue from capitation .118 .025 4.68 <.001 (0.06, 0.16)
Annual income .271 .34 .78 .434 (-0.40, 0.95)
Patient care revenue from all managed care .062 .022 2.77 .006 (0.01, 0.10)
Gender 2.452 1.35 1.80 .071 (-0.21, 5.11)
Age .069 .31 .22 .823 (-0.53, 0.67)
Race -0.682 1.41 -0.48 .630 (-3.4, 2.09)
Specialty -3.837 .36 -10.64 <.001 (-4.54, -3.13)
R2 .074
Adjusted R2 .071
N 4,457

programs in their review faced financial extensive review of the literature, Wachter
difficulties. A recent study by Tieder et al.21 and Goldman23 reported the finding of cost
also reports a similar finding that pediatric reductions by utilizing hospitalists.
hospitalist programs in a community hospital One core finding is that the role of
experienced a substantial financial deficit. managed care is significant in predicting
Based on a systematic review of financial hospitalist system patient care revenue.
performance among pediatric hospitalists, This may be due to at least two reasons.
another national survey22 reported that only The very first hospitalist program started
12 percent of hospitalists were compensated in the high HMO penetration market24 and
through a model of 100 percent productivity thereby naturally developed with the man-
incentives. aged care system. In addition to hospitalist
Contrary to the aforementioned studies historical evolvement with managed care,
negating the hospitalist model in financial several studies support the linkage of man-
performance, a number of different studies aged care affiliation with the usage of hos-
support significant reductions in resource pitalists. Harrison and Ogniewski25 reported
use (e.g., hospital costs and LOS). In an that organizations utilizing hospitalists are
24 JOURNAL OF HEALTH CARE FINANCE/Summer 2010

located in communities with higher HMO excluded from the survey. These physicians
penetration. Molinari and Short26 revealed include federal employees, specialists who
hospitalists being efficient in managing do not provide direct patient care, foreign
HMO patients. In a retrospective cohort medical graduates with temporary licenses,
study to understand efficiency in a managed residents, interns and fellows, and physicians
care setting, Srivastava and colleagues27 whose names could not be disclosed to out-
report hospitalists being efficient and reduc- siders. Our findings also may not represent
ing costs in an HMO (e.g., reduced LOS all hospitalists in practice as we assessed
from two days to one day, which resulted only physicians who utilize hospitalists
in an average cost-per-case reduction of instead of practicing hospitalists. Thus, cau-
$105.51 for asthma patients). tion is needed when projecting our findings
Capitation-based patient revenue was also to practicing hospitalists. Finally, this study
significant in predicting the utilization of is cross-sectional and hence it did not inves-
hospitalists, which can be explained by the tigate the causal relationship between phy-
fact that capitation is a primary reimburse- sician compensation and hospitalist use. A
ment method for physician services under longitudinal study may more correctly esti-
the managed care delivery system. In our mate the causation between the two.
study, nearly half (48 percent) of respondents In conclusion, this analysis extends the
reported that their patient care revenue came hospitalist literature by investigating the
from capitation or a fixed payment system, association between physician compensa-
which is in line with Coffman and Rundall.28 tion and the hospitalist model. We found
In their careful review of the literature, Coff- that hospitalist users were concerned with
man and Rundall concluded that hospitals compensation in relation to quality care
under capitation would benefit from using and satisfaction, but they were less likely
hospitalists because hospitals maximize rev- to be concerned with compensation linked
enue by reducing LOS. However, this finding to financial performance and productivity.
is not in line with Lindenauer et al.29 whose This may pose a threat to many hospitals
study revealed that salary was the most com- with hospitalists as the Center for Medicare
mon method of reimbursement and only & Medicaid Services (CMS) looks for evi-
3.6 percent of the surveyed hospitalist were dence-based practices and emphasizes the
reimbursed based on capitation. The differ- importance of pay-for-performance (P4P).31
ence may be explained by several factors A future study may benefit from exploring
including the rationale of the study, study alternatives of improving financial per-
design, and sample size. Particularly, practic- formance and productivity in the context
ing hospitalists were studied by Lindenauer of hospitalist compensation. Our study also
and colleagues,30 whereas hospitalist-using documents that managed care and personal
physicians were assessed in our study. physician capitation are associated with
This study has several limitations. Our the utilization of hospitalists. These afore-
study is subject to response bias particularly mentioned findings are important keys to
as we measured respondent perceptions understanding the determinants and utiliza-
which by nature are biased. Our findings tion of hospitalists and their relationships
may not represent those physicians who are to individual physician compensation.
The Utilization of Hospitalists: Insourcing Instead of Outsourcing Health Care 25

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