It’s an epiphany. I had a striking, “ah-HA!” moment this week. I’d liken it to my ever so brief understanding of the importance of hydrogen bonding for life to exist on earth, but I can’t remember the details well enough to fully understand it anymore. Not so this time. This one I’ll remember.
I’ve been digging through cost data for our practices along with benchmarks for the same. In this case, I’ve been looking through the 2011 MGMA Cost Survey, but one could reference data from a variety of sources. Regardless of the source, the trend is striking and undeniable. Hospital owned practices have large reported deficits while independent or corporate-owned practices have balanced revenue and expenses.
“Yeah, whatever. We have to operate on a subsidy to get by,” you say. Well, hold on there. Some hospitalist practices do not utilize hospital support payments and operate only on professional revenue. Meanwhile, other types of practices appear to be in the hospital support game too. I found it interesting to see Cardiology, Family Practice, and Internal Medicine as hospital owned practices which are operating at significant deficits, yet these practices are NOT widely reported as receiving support from the hospital.
Standard Accounting Practice.
The tables within the same specialty where there’s both hospital owned and NON-hospital owned groups tell the tale. The hospital owned groups are losing money, big hand-over-fist money, while the independent groups eek-out a small remaining profit. The hospital owned groups have some decreased costs with greatly reduced revenues compared to the non-hospital groups. One could assume that the hospitals do a horrible job running their businesses, but that wouldn’t accurately explain the losses. No one operates at a 10% loss and survives, let alone a 50%, 100%, or 200+% loss! No, you close the doors and move on. The bills have to be paid. Food has to come home to the table.
One must assume that some of the costs and revenue for these practices is “off books” for that owned practice. Meanwhile the master ledger for the hospital has to balance, and it does. Most hospitals post a small percentage profit per year on operations. So those losses on, say, a family practice office, must be offset somewhere else. A different operation in the hospital must be posting a profit derived from the extra revenue they show relative to decreased costs on their part of the business.
WHERE did the revenue from the FP office go?
It went to radiology. It went to the laboratory. It went to a bunch of other hospital owned entities that directly benefit from delivering patient care to the FP’s patients based on the orders of the physician. Those ledgers show a profit because they do not have to bear the cost of the ordering or referring providers, nor do they carry the recruiting, building, electricity, malpractice, workers compensation, retirement plan, health insurance, or other myriad costs of operating an independent practice. No, these departments get to show the increased revenues without having to bear the entire cost of revenue generation for their department.
Why do hospitals do this? Because it’s how they’ve always done it? Yes, but only in part. They continue the practice because it benefits the Board, which means it benefits the C-suite too. Showing a profit on operations is good. It speaks to efficiency and good stewardship and smart decisions on the budget. Meanwhile, showing a loss on providers is, “well, err, ummm… Good.” Heck, it might even be great! It means the hospital couldn’t possibly afford to increase provider pay or hire another FTE to balance workload. And no, you can’t take credit for the ancillary revenue generated from your practice because that would violate the “pay-per-click” guidance from Stark law… Nice try though.
It brings me back to another memory from my college days, that being Dana Carvey on Saturday Night Live’s “Church Chat” asking a leading question followed by an answer that he found less than optimal. The standard response from Carvey, as always… “How Convenient.”
OK… Here’s “Choppin’ Broccoli” too.
Sheesh. I’m showing my age.