Posted by: notdeaddinosaur | November 10, 2008

What the Happy Hospitalist and Subprime Mortgages Have in Common

There is a hospitalist physician who blogs under the name The Happy Hospitalist, whose blog I read from time to time. Aside from some mediocre writing and way too many ads, Happy seems to be a competent internist specializing in the care of hospitalized patients. He also blogs at great length about the economics of American medicine, much of the time with great insight. A few months back, I pointed out to him (in a comment, I believe) that his job — that of hospitalist — was not financially viable in the long run, even though the “long run” in this case may very well be greater than the span of his professional career. All I got in response was some gobbledygook about how his hospital recognized the “value” he brought to his job, and so it didn’t matter that his salary was greater than what Medicare paid the hospital for his services.

Given the current situation (please note this stipulation; Happy and some other bloggers have a way of switching back and forth between discussing things as they are and as they would like them to be) I submit that at the most basic economic level, Happy’s job is not financially viable over the long run. Here’s why:

Happy admits that his salary is greater than what Medicare pays his hospital for his services.

Think about that. Happy’s hospital (or independent contracting group; it really doesn’t matter) pays Happy more money than they are able to collect for the services he provides. In order for that to happen for any period of time without going broke, there have to be some other things going on.

Certainly Happy’s payor mix is something other than 100% Medicare. Perhaps other insurers pay more; perhaps enough to cover not only Happy’s salary, but also enough to make up what the hospital is losing paying him to care for Medicare patients. (I doubt it.) Perhaps the hospital is able to recoup enough extra money somewhere else in its operations. (I have no idea where.) Perhaps he performs other services for the hospital aside from direct patient care. (He hasn’t mentioned anything.) Maybe the hospital administrators agree to smaller salaries to make up the difference. (Yeah; right.) Or maybe they’re just shifting funds around here and there to pay the hospitalists according to the contract they negotiated, even though it is more than what they are bringing in.

This is strikingly similar to purchasing a house you really can’t afford. There are all kinds of ways a fast-talking banker can structure a mortgage so that you can scrape together the payments for awhile. But eventually the adjustable rates go up, your ability to afford the payments collapses and the whole house of cards has to come tumbling down. For the homeowner, this can mean foreclosure. What about Happy?

What has to happen eventually is that the hospitals won’t be able to afford him. At that point they’ll either have to lower Happy’s salary, find other hospitalists who will work for less (FMGs?) or close their doors.

Happy doesn’t care; he says he’ll just find another job at another hospital. (See Addendum) And I’m sure he will. There will always be other, richer hospitals with more cash lying around to offset the loss-leader services of hospitalists. My point is that if he cannot produce enough income to cover his salary, benefits, etc. and the hospital cannot find other monies with which to pay him, then eventually the same situation will occur at every hospital. It may take a very long time for this basic fact of economics to percolate through to the critical point — perhaps longer than Happy’s professional career, at which point he’ll just retire and laugh at the rest of us struggling to take care of patients, who will always be there. But the situation is not financially stable. Eventually it will break down. It has to. It’s just basic economics.

Look at the housing market. It took decades, but because of the fundamentals of subprime lending, it had to happen. You cannot go on indefinitely spending more money than you make.

The bottom line is that I don’t understand how hospitalists can survive as a profession if they insist on being paid more than they can produce for their employers. Just because they do — for now — does not mean that basic economic principles stop working.

No one has been able to explain this to me adequately. I’m pretty smart, and I’ve discovered that if someone can’t explain something so that it makes sense to me, they’re trying to fool either me or themselves.

Again, please note that this analysis only encompasses the situation as it is today. If (and that’s one enormous “if”) Medicare does begin bundling physician services into its hospital payments then all bets are off; though unless they increase rates to cover those services, the whole thing comes tumbling down all that much quicker.

So what will happen?

We shall see.

Addendum 1: Perhaps the system is already starting to falter. This article (h/t Dr. RW) discusses the issue of job turnover among hospitalists. It points out the difficulties of comparing hospitalist jobs directly, because the relationships between salaries, benefits, working conditions and workloads are so diverse, and the general volatility of the hospitalist job market. Still, nothing I read in that article addressed my primary observation: the system is only functioning now because hospitals are willing to pay doctors more than they can collect for their services. This cannot continue indefinitely.

The Emperor’s birthday suit is wearing a bit thin.

Addendum 2: Are those experts who claim that Hospital medicine will continue as a growth industry for the foreseeable future in the same group as the ones who were absolutely certain that the price of oil would continue to rise?

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