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Ann Thorac Surg 2006;82:1068-1071
© 2006 The Society of Thoracic Surgeons

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Original article: General thoracic

Economic Assessment of the General Thoracic Surgery Outpatient Service

Department of Surgery, University of Virginia School of Medicine, Charlottesville, Virginia

Accepted for publication March 30, 2006.

^_* Address correspondence to Dr Jones, General Thoracic Surgery, PO Box 800679, University of Virginia, Charlottesville, VA 22908-0679 (Email: djones{at}virginia.edu).

Presented at the Poster Session of the Fifty-second Annual Meeting of the Southern Thoracic Surgical Association, Orlando, FL, Nov 10–12, 2005.

	Abstract

Top Abstract Introduction Material and Methods Results Comment References

 
BACKGROUND: One aspect of the definition of institutional value for any program is based on the return on investment (ROI) for that program. Program requests for future resource allocations depend, in part, on that information. The purpose of this project was to determine the ROI for initial outpatient visits only for our General Thoracic Surgery (GTS) program.

METHODS: The number of GTS outpatient visits, studies, and requested consultations ordered by GTS surgeons only was determined after review of the hospital database and office records for the calendar year 2003. Only charges associated with the initial outpatient visits (no inpatient or physician charges) were included. Charges were based on hospital finance department data. The ROI for GTS outpatient services was calculated using total hospital costs and hospital collections.

RESULTS: There were 689 initial outpatient GTS visits. The majority were for lung cancer (48%), benign lung diseases (21%), and esophageal diseases (14%). Total outpatient charges were $1.25M and by disease process were lung cancer ($644,000), benign lung disease ($90,000), esophageal disease ($159,000), and other ($357,000). The most significant hospital charges were the following: radiology ($850,000), laboratory studies ($82,000), gastrointestinal medicine studies ($59,000), and cardiology ($42,000). Total operational costs for the GTS clinic were $415,000 and hospital collections were $513,000, yielding an ROI of $98,000 or an operating margin of 19%.

CONCLUSIONS: An operating margin of 19% for GTS outpatient services is better than most Fortune 500 companies. Acquisition of this type of information by GTS surgeons may be helpful for future program development and institutional resource allocation.

	Introduction

Top Abstract Introduction Material and Methods Results Comment References

 
The changes in healthcare delivery and their associated economic impact on Academic Medical Centers (AMC) have been well documented [1]. While the overall effect of these continuing changes on American medicine continues to be debated, it is clear that all AMC are under intense pressure to provide high quality care that is provided in a fiscally sound manner. One of the strategies employed by AMC to determine cost-benefit analyses for specific programs or services provided is to determine the return on their investment (ROI). While the term ROI typically refers to a return on capital investments rather than operating profits, it is increasingly used to describe a return on any type of investment, including service lines. Analysis of a ROI for a program or service line is complicated by a lack of unanimity on what defines a "return." Additionally, metrics that are acceptable to all involved parties are poorly defined, if at all, and it is common to have little-to-no input from clinicians involved in providing the services in question.

It is universally accepted that there exists a finite limit of resources available to each institution or hospital and that determining allocation of these resources is multifactorial, but includes locoregional market share analyses, projected programmatic growth, and hospital profits generated by the specific program. It is well known that programs-service lines that generate a profit for the hospital are given the resources to maintain and even grow their program. Historic examples that have generated significant financial support for the hospital include cardiac surgery programs in the later part of the twentieth century, and more recently by bariatric surgery programs, sleep labs, and interventional radiology procedures.

With the increasing numbers of General Thoracic Surgery (GTS) specialty programs being developed in AMC, there have been increased clinical volume and hospital reimbursement for these services. Associated with increased GTS clinical volume, clinical trials, and research programs are the need for increased resources to adequately cover all services that are provided. Additionally, it is important to provide support for the clinical practice so that other core missions of a program, such as resident education and research, are not jeopardized any further than they already are [1, 2]. One such area where additional resources would be beneficial is in coordinating outpatient services and visits, as well as providing physician extenders to help process initial outpatient visits. The ROI for most outpatient services, particularly surgical services, provided by the hospital is typically "negative" or demonstrates little profitability, with the majority of revenue coming from downstream effects of subsequent in-patient procedures and hospital stays. Realizing that future resource allocation for a specific program is dependent on the institution's perception of their ROI for that program, we decided to retrospectively analyze the ROI for the outpatient GTS service at the University of Virginia (UVA).

	Material and Methods

Top Abstract Introduction Material and Methods Results Comment References

 
A retrospective review of all patients evaluated in the outpatient GTS clinics was performed from January through December 2003. The study was approved by the University of Virginia Institutional Review Board in May, 2004. The approval waived the need for patient consent. Only initial visit outpatients at UVA were evaluated and all postoperative or routine follow-up patients were excluded. Outpatient initial visits from other non-UVA clinics were excluded. In-patient transfers from referring hospitals, as well as in-hospital consultations, were also excluded from the analysis. Demographic data, diagnosis, and need for surgery were obtained by careful review of the outpatient records and of the GTS surgical database. All initial visit diagnostic studies and laboratories, performed only at University of Virginia, were captured by review of the patient's electronic record, as well as office notes. Any studies obtained anywhere other than the University of Virginia were not included in the analysis. All initial patient visits were examined regardless of whether the patient ultimately came to surgery or not. Studies were considered to be part of the initial visit assessment as long as they were ordered relative to, and prior to, a patient's surgery; or until a patient was determined not to be a surgical candidate, regardless of the reason. If a patient had multiple surgeries because of disease recurrence or complications, the studies performed prior to the first procedure only were recorded. However, if a patient had multiple surgeries for different clinical problems, all diagnostic evaluations between the surgeries were recorded. All physician charges, including the surgeon's and consultant's outpatient office fees and radiology interpretation fees were not included.

In addition to preoperative studies and laboratories ordered, the number of consultations to medical oncology, radiation oncology, cardiology, gastroenterology, and others were also recorded. Studies ordered specifically by these consultations were not included in order to limit the analysis to GTS alone. Because our analysis was limited to the outpatient setting only, all inpatient charges and reimbursements were not examined.

Specific charges for each diagnostic study or laboratory test were obtained from the respective department (ie, Radiology, Cardiology, Clinical Pathology, etc). In addition, the charges associated with each diagnosis were independently examined in order to examine the relative contribution of each diagnosis to the whole. Patients had a wide range of diagnoses, which were ultimately grouped into seven general diagnostic categories: primary lung cancer, metastatic tumors to the lung, benign lung diseases, esophageal cancer, benign esophageal diseases, mediastinal diseases, and miscellaneous.

Data regarding individual insurance carrier reimbursements (ie, Medicare, private carrier, etc) for each initial patient evaluation were not collected. Instead, reimbursement rates for all diagnostic procedures, labs, and consultations were normalized to the ambulatory payment classification rates specific to the University of Virginia from the Centers for Medicare and Medicaid Services for outpatient services for the year 2003 only [3]. The percent payer mix for these patients was as follows: Medicare (48%), private insurance (40%), self-pay (7%), and Medicaid (5%). Given that Medicare no longer provides a line itemization for its outpatient reimbursement, we were unable to collect this information for these patients. We did not specifically examine revenue in a line item fashion for private payers.

	Results

Top Abstract Introduction Material and Methods Results Comment References

 
There were 689 initial visit patients to the University of Virginia GTS clinics in the calendar year 2003. From these 689 initial patient visits there were 451 (65%) in-patient operations performed. Over the same time interval the GTS service performed approximately 800 major in-patient operations so that 451 of 800 (56%) in-patient operations were derived from the University of Virginia outpatient offices. The remainder of in-patient operations were performed on in-patient consults, lung transplantations, emergency room admissions, transfer patients from other hospitals, and in hospitals other than University of Virginia that are covered by our surgeons.

The number of patients evaluated based on their diagnosis and their contribution to overall outpatient charges, is shown in Table 1. Patients with a diagnosis of lung cancer and esophageal diseases (mainly cancer) contributed to 51% and 13% of charges, respectively. This is a reflection of the fact that our practice is heavily weighted to thoracic oncology patients. It is also interesting to note that the GTS service evaluated 238 (35%) patients and determined that surgery was not indicated for whatever reason. Total outpatient charges generated by all ordered studies were $1.25 million. This translates to an average of $1,814 per patient in outpatient charges, and does not include physician charges for the office visits or the revenue generated by the consultations.

	Comment

Top Abstract Introduction Material and Methods Results Comment References

 
The revenue generated by the clinical faculty for total AMC income has increased from about 5% in 1965 (when Medicare and Medicaid were first introduced) to approximately 50% in 2000 [1, 4]. As pointed out by Debas [1], this dependence on faculty-generated income made AMCs particularly vulnerable as managed care penetration has increased and Medicare reimbursements have steadily decreased since the institution of the Balanced Budget Act of 1997 [1, 5, 6]. In addition, the increasing complexities associated with compliance, patient confidentiality (Health Insurance Portability and Accountability Act), patient safety, and the rise of consumerism have collectively forced AMCs to shift monies and resources to cover these changes. Thus, the entire landscape of the economics of practicing a surgical specialty in an AMC is constantly shifting, and demands for increased resources from constituencies of that AMC are rising at an alarming rate.

The data presented in this paper are an effort to objectively demonstrate that a small facet of an overall GTS program, the initial outpatient visits, is economically solvent and represents value to the institution. This paper is unique in that a profile of a GTS outpatient service has been created, and importantly, associated charges and revenues have been determined. Certainly a mere $100,000 ROI for an AMC with a multimillion dollar budget is but a modest source of revenue. It is readily apparent, however, that the GTS outpatient services are an important portal of entry for patients who will ultimately require in-patient procedures and care that will subsequently generate significantly more revenue for the hospital system. What is more impressive is that the hospital has a solid operating margin of 19.1% in exchange for the limited monies to cover outpatient GTS services expenses.

Additional information gained from this analysis suggests that individual departments or services (ie, Radiology, Gastroenterology, pulmonary function labs, etc) that provide necessary diagnostic services for GTS outpatient evaluation can be leveraged to provide those services the same day(s) that the patient is being seen. This is particularly important for an AMC where patients may travel hours to be seen. Additional visits for these studies are problematic and can, in fact, be a barrier to subsequent patient referrals and patient satisfaction scores. For instance, based on the results of this study we have subsequently received a commitment from Radiology for same day fusion PET-CT imaging for all GTS outpatients with 48 hour notification. Additionally, endoscopic ultrasonography for staging of all esophageal cancers is provided the same day with only a 24 hour notification.

A corollary finding of the data presented is that GTS outpatient services often act as the gateway for patients to be referred to other specialties. While it is well known among practicing general thoracic surgeons that much of our practice involves counseling, careful follow-up, and the prescription of a variety of nonsurgical treatment strategies, this paper better defines what percentage of our patients actually fall into that category. Specifically, one in three patients evaluated by GTS was not a surgical candidate, or more commonly did not need thoracic surgery for their medical problem.

A review of the literature on various assessments of determining institutional value or of defining a ROI as they relate to healthcare, much less GTS, yielded surprisingly little information. Part of the explanation for this may be that the definitions of these terms are ever changing and that hospital systems prefer to only publicly acknowledge the financial positives. Another explanation is that surgeons have little formal business education or knowledge of healthcare financing or the economic aspects of their clinical practice, and therefore have not contributed to the sparse literature on the subject. In a small survey of 133 vascular surgeons, the majority of surgeons perceived their understanding of antitrust laws, purchase evaluations, fraud and abuse regulations, and financial accounting principles to be exceedingly weak [7]. The value of specific disease management programs to an institution was recently reviewed by Goetzel and colleagues [8] and it is clear that this model system is meritorious. Accordingly, a further extension of this study would be to look at our entire multidisciplinary thoracic oncology program using similar methodology.

Potential criticisms of this study include that the analysis was limited to the GTS outpatient services only, and that inclusion of the in-patient data would be even more compelling. We would agree with this, but extraction of all costs and generated revenues from in-patient procedures and hospitalizations is exceedingly difficult and was truly beyond the scope of this project. We also chose to normalize hospital reimbursements to the CMS Medicare APC rates for our institution and did not look at payer mix, which may have altered our findings. Given that CMS reimbursement rates are typically below that of private payers, we are comfortable that our assessment is conservative and may, in fact, have underestimated the overall ROI and hospital operating margin. Another potential criticism is that the University of Virginia Health System does not utilize a cost accounting system which is not dissimilar to other large AMCs. Instead, a cost-to-charge ratio is generated for specific services and it is used to determine the estimated costs of these services. Thus, estimates of the return on investment in this study are just that because the specific costs of radiology services, cardiology, etc are estimated and not fully known.

Finally, by failing to include other studies ordered by GTS-directed consultations, we may have underestimated the operating margin. However, the intent of the study was to look only at what the surgeons directly controlled and thus ordered in this study.

In conclusion, an assessment of the hospital's ROI for the outpatient GTS services suggests that there is significant institutional value for these services even prior to accounting for subsequent in-patient charges and collections. Operating margins on our GTS outpatient services of 19% are extraordinary and provide for a place at the table for thoracic surgeons when discussions are held regarding future institutional resource allocations. Furthermore, an improved understanding of basic business principles involved in the daily clinical practice of a GTS service can be leveraged into improved services provided by other departments for our patients. Future hospital investments that increase productivity of the GTS outpatient clinic can be projected to yield similarly good returns on that investment.

	References

Top Abstract Introduction Material and Methods Results Comment References

 

1. Debas HT. Impact of health care crisis on surgery Arch Surg 2001;136:158-160.[Free Full Text]
2. Knapp RM. Complexity and uncertainty in financing graduate medical education Acad Med 2002;77:1076-1083.[Medline]
3. Center for Medicare and Medicaid Services. Available at: http://www.cms.hhs.gov/ (accessed Oct 15, 2005)..
4. Reuter JA. The financing of academic health centers. a chart book. New York, NY: Commonwealth Fund; 1997. pp. 22.
5. Souba WW, Weitekamp MR, Mahon JF. Political strategy, business strategy, and the academic medical centerlinking theory and practice. J Surg Res 2001;100:1-10.[Medline]
6. Debas HT. Medical education and practice Arch Surg 2000;135:1096-1100.[Free Full Text]
7. Satiani B. Business knowledge in surgeons Am J Surg 2004;188:13-16.[Medline]
8. Goetzel RZ, Ozminkowski RJ, Villagra VG, Duffy J. Return on investment in disease managementa review. Health Care Financ Rev 2005;26:1-19.[Medline]

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This Article Abstract Full Text (PDF) Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Similar articles in PubMed Alert me to new issues of the journal Add to Personal Folders Download to citation manager Author home page(s): David R. Jones Philip W. Smith Thomas M. Daniel Permission Requests Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Jones, D. R. Articles by Heinzmann, J. L. Search for Related Content PubMed PubMed Citation Articles by Jones, D. R. Articles by Heinzmann, J. L. Related Collections Professional affairs Related Article