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THE ECONOMIC VALUE OF A NEUROSURGEON TO A HOSPITAL

Wesley Hsu, MD and John D. Davis, MD

Engaging in complex financial negotiations is an increasingly common activity for

neurosurgeons in a variety of practice settings. These negotiations often take place ithhospitals. !no ledge of our financial value to a hospital is critical to the strengtheningour position in these negotiations, hether these are over salary"#enefits, e$uipment

purchases, esta#lishment of medical directorships, %oint venturing, pay for call, and"orother important matters.

The purpose of this pro%ect is to provide specific tools #y hich a neurosurgeon canestimate his"her direct financial impact or orth to a hospital as measured #y hospitalcollections directly generated #y a neurosurgeon&s activities. 't must #e kept in mind thata neurosurgeon #rings considera#le additional value to a hospital in ays that are difficultto $uantify and are outside the purvie of this pro%ect. The a#ility to offer neurosurgical

services adds considera#ly to the reputation of a hospital as ell as the a#ility of ahospital to accept transfers that may re$uire neurosurgical evaluation even hen admittedto other services. (o hospital can market itself as a comprehensive medical center

ithout ade$uate neurosurgical coverage. The management of neurosurgical patientsoften re$uires the utili)ation of other hospital lines of service, hich can represent asignificant source of hospital revenue. 'n addition, state reim#ursement for trauma care insome states is tied to trauma level designation hich is affected #y neurosurgicalcoverage.

(eurosurgery is an important complimentary service for many other specialties as ell. (eurootology and skull #ase otolaryngology re$uire colla#oration ith neurosurgery.

*ncologists and radiation oncologists often depend on neurosurgeons to assist ith themanagement of metastatic disease to the #rain and spine. (eurologists fre$uently call onneurosurgeons for a variety of services. (eurosurgery is also necessary for a stroke

program or a truly comprehensive spine program. While the a#ility to offer theseservices carries great financial #enefit to a hospital and should #e kept in the forefront #ythe negotiating neurosurgeon, financial $uantification of this value is outside the scope of this pro%ect.

(eurosurgeons directly generate revenue for a hospital in many ays. The most o#viousand significant is hospital reim#ursement for inpatient and outpatient surgical procedures.+dmissions that do not result in surgery #ut re$uire clinical management #y

neurosurgeons as ell as admission of patients to a hospital o ned inpatientreha#ilitation facility -' /0 also can represent a significant source of hospital revenue. 'naddition, outpatient radiology and la#oratory studies, outpatient physical"occupationaltherapy, neurodiagnostics, and provision of dura#le medical e$uipment -DME0 producehospital revenue.

1revious ork exploring this $uestion has #een #ased upon either survey data or, in thecase of the senior author -JDD0, unverifia#le and anecdotal information provided #y a

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hospital. + document entitled 34525 'npatient"*utpatient evenue 6urvey7 produced #yMerritt Ha kins summari)ed the data from surveys of hospital 8/*s re9 hospitalcollections #y specialty per full time physician. The greatest shortcoming of this survey isthe poor response rate ith only 22: of ;555 surveys completed. (onetheless, thecollected data sho ed the average revenue generated #y a neurosurgeon to #e

;5, a figure higher than any other specialty. Highlighting the importance of #eing armed ith such data as the further o#servation that the average salary"incomeguarantee offer for a neurosurgeon derived from the Merritt Ha kins 4525 evie of1hysician ecruiting 'ncentives as 24,555, also higher than any other specialty.

The senior author -JDD0 re$uested the same data in 455? from the hospital here his practice group of six neurosurgeons have historically done the vast ma%ority of theirsurgery. Data from our one orthopedic spine partner as excluded. The average revenuereported #y the hospital per surgeon as M6 D As recogni)ed in 4522 comprised of CC; #ase M6D As most split into 4 or C M6 D As #ased on presence of eithercomor#idities"complications -880 or ma%or 88 -M880. These B:> M6 D As aredivided into 4; ma%or diagnostic categories -MD8s0 #y organ system. There are #othmedical and surgical M6 D As. Medical D A codes are determined #y principle andsecondary '8D ? diagnosis codes. 6urgical D A codes are listed #y hospital surgical

procedure code -different from professional 81T codes.0 We have chosen many of themost relevant M6 D As for neurosurgeons, #ut it is important for individual

practitioners to add or remove M6 D As to this spreadsheet to more accurately representtheir practice. We #elieve that using Medicare reim#ursements is a reasona#le foundationfor a study of hospital reim#ursement for neurosurgical patients, as orker&s

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compensation, Medicaid, and private insurance reim#ursement rates are increasingly #ased on Medicare reim#ursement rates.

To calculate the actual reim#ursement for an inpatient admission, one simply multipliesthe eight of the appropriate D A #y a hospital&s 3rate7. The national #ase rate for 4522

is

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1ayment rates for outpatient services including diagnostic radiology, outpatient surgery or radiosurgery performed in the hospital or in a hospital affiliated +68 -updated regularly

#y 8M6 to include any procedures not deemed to al ays re$uire an overnight stay0,discography, spinal in%ections, EMA"(8 , EEA, neuropsychological evaluations,emergency department visits, and hospital clinic visits are all set according to the

outpatient prospective payment system -*1160. +ll of the approximately C:55 servicesare grouped ith 3similar7 services into a much smaller num#er of am#ulatory paymentclassification groups -+18s0. Each +18 has a relative eight. 1ayment for each serviceis calculated as relative eight multiplied #y a conversion factor -8/0, to >5 of hich isapplied a hospital age index ad%ustment -:5 is not su#%ect to the age indexad%ustment.0 The hospital age index varies #y location and is availa#le #y geographicarea at .cms.gov. +dditional ad%ustments are made for small, rural hospitals,children&s hospitals, and cancer hospitals, and outlier payments are allo ed #ut limited.The unad%usted national conversion factor for 4522 is >=.=B>, and e have used thisnum#er to calculate a national average payment for each service in our spreadsheet.

8linical la#oratory services are identified and paid #y Medicare #y Healthcare 8ommon1rocedure 8oding 6ystem -H81860 code. The payments can vary from state to state as8M6 allo s some variation #y the Medicare administrative contractors -M+8s0.Ho ever, most reim#urse at the national limitation amount -( +0 hich is hat e have

provided in our la# spreadsheet. +gain, state specific data can #e o#tained at.cms.gov .

*utpatient physical and occupational therapy services represent another potentiallysignificant source of hospital revenue generated #y a neurosurgeon. *utpatient therapy is

paid #y Medicare according to the fees in the physician fee schedule ith each serviceidentified #y H818 code, and each therapy H818 code value is determined #y eight asmeasured in relative value units - Ks0. Each of the three K components - ork,

practice, and professional lia#ility insurance0 is ad%usted #y separate geographic practicecost indexes -A18's0 according to local conditions. This ad%usted K value is thenmultiplied #y the national conversion factor -CC.?B>: in 4522.0 There are additionalup ard ad%ustments for services provided in an underserved area, and there is an annualcap for a Medicare #eneficiary that is

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in recent years, and, hile an initial competitive #idding pro%ect has #een a#andoned,there are plans to reintroduce competitive #idding. The provided DME spreadsheetcontains values for the state of Mississippi, and it is recommended that the data for thespecific state in $uestion #e o#tained for a truer estimate. 't is also critical to determine

hat specifics codes are applica#le for the particular items ordered as there is

considera#le varia#ility in fee #et een products hose descriptions are very similar.

Medicare and other payors also provide reim#ursement to inpatient reha#ilitationfacilities -' /s0, some of hich are free standing facilities and some of hich arespeciali)ed hospital units -reha# floors.0 Medicare reim#urses these facilities accordingto the inpatient reha#ilitation facility prospective payment system -' / 1160. Thissystem functions similarly to the '116 for acute inpatient care. 'nstead of M6 D As,each patient is assigned to one of 255 case mix groups -8MAs0, each of hich has fouradditional tiers #ased on associated comor#idities, producing :55 possi#le paymentamounts. The national #ase rate for a 8MA"tier ith a value of one is 5 for 4522.6eventy five percent of the #ase rate is ad%usted #y the local hospital age index to

account for variations in la#or costs, and the other 4; of the #ase rate is not. There arealso up ard ad%ustments for rural location, disproportionate share of lo income patients,and for teaching facilities. We have not produced a spreadsheet for ' / revenues, #ut arevenue estimate can #e o#tained #y do nloading the appropriate spreadsheet at

.cms.gov , and performing the same calculations as for other service categories.

The single greatest limitation of this pro%ect"tool is the fact that hospital reim#ursementfrom non Medicare sources varies considera#ly #y #oth region and payor. +dditionally,these rates are often negotiated #y payor ith each individual hospital. These aretypically contractually confidential and are thus not o#taina#le ith complete accuracy./or purposes of this pro%ect"tool, e recommend calculating reim#ursement for privatelyinsured patients as 2B; of Medicare. This is a figure derived from the 455= 8alifornia*6H1D Hospital +nnual /inancial Data 1rofile -the most recent year for hich there isdata0 hich is readily availa#le online at

.oshpd.ca.gov"H'D"1roducts"Hospitals"+nn/inanData"H+/D.pdf . eim#ursement #y private third party payors as ad%usted #y the difference in gross revenue -#yhospital day for inpatient data and #y visit for outpatient data0 to provide a faircomparison that did not exaggerate the discrepancy #et een Medicare and private

payors. emarka#ly, private third party hospital reim#ursement as an identical 2B; of Medicare for #oth inpatient and outpatient services.

Medicaid hospital reim#ursement varies #y state. Medicaid is a state run program ith pu#licly availa#le hospital reim#ursement data in each state. /or purposes of this pro%ect,

e have estimated Medicaid reim#ursement in each spreadsheet as #eing ?5 ofMedicare. We recommend o#taining the specific data for each state. Worker&s8ompensation reim#ursement rates also vary considera#ly #y state. 't is typicallyadministered and regulated #y a state agency or commission ith a pu#licly availa#lehospital fee schedule. 'n Mississippi, inpatient maximum reim#ursement allo a#le-M +0 is exactly 455 of the Medicare national #ase rate. 'n some states, including

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Mississippi, private contracting #et een individual carriers and hospitals may complicatecalculations, #ut discounts off of the fee schedule maximums are usually small.

+nother limitation of this study is that it can only estimate ho much a hospital ill #ereim#ursed for a given patient. 't does not estimate ho much a hospital must expend to

care for the patient. +n understanding of ho much a hospital is reim#ursed for a given patient may represent an important starting point for engaging in discussions of costsaving measures that ill hopefully provide a neurosurgeon ith important leverage forfuture negotiations.

We recommend that the practicing neurosurgeon ho is interested in making an estimateof hospital collections or potential collections from his"her practice follo the reading ofthis document ith reading the folder containing the ell ritten MED1+8 documentsdetailing ho Medicare -as ell as most other payors0 pays for various services. Thisshould #e follo ed #y opening each spreadsheet and editing according to specificlocation and other circumstances. + diligent practitioner can produce a pretty accurate

estimate of his"her actual or potential hospital revenues.'n summary, this ork is an attempt to provide any practicing neurosurgeon ith tools #y

hich to estimate his"her direct economic impact on a hospital in the form of actualhospital collections from clinical activities. 't does not attempt to $uantify the collectionsfrom admissions to other services that ould not have #een possi#le ithoutneurosurgery coverage not does it attempt to place an economic value on intangi#les suchas hospital image or prestige associated ith offering more comprehensive care. Theassociated spreadsheets are intended for editing #y the individual practitioner to includerevenue producers that e may have excluded as ell as to remove those that don&t applyin particular practices. 't is hoped that this ork ill prove useful to neurosurgeons in avariety of practice settings for a #road range of negotiations ith hospitals.

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