There are often perverse incentives in health care. These incentives can, at times, create competing drives where providers are encouraged to do things that directly increase the costs of care. Consider the reaction to the mandate to cut down hours that physicians in training (PIT) work to allow them to be able to think more clearly. This gave rise to the hospitalist movement, which was also in response to the Diagnosis-Related Group (DRG) concept signed into law by Ronald Regan in1983. In the mid 1990s, hospitals began contracting with groups of physicians to care for hospitalized patients. Hospitalists began with an incentive to improve efficiency in hospital care and the inevitable shortening of the duration of hospitalization. Under DRG based payment, hospitals that could provide care to Medicare beneficiaries at a cost lower than the DRG payment level could keep the difference to cover other expenses. This was to encourage hospitals to become operationally more efficient and to negotiate more vigorously with suppliers to decrease their costs.
There have been multiple examples of Hospitalists being more proactive in navigating a patient’s inpatient care, thus decreasing the duration and cost of a hospitalization. It quickly became evident to hospital executives and their boards of directors that hospitalists appeared to decrease the hospital’s costs of delivering care, thus improving their “bottom line”.
A recent study from the University of Texas, reported in the Annals of Internal Medicine, confirmed that hospitalist do, in fact, keep the cost of an individual hospitalization down. However, on average, the costs of the post hospital care are greater. Therefore, while the hospital spends less on an individual hospitalization, the payer ends up spending more on the same patient mix. This leads to competing incentives. The hospital is encouraged to use hospitalists for care, because of the reduction in cost of a single hospitalization. This increased the margin from the DRG payment and also added potential revenue from subsequent hospitalizations. Payers, on the other hand, may look at these data and question whether paying hospitalists for care gets the patient and payer better overall quality. On a population level, this might lead to an incremental health care cost of $1.1 Billion dollars a year.
The study suggests that the reason for higher total costs relates to differences in behaviour of hospitalists from PCPs. Patients cared for by hospitalists were less likely to be discharged to their home. In addition these patients were less likely to see their PCP shortly after discharge and more likely to be readmitted or seek ER care than were patients cared for by their PCPs while in the hospital. These latter observations suggest that there may be a suboptimal hand-off of care from the hospitalist back to the PCP. There may be other undefined reasons for increasing post hospital care as well.
For hospitals to improve overall quality, a culture of cooperation and communication between hospital based physicians and those in outpatient care (Primary Care) must be encouraged and enforced. This may in the short run interfere with profits, but will in the longer term improve patient and payer satisfaction.
 Wachter, RM, Goldman, L: The Emerging Role of “Hospitalists” in the American Health Care System: NEJM, 1966; 355, 514-17
 Part of Public Law 92-21 (http://thomas.loc.gov/cgi-bin/bdquery/z?d098:HR01900:@@@L&summ2=m& )
 Kuo, Y-F; Goodwin, JS: Association of Hospitalist Care with Medical Utilization After Discharge: Evidence of Cost Shift from a Cohort Study: Ann Intern Med, 2011, 155, 152-9
 Recent CMS policies to be implemented in 2012 will impose a penalty for readmissions that are potentially preventable. The effect of these proposed penalties on discouraging readmissions is not clear.