Health care reform has accelerated the changes that cardiovascular services have experienced in the last few years. Declining reimbursement, increased quality transparency and stronger physician-hospital partnerships coupled with the flat utilization of inpatient services have caused many hospitals to reconsider their primary strategy for advancing the cardiovascular service line. In 2010 and beyond, hospitals must place increasing emphasis on effectiveness. For most, this means how to work, operate and relate more successfully with physicians, payors, providers and the community to continue to strengthen and ultimately grow the service line.

This document is outlined in four major sections:

  1. Demand and Reimbursement
  2. Physician-Hospital Alignment
  3. Impact of Health Care Reform
  4. Payor Reactions and Implications for Hospitals

The major changes addressed in these four sections focus on:

  • Financial pressures. With the continued decline in reimbursement predominantly affecting physician practices, many private groups are looking at alternative ways of increasing profitability, whether through a closer eye on expenses and overheads or working with hospitals and payors for alternative payments.
  • Integration synonymous with employment. Many private practice groups have been employed in the last 12 months to stem the income declines. That said, employment is not the only option for private groups, who should also explore alternative vehicles for closer partnerships with hospitals that allow greater care coordination and improved quality.
  • Reforms hit cardiology. We present a brief update on the impact of health care reform on the cardiology field, focused on physician-owned hospitals, physician-mandatory reporting and medical imaging changes.
  • Changing payor relationships. Increasing focus on population management will create new opportunities for hospitals to work directly with payors on optimal treatment paradigms as patients transfer from inpatient to outpatient settings.

Hospitals must rapidly adapt to the new demands of the changing environment. Growth is no longer the only strategic goal and must be paired with a renewed emphasis on effectiveness.

Demand and Reimbursement

Cardiology volumes defined as circulatory discharges (MDC 5: Diseases and Disorders of the Circulatory System) continue to represent a significant volume for physicians, hospitals and health systems.

  • According to the American Heart Association (AHA), in 2007 there were 79.7 million physician office visits with the primary diagnosis of cardiovascular disease.1 There were 4.04 million ER visits (~25% of all ER visits) and 6.1 million inpatient discharges (~14% of all inpatient discharges).
  • There are vastly different growth rates by product line. For example, coronary artery disease has declined by 25% in the last decade, whereas heart failure has increased by about 25%.2
  • The total inpatient hospital cost for cardiovascular disease is $71.4 billion, or one-fourth the total cost of inpatient care in the United States.3
  • According to a recent practice survey by MedAxiom, physicians are seeing more patients in their clinics. In 2009, new patient office visits per calculated physician averaged 344, an increase of 18% since 2004. Return patient visits were up a similar proportion during the same period.4
  • However, the same survey noted that physicians are conducting fewer tests and procedures per patient seen. As a notable example, catheterizations per new patient have dropped from 43% in 2004 to 25% in 2009.5

Reimbursement continues to decline for physician practices.

  • In 2009, CMS reduced the relative value units assigned to specific cardiology-related procedures. The cuts ranged from between 10% to 40%, depending on the procedure, with nuclear imaging witnessing a 41% decline in reimbursement.6
  • This decrease continued the trend of the last decade. According to the American College of Cardiology (ACC), the value of RVU payments to physicians is just 50% of what it was in 1995.7

Reimbursement is not the only challenge cardiology groups are facing. With high overheads from technology adoption in the last five years, the implementation of electronic health records or increased space and new clinic structures, cardiology groups are being burdened with significant overheads. They have all developed aggressive expense management practices and/or consolidated their imaging and diagnostics back to hospitals.

  • Overheads as a proportion of revenue averaged 54% in 2009. This has been relatively stable in the last decade (high of 55%, low of 51%).8
  • Thirty-five percent of physician-owned outpatient cath labs have closed or been integrated into hospital systems since 2008 due to CMS reimbursement reductions.9

With cardiology funding declining for private practice groups and the significant overheads these groups have built up in the last decade, many groups are almost underwater. Thus, they are exploring new ways of supplementing income, predominantly by looking at hospitals and health systems for new sources through contracts (e.g., medical directorships, clinical comanagement arrangements) or employment.

Hospitals have also seen a shift in reimbursement, driven predominantly by payors (see later section on Payor Reactions and Implications for Hospitals). As payors drive better reimbursement for outpatient services in a capital-constrained environment, hospitals that can capitalize on replacing the outpatient volume with higher-margin inpatient cases will see improved performance.

Physician-Hospital Alignment

Integration within the cardiology world is becoming synonymous with employment. Employment, as a form of integration, assumes that the cardiology practice assets are sold, cardiologists are now employees of the hospital (or affiliate) and the practice staff becomes part of the hospital staff.

A recent survey of the American College of Cardiology found 54% of practices reported that employment was likely in the immediate future.10 Upwards of 90% are considering various forms of closer clinical and financial integration. (There are an estimated 24,000 cardiologists in the United States today.)11

The economic benefits of employment have been significant, but are likely to be unsustainable. The median cardiologist’s salary in 2009 was $542,593. Hospital-employed physicians made on average 40% more than private practice cardiologists in 2009, which is unprecedented during the last 10 years.12

Cardiology is the most popular service line for clinical comanagement; approximately 33% of hospitals with large programs have introduced some form of cardiac clinical comanagement arrangements.13

The extreme rise in hospital-employed salaries is the rapid response to employment as large groups have become employed and solidified their current salary (or fair market value) for the foreseeable future (10 years). These groups have also had long histories with their hospital partners and employment is the logical next step as reimbursement and incomes have declined (e.g., Prairie Cardiovascular, Springfield, Ill.—approximately 45 physicians). Other employment stems from competitive bidding and rapid acquisitions of practices to maintain patient volumes (e.g., Kansas City, Mo., with HCA Midwest and Carondelet St. Mary’s each hiring practices within days of each other).14

While employment is a seductive solution to income difficulties and is often seen as a panacea for cardiologists, the model is not risk free. Hospitals and cardiologists need to continue to work together to build effective relationships that find avenues for growth, improvements to procedures and better cost management (for supplies and devices).

Other avenues do exist for better physician-hospital alignment. Clinical comanagement arrangements, where physicians are paid to improve the quality and operational performance of the service line, can facilitate increased coordination and interaction between hospital administration and physicians. These arrangements also provide economic benefits for physicians based on performance and achievement of goals.

We expect that most hospitals will have solidified their predominant form of alignment with their cardiology partners within the next 12 months. The question moving forward is how the collective organization decides to effectively work together to increase the mission and margin of the overall service line.

Impact of Health Care Reform

The health care legislation, “Patient Protection and Affordable Care Act (PPACA),”15 affects cardiology practices (similar to all physician practices) and hospitals in a number of ways: payment reform, focused efforts on care coordination throughout the episode or continuum and more transparent quality monitoring. Key aspects specific to cardiology include:

  • Payments now focused on episodes of care. Section 2704 ties reimbursement to episodes of care and resource consumption of patients with chronic disease. Cardiology-specific populations will probably include heart disease, heart failure and even atrial fibrillation.
  • The days of physician-owned specialty hospitals may be over. Section 6001 of the PPACA prohibits the expansion of physician-owned Medicare hospitals as of March 2011. Additionally, it bans any new hospital development as of December 31, 2010. This section of the bill has been challenged as unconstitutional by the Physician Hospitals of America (PHA). Of the 265 physician-owned hospitals in the United States, approximately 10% are cardiac hospitals.16
  • Medical imaging continues to be highly regulated. Section 1107 increases the utilization rate assumption in 2011 for medical imaging services on “high cost” equipment (defined as equipment that costs more than $1 million). This results in lower payments for cardiac CT and MRI services.
  • Section 6003 mandates disclosure of ownership interest for physicians making self-referrals for diagnostic testing services (CT, MRI, PET).
  • Quality reporting for physicians will become more structured, regulated and linked more directly to compensation (or penalties). Section 3002 states the Department of Health and Human Services will provide reports to physicians comparing their resource use with that of other physicians or groups of physicians caring for patients with similar conditions, starting in 2010. Section 10331 establishes “Physician Compare,” a website for all physicians enrolled in Medicare, which provides comparative information on quality and patient satisfaction. This website goes live in 2011. Section 3021 extends the Physician Quality Reporting Initiative (PQRI) with increased incentive payments from Medicare.

While individual sections of the bill may change, hospitals need to work more closely with cardiologists to optimize the changes in lower medicine payments, greater information transparency and the recognition that providers need to work more closely to effectively optimize care delivery for patients. Hospitals will need loyal partners, as will cardiologists, and given the turmoil in the cardiology private practice marketplace, hospitals need to drive this partnership.

Payor Reactions and Implications for Hospitals

During the last two decades, payors have paid close attention to single-patient episodes of care and formulary generation in determination of their adjusted payments and coverage. Subsequently, their strategies have paid less attention to disease management, health economic outcomes and population-based medicine.

However, given the recent dramatic shifts occurring from reform, economic fallout, cost containment, outcomes improvement and new opportunities for competitiveness, payors are exerting their influence on the patient care management model. They are putting greater incentive on physician-hospital alignment with regards to care management, technology and device usage, evidence-based medicine and resource consumption.

Hospitals need to understand this new focus and position themselves to take advantage of the new payor paradigm.

The New Care Management Incentive

The cardiovascular services line is changing dramatically, with new (or renewed) emphasis on acuity levels as a driver of reimbursement. This shifting emphasis has resulted in greater specificity and sensitivity to the intensity of care provided at the time of service. However, this shift can also devastate a hospital’s revenue stream and make once-profitable service lines become unprofitable if they are not managed properly.

Hospitals can proactively work with payors to manage this new shift. The new shift is dramatically different from the past, where cardiology patients heavily consumed inpatient resources. Furthermore, this shift is possible given the increased usage of less-invasive medical devices and familiarity of device therapy for treatment, coupled with continued advances in medical technologies. When collectively applied, these factors are driving the opportunity for a new focus onpatient care management models as payors provide incentives to hospitals to drive greater volumes in less costly areas (i.e., outpatient services), and it frees up highly valued inpatient beds in capital-constrained markets. The hospital can then use these beds to accommodate elective patients who truly need inpatient care. Because of this, cardiology services will be the “flashpoint” for the emergence of these strategies.

In a capital-constrained market where the higher severity of illness generates greater economic windfalls for hospitals, organizations may benefit from foregoing inpatient reimbursement in favor of pushing low-acuity procedures to the outpatient setting, freeing beds for higher-acuity patients.

An Illustration

By using the above framework, hospitals should work with payors directly to better define patient care management and clinical protocols for improved compliance and reimbursement for specific inpatient and outpatient services, promoting movement to greater cost containment and value-based payment.

For example, when a hospital can provide early ambulation for an interventional catheterization patient and avoid inpatient admission, it will be rewarded with the incentive of a carve-out payment of higher reimbursement than the original outpatient payment rate. Although this rate is much lower than what the original inpatient reimbursement rate would have been, the hospital has avoided inpatient admission, reduced the patient’s chances of a hospital-acquired infection or injury, reduced costs of care and significantly reduced the capital resource needs around capacity constraints.

In an environment where cardiology practices are employed by hospitals, payor alignment becomes increasingly important.

This is counterintuitive to past profitability models. However, in a capital-constrained market where the higher severity of illness generates greater economic windfalls for hospitals, organizations that focus on placing higher-acuity and more complex patients in beds provide a significant financial opportunity (as more complex patients typically have higher reimbursement). Furthermore, the hospital is well positioned economically in a sensitive Medicare severity DRG (MS-DRG) and adjusted-payment MS-DRG reimbursement model.

Payor Perspective

Why does this strategy make sense for the payor?

  • It allows payors to move their beneficiaries through the patient care management model, spending less than what they would have otherwise spent. This will assist in reducing the overall costs to the system on less-intensive patient care episodes and increasing competition among payors.
  • It increases the emphasis and puts ownership on the hospital to manage the economic convergence of the patient care management model and subsequent revenue stream.
  • It encourages increased hospital involvement and oversight of chronic disease management and patient acuity level management.

Hospital Directive

Hospitals should work directly with payors to create effective patient care management models. This will yield greater ability to drive quality outcomes, while enhancing profitability in a capital-constrained market. Specifically, hospitals should:

  • Strengthen patient care management models, case management, hospitalist, organizational acuity level and revenue cycle interface enhancement.
  • Align and develop multispecialty physician supply for greater flexibility of inpatient volumes and placement needs.
  • Place greater emphasis on adopting inpatient areas that can adapt more readily to alternative patients while optimizing care.
  • Enhance supportive IT solutions that provide patient bed management and acuity tracking at unit, service, department and house-wide levels.


The pace of change in cardiovascular services is unlikely to decrease in the near future. Hospitals need to focus their efforts on creating effective relationships with physicians and payors to successfully anticipate and react to these changes. Additionally, renewed focus on effective procedures and quality will help differentiate organizations in the near term to all constituents.


1 Lloyd-Jones D, Adams RJ, Brown TM, Carnethon M, Dai S, DeSimone G, et al., on behalf of the American Heart Association Statistics Committee and Stroke Statistics Subcommittee. Heart disease and stroke statistics—2010 update: a report from the American Heart Association. Circulation. 2010; 121:e46–e215.

2 Ibid., p. e90 and e131.

3 Ibid., p. e62.

4 2009 Annual Survey Trends. MedAxiom. April 17, 2010.

5 Ibid., p. 25.

6 “Independent Medical Practice: Does Healthcare Reform Mark the Beginning of the End?” Becker’s Orthopedic & Spine Review. April 22, 2010.

7 “Practice Opportunities: Practice Integration, Management Contracts, Hospital Integration.” Report of the Ad Hoc Task Force on Practice Management Strategies. American College of Cardiology Foundation, 2009.

8 2009 Annual Survey Trends. MedAxiom. April 17, 2010.

9 “The Back Page: Despite Dwindling Numbers, Outpatient Cath Labs Fight On.” Cardiovascular Business. March 29, 2010.

10 “Physician Practice and Hospital Integrations: Cardiology’s Inescapable Future.” Cardiovascular Business. May 28, 2010.

11 2009 Annual Survey Trends. MedAxiom. April 17, 2010.

12 Ibid., p. 8.

13 “Cardiologists and Hospitals? A New Marriage.” Cath Lab Digest, Volume 17, December 1, 2009.

14 “Healthcare Transactions 2009: A Year in Review.”

15 For full text, please see

16 “The Case for Doc-Owned Hospitals.” Modern Physician. December 28, 2009.


3 September 2010