Hospitals bank on neurosurgery procedures to boost bottom line
Cash-hungry hospitals are banking that more brain operations, spinal procedures and other neurosurgery will shore up revenues and profits, diversifying their finances from cancer and heart programs that were once untouchable cash cows, health economists say.
Toughening competition to woo the brightest brain surgeons has found a nexus in Western Pennsylvania, where rival hospital networks are trying to lure the best doctors and keep their neurosurgery departments hopping.
“Hospitals are struggling, too, and they're looking for ways to keep their doors open. I think they're realizing neurosurgery is a profitable line,” said Dan Bragg, president of the Charlotte-based Neurosurgery Executives' Resource Value and Education Society.
North Side-based Allegheny Health Network has hired four former UPMC neurosurgeons since January 2013 and wants to keep recruiting, with plans to increase its 7,600 annual neurosurgical procedures by 20 percent by summer 2016.
At the same time, Downtown-based UPMC just won approval to expand its neurosurgery academic program to 28 residents, the largest group in the United States, said Dr. Robert Friedlander, chairman of the department. He said 10,500 operations a year and thousands more consultations make his department one of the busiest of its kind in the country.
“It gives you opportunities to have resources and to make a difference in neurosurgery,” said Friedlander, who noted that he has no plans to boost total patient volume and does not regard AHN as competition.
“We're already the biggest in the country, by far,” he said.
Still, industry groups expect the roughly 906,500 operations performed last year in the United States to proliferate as graying baby boomers need more attention for degenerative spinal diseases, cerebral aneurysms and other ailments that well-paid neurosurgeons can treat.
Combine the aging demographics with fast-evolving technology that allows neurosurgeons to tame Parkinson's disease, seizures and compressed nerves, and health care experts say hospitals have powerful incentives to bring in as many neurosurgery patients as they can. A single procedure can cost more than $40,000, and neurosurgeons deliver more than $1.6 million each in business each year, according to Irving, Texas-based Merritt Hawkins.
Their salaries typically hover around $670,000, positioning them as the best-paid medical specialists in a 2012 survey by the health care consultant. At UPMC, tax records show Friedlander earned $1.46 million in compensation and benefits for the 2013 fiscal year. Dr. Ghassan Bejjani, another neurosurgeon, took home more than $2.5 million.
Few specialties generate more revenue per physician, the Merritt Hawkins survey shows. Some cardiology, family practice and orthopedic surgery specialists average more than $2 million a year in business.
Though individual hospitals do not discuss their margins for individual services, studies have shown that neurosurgery is among the most lucrative, offering profits of about $10,000 or more per procedure.
That helps fill revenue gaps as insurer reimbursements slip for other complex services, such as heart care. Median operating margins at nonprofit hospitals fell to 2.2 percent in 2013, pinched by expenses that climbed faster than revenue, according to Moody's Investors Service. The norm is closer to 5 percent for all hospitals, which pour the money into new equipment and compliance with government regulations amid other demands, according to trade associations.
“Even nonprofit hospitals need to make profit on some services because they lose money on others. They need to generate a positive bottom line to reinvest,” said Bragg, whose group represents 300 neurosurgery practice managers.
The field outpaces other profitable specialties by sheer volume, said Dr. Robert E. Harbaugh, president of the American Association of Neurological Surgeons.
“There are few things that reliably produce good profit margins for a hospital. People will try to compete to have good services,” said Harbaugh, neurosurgery chairman at Penn State Hershey Medical Center near Harrisburg.
Others downplay the profitability factor, noting that a wave of retirements should squeeze the medical labor force that counts about 3,500 board-certified neurosurgeons in practice nationwide.
Several analysts said hospitals are smart to recruit now, before the demand for neurosurgery increases.
“Certainly from a revenue standpoint, it does help. But you want to bring in your brightest and best neurosurgeons for the community. You want to provide those communities with top health care,” said Mike Jowdry, vice president of recruitment at Merritt Hawkins.
AHN plans to add two neurosurgeons each year for the next several years to reinforce its complement of 20, said Dr. Donald Whiting, neurosurgery chairman for the seven-hospital network.
UPMC counts nearly 40 neurosurgeons.
Whiting presented the focus not as a moneymaker, but as a chance to refine care, streamline treatments and push comprehensive medical programs into community hospitals outside conventional urban hubs. Neurosurgery joins orthopedics, oncology, women's health and cardiovascular care among AHN's clinical priorities under corporate parent Highmark Health.
Highmark formed the network in 2013 when it purchased the financially distressed West Penn Allegheny Health System, the parent of flagship Allegheny General Hospital in the North Side.
“Personally, I don't want my department to say we're better than UPMC. I want my department to say we're best in the country, that we're best in the country in everything we can be best in,” Whiting said.
Across town, UPMC's Friedlander said the best care can mean avoiding surgery for some patients. He said his surgeons have begun performing fewer spinal procedures.
“Just because you have a brain tumor doesn't mean it needs to be operated. Some of them are benign and will never cause you a problem,” said Friedlander, who urged a disciplined approach. “We're understanding better what their natural history is.”
Allegheny General patient Barb Hadbavny, 55, of West Newton, who has suffered through five years of piercing back pain, hopes neurosurgeons can find a solution that spares her the trauma of surgery. The pain has kept her from fishing and even walking her dogs. Several other physicians failed to mend her with excessive prescriptions, she said.
She called Allegheny General her new hope.
“I'm not going to lie to you. There are times I sit in bed and think, ‘If I wasn't here, I wouldn't have to deal with this anymore,' ” said Hadbavny, a baker. “It's hard to get up and have any kind of hope when you see a doctor because you've been let down so many times before.”
Adam Smeltz is a staff writer for Trib Total Media. He can be reached at 412-380-5676 or email@example.com.