This post is the first of a two-part series that examines payment models in Hospital Medicine. Part one focuses on the first model: hospital subsidies. It reviews two payment methods used for reimbursement, details SCP Health's viewpoint regarding which method is best, and describes what COVID-19 has taught us about each payment option. Part two  addresses the second model: private and government payors.  

Since its introduction over 20 years ago, many hospitals have established Hospital Medicine (HM) programs to provide more focused care to hospitalized patients and help reduce length of stay (LOS) and readmissions.

Hospital medicine programs (and the hospitalists that staff them) can put a strain on the hospital's bottom line, however. That’s because the inpatient population consists primarily of Medicare and Medicaid patients. Due to the way CMS reimburses, hospitals typically find that per-patient collections are often less than the cost of a dedicated HM program, meaning that subsidization of the program is necessary.  

2 Ways Hospitals Subsidize Hospital Medicine

Hospitals use two subsidy methods to fund HM programs: fixed and variable. 

  • Fixed subsidy - Hospitals pay a lump sum monthly based solely on staffing. 
  • Variable subsidy - This revenue method is tied to different measures, such as patient volume and acuity, provider metrics like productivity and quality, and other performance-based incentives.

Key Benefits to the Variable Subsidy Option

SCP Health supports the variable subsidy method based on volume—the case rate model specifically. We’ll start with a brief summary of the two key reasons this model works. 

1. Aligns hospitalists with hospital by incentivizing decreased LOS.

In order to function cohesively, hospitals and hospitalists must be well-aligned with their interests and mutually care about such things as quality improvement, effective resource management, cost per case, or building market share to grow the program.

The variable subsidy case rate model incentivizes hospitalists to do just that: align with hospital goals by decreasing LOS and attracting more volume. It’s a virtuous cycle: financially incentivizing hospitalists to achieve excellent metrics and outcomes rewards the hospital with increased ROI and higher patient satisfaction scores.

2. Increases agility in the face of fluctuating volume and demand.

In a fixed subsidy situation, hospitals pay the same amount for its HM clinicians no matter what is happening with volume. Conversely, variable subsidies account for such fluctuations in volume so that hospitals aren’t paying for coverage they don’t need—and are able to scale up for volume increases. This creates a more stable foundation for a hospital to endure the everchanging healthcare environment.   

Digging Deeper: Why These Benefits Matter

How Aligned Hospitalists Provide Value to Hospitals

As mentioned, aligning hospitalists to hospital goals via variable subsidization is incredibly important for both provider and facility performance. When the HM team is focused on safely reducing LOS, there are many positive side effects, including:

  • fewer unnecessary costs
  • excellent patient-provider relationship and patient experience ratings
  • better outcomes and lower readmission rates
  • higher hospital ratings
  • enhanced focus on documentation

Related resource: Maximizing Hospital Medicine ROI (PDF)

How Agile Programs Improve Crisis Response

The issue of inflexibility with fixed subsidization has never been clearer than during the current COVID-19 pandemic. As volumes fluctuated significantly across the country—sometimes sluggish and sometimes surging—hospitals with a fixed subsidy model have been significantly less capable of adjusting financially and operationally.

COVID-19 has shown us that the variable subsidy option makes the most sense, as it has been allowing hospital leaders to remain agile and flexible as they determine necessary changes in operations and staffing within their HM programs.


Hospitals expect a lot from Hospital Medicine programs, which means there is an increasing need for HM programs and hospitalists to demonstrate value

A well-managed HM program can deliver improved patient outcomes and a significant return on investment. It influences many economic value drivers, including the length of stay, readmission rates, documentation, and case mix index—factors which the variable payment method takes in account. 

That's where SCP Health's custom HM program solutions can help. Our hospitalists and Medical Directors expertly manage care for thousands of patients in over 400 hospitals across the country.

If you would like to learn more about the advantages our Hospital Medicine Solutions (or any of our service lines), contact us at