“Hospitals and health systems that proactively prepare for shifting sites of care by assessing their vulnerabilities and capabilities and then developing strategic priorities will benefit from it.” — Ryota Terada, consulting director, intelligence, Sg2 Intelligence.
For years, procedure volumes have been shifting from inpatient to outpatient status. In fact, nearly 85 percent of procedures are now performed on an outpatient basis, according to a report by Sg2, a Vizient subsidiary, but they have largely remained inside the four walls of the hospital. During the next decade, Sg2 expects outpatient procedures to not just grow by 19%, with some experiencing triple-digit growth, but more importantly, transition to lower-cost, lower-acuity ambulatory sites. These changes have the potential to upend traditional health system finances, but there are steps that you can take now to prepare and even benefit from these changes.
“Hospitals and health systems that proactively prepare for shifting sites of care by assessing their vulnerabilities and capabilities and then developing strategic priorities will benefit from it. It’s not necessary to be a first-mover, but organizations that react to the changes without an intentional strategy are at greater risk of ceding market share, higher acuity mix of patients and deteriorating payer mix,” says Ryota Terada, consulting director, intelligence, Sg2 Intelligence.
Procedures on the move
Sg2 report, Procedure Sites of the Future, examines those procedures with the highest likelihood to shift to outpatient settings during the next 10 years, by service line. “The next phase of the outpatient shift is to settings that are truly outside the four walls of the hospital, including ambulatory surgery centers and office-based labs,” says Chad Giese, associate principal, intelligence, Sg2 Intelligence.
According to the report, while many service lines have already moved to ambulatory settings, future shift will vary by service line and procedure. The report identifies the following service lines and procedures, which are key to hospital margins, that may experience notable shifts to outpatient and/or ambulatory settings during the next 10 years:
- Orthopedics and Spine—Elective knee replacement, elective hip replacement, cervical fusions, lumbar/thoracic fusions and spinal decompression/laminectomy
- Cardiovascular—Elective diagnostic catheterization, percutaneous coronary intervention, pacemakers and implantable cardioverter-defibrillators
- Gynecology: Benign hysterectomy and pelvic floor repair
- Medicine and Surgery: Appendectomy, abdominal wall hernia repair, cholecystectomy, thyroidectomy, open and transrectal procedures of rectum and benign prostatectomy
The timing, extent and destination of procedural site shifts are driven by a unique blend of national, regional, state and local factors that may speed up or slow down the transition, including payer actions such as Centers for Medicare & Medicaid Services final rule that eliminates the inpatient-only procedure list and commercial payors’ site-of-care restriction policies; clinical advancements; consumer demand; physician alignment; technology and facility/location/infrastructure realities. As COVID-19 continues to stress hospital capacity, the pandemic is accelerating many of these trends.
“We’ve heard from members who were already working on outpatient total joint replacement programs, but COVID-19 prompted them to mature those programs,” says Terada. “Some hospitals that discharged 10–15% of their elective joint replacements on an outpatient basis in 2019 are now discharging the majority of those cases the same-day or from ambulatory sites of care.”
How to prepare now
In addition to wide variation across service lines, procedures and markets, the timing and magnitude of outpatient shifts differ even between hospitals within a system and, ultimately, among individual physicians. Understanding the potential impact requires a thorough evaluation of organizational vulnerabilities and capabilities with an understanding of regulatory, strategic, financial, clinical factors as well as the needs of your patients.
When evaluating vulnerable service lines and procedures, go beyond traditional backward-looking metrics such as volumes, payer mix, revenue, cost and contribution margin over the past few years. Explore deeper, more granular details, such as what portion of the business is ready to shift (for example the percentage of joint replacement surgeries with a one-day length of stay or fitting the patient selection criteria developed by your clinicians), which physicians are doing the most cases with a one-day length of stay, and types of patients (for example does the payer mix differ between one-day and longer cases).
Required organizational capabilities may include a well-developed system of care with ample outpatient procedure sites connected by a robust, efficient patient triage and navigation system; strong physician alignment; strong cost, quality and market performance; and high patient and physician satisfaction.
“Making site of care shifts is a hyper-localized decision,” says Giese. “Four organizations in the same market can have varying success with an ambulatory shift strategy based on physician alignment and a host of other brakes and accelerators.”
While the priorities for each organization will vary depending on its vulnerabilities and capabilities, there are four ways that hospitals and health systems should strengthen to capture procedure growth.
Boost efficiency and value—Specialize in a limited number of procedures in order to develop efficiency and effectiveness. Strategies include not mixing inpatient and outpatient cases in the same operating room, clustering like procedures on the same day, crafting a predictable operating room experience with intelligent block times/on-time starts/short room turnover and creating dedicated postsurgical staff/protocols/discharge criteria.
Being a high-quality, low-cost provider attracts patients, employers and payers to the health system. Be prepared to demonstrate high quality across all sites of care. Understand the costs across care sites compared to those of other provider systems. “In orthopedics and spine, implant and disposable costs can add up quickly. Meanwhile, for higher acuity cases, such as hip fracture patients, the opportunity may be avoiding complications to improve margins and patient outcomes,” notes Terada.
Maintain a consumer focus to enhance the patient experience (for example, special parking and dedicated check-in for a hospital-based outpatient department helps replicate the convenience of ambulatory surgery centers) and attention to pre- and postoperative care promotes patient satisfaction. Ensure the cost structure of the hospital-based outpatient department and any ambulatory surgery centers is in line with reimbursement, including capital and equipment costs and physician preference items.
Expand and optimize capacity—Ensure your organization has enough capacity at appropriate sites for the future. Capacity calculations must account for not only organic procedure growth but also increases in market share and procedural downshift.
To optimize the capacity of the procedural footprint, understand the key considerations for each site, such as shifting lower-acuity, shorter-stay procedures out of the operating room to outpatient; the current and potential regulations and payment differences affecting off-campus hospital outpatient departments and ambulatory surgery centers; and explore equity interest in ambulatory surgery centers to create an extension of your health system.
Strengthen physician relationships—Any ambulatory procedure strategy depends on positive relationships with physicians. Procedure volumes across the health system are in large part the sum of physician choices to use the system’s facilities.
Explore the full range of physician alignment models to determine which structures best reinforce the organization’s ties with the physicians who perform procedures and with referring physicians. Watch for and respond to competitor actions or new market entrants that could jeopardize existing relationships. At the service line level, understand individual physicians’ volumes, practice patterns, and motivators. As mentioned above, maximize organization efficiency to support physicians. Ensure referring physicians are keeping patients within the system.
Leverage partnerships—For organizations that have determined that one or more ambulatory surgery centers should be part of their procedure site footprint, partnerships will be essential. This commonly means entering into a three-member joint venture involving a medical group, an ambulatory surgery center management company and the health system. When doing so, consider adding terms to the agreement that include incentives for physician partners to keep ambulatory surgery centers busy and protect from physician partners with their own ambulatory surgery centers selecting financially favorable cases for their independent ventures. Ensure that partnership goals are firmly grounded in strategy; based on a gap analysis of the current system of care and an evaluation of the market; and are planned, negotiated, executed and managed systematically.
As procedure volumes continue to shift out of the hospital, organizations that start now to strengthen their capabilities by creating an appropriate procedure site footprint and ensuring all sites—hospital-based and ambulatory—work together to optimize capacity, maintain margins and enhance growth, will be best positioned to capture procedure growth.