Care is rapidly transitioning to outpatient settings of care. As a hospital or health system, what do you need to know?

The first ambulatory surgery centers were opened in 1966 (Source: Ambulatory Surgery Center Association). At the outset, the idea of receiving surgical care in an outpatient facility was relatively taboo and looked down upon by doctors and consumers alike.

Now, in 2019, outpatient surgical procedures are nothing out of the norm. In fact, there is little to no doubt that care will continue to shift to outpatient sites of service: from May 2016 to May 2018, there was a 2.06% overall shift in total surgical episodes to outpatient settings of care (Source: Trilliant Health proprietary analytics, national report of Third Party insurance). 

Although this evolving health care landscape has been hailed by many actors as a positive development (especially as it relates to reducing healthcare costs), hospitals and health systems have largely shouldered the strains of this transition. In fact, hospital systems have struggled to adjust to the changing times so much so the American Hospital Association has reported that hospitals have been closing at a rate of about 30 a year.

With outpatient care continuing to snowball, what do healthcare administrators need to know about the rapidly changing landscape?


Pt. 1: Foundations

A Negative Sum Game

While the strain of the competition with outpatient has been substantial, another factor with the potential to be just as devastating for hospitals and health systems is the decline of the commercially insured patient. 

Hospitals are now competing in a negative sum game: each day, 10,000 people age into Medicare, and of the 10,900 babies born each day, 57% are born into Medicaid.


Additionally, there is a decline year over year in total surgical procedures (Source: Trilliant Health proprietary analytics), so, even if your piece of the pie is growing, the entire pie is shrinking. Health systems can’t afford to let this declining number of commercially insured patients and surgical procedures leak from their network.

This negative sum game requires not just innovative but disruptive thinking from hospital executives to maximize growth and revenue potentials. In order for hospitals to succeed (or even stay afloat), every hospital executive needs to be cognizant of shifting consumer preferences and payer pressures and how those will impact demand for and consumption of their services.

Factors aligning against inpatient care

With healthcare costs ballooning at the national level, providers, policy-makers, and consumers are all looking for ways to reduce healthcare costs. One of the first places feeling the strain are inpatient facilities.

Slowly but surely, every major player in the space is putting pressure to move away from costly inpatient care to more affordable outpatient: payers are steering volumes; consumers are choosing lower-cost outpatient settings; physicians are increasingly owners of surgical centers and, therefore, have financial interests tied to performing surgeries at those sites; and CMS is approving more and more surgical procedures for outpatient and eliminating higher reimbursements for inpatient facilities and HOPDs.


Understanding how volumes are trending in outpatient settings and how physician and payer influence driving these shifts is mission critical to hospitals working to mitigate these debilitating trends and to drive profitable revenue.

 CMS and Site Neutral Payment

In July of 2018, the cards started stacking up even faster against inpatient care: CMS announced their intentions to pass site-neutral payment policy. As of early November 2018, CMS has approved the implementation of site-neutral payments by applying a Physician Fee Schedule (PFS) payment rates to clinic visits paid under the Outpatient Prospective Payment System (OPPS). This pivotal first shift is estimated to cost hospitals nearly $400M a year, and is only the beginning. Commercial payers are sure to follow suit. 

When, not if, site-neutral payments are fully implemented, hospitals that have not built out extensive outpatient networks will be seriously crippled. While some systems have prepared, many are still struggling to catch up to existing pressures on the costly inpatient services that have been the lifeblood of their revenues for so long.


Pt. 2: Every market is different

Understanding how the transition looks in each market

With volumes moving faster than ever from inpatient to outpatient settings of care, providers need accurate insights into how the transition is manifesting in individual markets. Hospitals can’t rely on the status quo of inpatient data or state data: without data that can show outpatient episodes of care, down to the to the site of service, hospitals cannot accurately address the shift in their market.

The first step in understanding the transition in your market is to ensure you have the analytics in place to see which factors are driving the shift. In particular, the need to understand the factors at play are critical in evaluating a strategy at the service line, payer relations, or physician level.

Pay attention to the transition as it pertains to payers

While factors are stacking up across the board and across every market, systems should pay special attention to how the outpatient shift looks different across payers: begin by evaluating third party vs. Medicare/Medicaid, but drill down to the plan level, as well.

ASCs have much lower procedures costs than HOPD and, therefore, save both consumer and payers money, Commercial payers as well as Medicare and Medicare Advantage.  As many payers are moving to value-based care driving their revenue (for example, UnitedHealth is on track to surpass its goal of $75M in reimbursements going to value-based care models by 2020), lower procedure costs will be a significant driver in accelerating the shift from inpatient to outpatient.

Additionally, depending on a hospital’s reimbursement, payers are often incentivized to steer patients towards lower-cost settings of care. There are two types of payer steerage: Active steerage is when a patient or provider is contacted to direct services to a payer preferred provider; passive steerage is when payers provide information on costs or a list of covered providers for patients to use at their discretion. Both are prevalent in all CBSAs, and hospitals need insight into how steerage trends manifest in their markets.


Pt. 3: The right tools and next steps

Don't just rely on EMR data

Administrative departments often make a critical mistake when relying on internal data, inpatient data, and/or state data to make growth decisions. Without reliable, near real-time insight into outpatient surgical episodes and referrals, leaders are handicapped and unable to fully understand what is happening in their markets. 

Even hospitals that have existing partnerships with outside analytics vendors should ask questions about the aspects of the market they’re able to see, and those they can’t. No vendor will ever have 100% of claims in a market, but it’s crucial that strategy, marketing, and business development teams know how much coverage they have in their respective markets, the lag on the data, and, last but not least, the accuracy and coverage of outpatient episodes.


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