The inpatient to outpatient volume shift is poised to accelerate, leaving institutions that can’t adapt in the dust. Spurred by changes in reimbursement and healthcare reform, more procedures than ever are performed on an outpatient basis, and inpatient visits are on the chopping block. Changes in patient flow affect every area of the hospital, from facilities management and location to staffing, equipment, supplies, and relationships with physicians. And although you can’t ignore the issue, it doesn’t pay to blindly react, either.

Instead, it makes sense to craft a sensible long-term strategy that works in your community that you can tweak as necessary.

According to a survey conducted by the Healthcare Financial Management Association in April, 16% of hospital executives surveyed expect outpatient volumes to increase significantly, and 9% expect inpatient volumes to decrease significantly. Executives at larger institutions are more optimistic about potential increases inpatient volume than those at smaller institutions, the survey reported.

As with so many issues related to healthcare, the chief driver of the volume shift is cost cutting, said Ron Wince, CEO and president of Guidon Performance Solutions, a consulting company in Phoenix, Ariz. “The payor side, including the government in the form of Medicare and Medicaid, is trying to push more people to the outpatient side because it’s a cheaper way to provide services,” he continued. “They want to drive organizations to devise cheaper ways of taking care of people.”

Many hospital executives are noticing specific areas where volume is shifting and are profiting from them; in other cases, the change is driven by local needs and demands. 

Jeff Wajda, vice president of clinical services at Lynx Medical Systems and former ED physician, cited infusion services for delivering chemotherapy, rheumatology drugs, and others, as well as surgeries such as cardiac procedures, as growing areas in outpatient services. 

“This is a continuation of a trend that’s been in place for a while for procedures such as invasive cardiac procedures that were always classified by Medicare as inpatient services,” he said. “They can now be performed at a site of service other than inpatient, so hospitals are having to adjust and create a new type of alignment with their physicians.”

Good fit?

When the physicians who performed most of their procedures and surgeries on an inpatient basis at an affiliated hospital are freed to go outside that hospital, they are more likely to form their own companies or affiliate with an outpatient surgery center than stay in the hospital. So hospitals that don’t create new relationships with their physicians may lose major sources of revenue, said Wince. 

However, executives should try to strategically decide what the best way to affiliate with their surgeons is rather than react by buying a practice or practices. “Like any other acquisition, you have to make a sound business decision about whether it’s a good fit and will be profitable, rather than making a defensive acquisition,” he said. “There’s an assumption that if you can capture more physicians and their practices, you’ll be successful, but that’s not always the case. Many physician practices are entrepreneurial, so if the hospital wants to standardize, it doesn’t always work out.”

Wince has also seen many defensive acquisitions where hospital executives are afraid that a competitor will acquire a particular practice, so they acquire it before figuring out whether it’s a good strategic fit. “The challenge over the next decade or so is what does the outpatient business model look like?” he said. “Do we buy or build? How do we deal with the fact that we’re entering a pretty complicated regulatory environment? How do you integrate the pieces to make them work efficiently and capture best practices so you don’t lose money?” 

One area experiencing strong pressures as a result of volume shifts is the ED, where Medicare’s Recovery Audit Program is paying closer attention to which patients are admitted to the hospital, which are sent home, and which are put under observation, said Wajda. 

Hospital executives who don’t institute a consistent model for various conditions and when admission is indicated versus the other statuses are likely to face audits and may have to give back insurance money, he said. “Appropriate documentation on the part of doctors and nurses is key,” he noted.

Wince encourages hospital executives to be as patient-centric as possible in devising inpatient and outpatient models. What’s acceptable in one community may not be acceptable in another. “You need to understand what a particular population of patients is comfortable with in terms of inpatient versus outpatient,” he said. “Understanding the market is critical.”

For example, a market with older, more conservative patients may not be comfortable with as many outpatient services as a community with younger patients. You must also figure out the best location to deliver outpatient services and what services to deliver. Most hospitals can’t compete with clinics in stores like Walgreens or Walmart, so they shouldn’t try, Wince said. Instead, they should figure out what their strengths are and work out an outpatient model from there.

Facility management is an important piece of the puzzle. This includes not only where facilities are located (suburbs vs. city, for example), but how they’re designed. “In the past, we designed facilities for the convenience of the provider rather than the patient,” he said. “There are lots of things hospitals can do to make finding things easier and make it more convenient for patients to get services.”

There’s no doubt that patient volume continues to shift from inpatient to outpatient. To capitalize on this trend, you should consider the needs of your patient base, your strategy, and the best opportunities for profit. Guard against a defensive reaction because “that’s the worst business model you can get into,” concluded Wince. “It’s very costly and leads to a lot of problems and complexity that are hard to manage. Instead, take a step back, and look at your mission, the purpose of your organization, and develop a strategy around that.”

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