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October 4, 2017

As admissions decline, many hospitals are 'following the patient' by investing in outpatient clinics

Daily Briefing

    As patients seek more convenient, affordable care, hospital systems are increasingly investing in ambulatory surgery centers (ASCs) and urgent care clinics, Melanie Evans writes for the Wall Street Journal.

    Learn 8 steps for how to deploy clinical pharmacists in outpatient clinics

    The shift towards outpatient clinics

    Data from the American Hospital Association show hospital demand has been declining since the beginning of the last recession. According to Frank Morgan, managing director at RBC Capital Markets, the market shift toward high-deductible health plans is driving people to seek more affordable health care options to minimize their out-of-pocket costs.  

    As a result, the Journal reports patients increasingly are seeking care at outpatient facilities. Such facilities typically charge less for common surgical procedures than hospitals, which have higher overhead costs associated with providing more complex, round-the-clock care. For example, research from the University of California-Berkeley found that for individuals insured via the California Public Employees' Retirement System, outpatient clinics charge between $2,500 to $5,000 less than hospitals do for cataract surgery and knee arthroscopy. 

    'Following the patient'

    In response, these health systems are "following the patient," Morgan said, and investing in outpatient facilities. Health systems hope the investments will both win new patients by providing them new health care options close to work and home, as well as protect current patients from being poached by competitors. As Trevor Fetter, the outgoing CEO of Tenet Healthcare put it, "It's happening anyway. ... Somebody else is going to do it to us if we don't do it ourselves."

    That said, it's not clear how this shift toward outpatient care will affect health system's long-term earnings, the Journal reports. While outpatient facilities usually have lower revenue than hospitals, they do tend to report higher profits and generally require less capital to establish.

    Hospitals invest in outpatient clinics

    Tenet, a 77-hospital system, is expected to spend up to $1.9 billion through 2020 buying out ASC-operator United Surgical Partners International. In addition, Tenet said it plans to invest between $100 million and $150 million each year on other free-standing surgery centers, free-standing EDs, and satellite facilities.

    The health system is also assessing which technologies "over the next 10 to 20 years will stay in the hospital," Eric Evans, president of hospital operations for Tenet, said. "Technology continues to open the door for more things to be done on an outpatient basis. ... Our goal is, as technology moves, is to be location-agnostic."

    According to the Journal, the investments reflect Tenet's recent earnings. As of August, non-hospital business accounted for 28 percent of the health system's earnings prior to interest, depreciation, taxes, and amortization—an increase of 5 percent since 2015.

    Meanwhile, HCA Healthcare, which owns 172 hospitals, plans to operate 120 free-standing urgent care clinics by the end of 2017, which marks a 40 percent increase from 2015. And the health system since 2015 has doubled the number of free-standing EDs it operates to 64, with plans to operate at least 80 by early 2018. According to HCA Chair and CEO Milton Johnson, the health system also intends to spend $3 billion on new outpatient clinics.

    HCA's investment has paid off in market share, the Journal reports. Over the past five years, as the company has begun investing in outpatient clinics, HCA's market share in Nashville has increased from about 32 percent to 35 percent.

    Dignity Health, which has hospitals in three states, also has invested in outpatient care in recent years, currently operating more than 280 free-standing EDs, urgent care and workplace clinics, and so-called microhospitals. Peggy Sanborn, VP of strategic growth, mergers, and acquisitions at Dignity, credits some of that growth in outpatient investments to improved technology for procedures like joint-replacement surgery (Evans, Wall Street Journal, 9/25).

    Learn 8 steps for how to deploy clinical pharmacists in outpatient clinics

    As the number of medications rises, so does the opportunity for medication errors, such as incorrect dosages, drug interactions, and serious side effects. By some estimates, the U.S. spends as much money correcting these medications problems as we do on the drugs themselves.

    Check out our infographic to learn eight steps for how to deploy clinical pharmacists in outpatient clinics.

    Download the Infographic

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